May 11, 2016

Martin Wolf and I have three fundamental differences in opinions. Sir, dare decide, without favour, should I shut up?

Week after week I read Martin Wolf articles, and week after week, though I have clearly been blacklisted, I write letters to you commenting on these. Most of these letters refer to three issues on which I am obsessive, I confess, but on which Martin Wolf is equally obsessed, ignoring these, though he has not confessed. 

I insist in doing so because I truly believe these are issues of utter importance to the well being of my children and grandchildren, and indeed for the whole western society with its Judeo-Christian traditions to which I belong.

First: I know that, allowing banks to leverage equity differently with different assets depending on perceived credit risk, does seriously distort the allocation of bank credit to the real economy. As it permits banks to obtain higher expected risk adjusted returns on what is perceived safe than on what is perceived risky, it introduces a dangerous credit risk aversion that will do no one any good. Risk taking is the oxygen of any development.

Martin Wolf does not think so. In fact he has told me that even if, hypothetically, there were distortions, it is the responsibility of bankers to ignore these, to forget about maximizing shareholder’s returns and to do what is right for the society. Sir, sincerely, I truly doubt any banks and bankers doing so would survive for long in a competitive environment.

Second, Martin Wolf believes, like current bank regulators do, that those perceived as risky are far more dangerous to the banking system than those perceived as safe; and hence Basel II’s 150% risk weight for those rated below BB- and meager 20% risk weight for those rated AAA to AA, do seem logical to them. 

I on the contrary, having walked a lot on Main Street, know that what is perceived as safe, poses intrinsically a much larger threat to the banking system, than what is perceived as risky. To me the regulators are behaving like nannies telling the children to beware of those ugly and foul smelling who approaches them, but to embrace the nice looking gentleman who offers them candy.

Third: Basel I of 1988, by assigning a zero risk weight to sovereigns and a 100 percent risk weight to the citizens upon which the sovereign strength depends, introduced by means of bank regulations, through the back door, a for me unforgivable and hateful statism. Martin Wolf has not voiced any serious objection to the concept of an infallible monarch.

Sir, so what is your opinion, should I stop sending you letters commenting on Martin Wolf’s articles? Until now he has not given me one valid reason for me to believe I am wrong and he is right.

For instance this week Martin Wolf hits down (again) on Germany’s policies versus the Eurozone. “Germany is the eurozone’s biggest problem” May 11.

Had the regulatory distortions I complain about been removed, I might very well have agreed a lot with him. But while that has not happened, I feel sure that any German ECB or other Eurozone stimuli will be wasted, and might very well set Europe up to something worse. Frankly, when push comes to shove, it is always better to build solutions around at least someone being strong, and not based on a by all shared utter weakness. 

@PerKurowski ©