December 31, 2016

The dangers posed by hackers are much too dangerous and merit much more serious responses than expelling diplomats

Sir, when you consider the potentially so much more dangerous threats hackers can pose than hacking some Democratic National Committee files, like for instance hitting nuclear energy facilities, how can you argue “expelling 35 Russian “spies”, closing two properties and imposing sanctions on Russian agencies” represents a smart and “A sharp US riposte to Moscow’s cyber breach” December 31.

Why does this type of hacking get so much front road attention? Could it be because I fact it has little to do with hacking and more with other issues?

Daily I get about 30 emails from all over the US political spectrum asking for contributions. Since I am not a US citizen, I have ignored them all. But perhaps the possibilities that behind any of these solicitations could be a Russian hacker might be even a stronger reason for me to not contribute to anyone. 

I trust, or at least I pray, that beneath the surface of this public discourse, much more important measures are taken to defend us from malevolent hackers, here, there and everywhere.


December 29, 2016

Record labels and Social Media, negotiate copyright issues among you, but please don’t endanger our heartfelt covers

Sir, Anna Nicolaou writes: “The big record labels are pressing the world’s largest social media network… to tackle copyright for cover songs and other content that fans post to their newsfeeds” “Record labels press Facebook to face the music over breaches of copyright” December 29.

That saddens me. On my 60th birthday, thinking about what I could give myself, I came up with the idea of recording and posting on YouTube one cover of a song I have liked in my life, for each day during the whole next year, and so I did, 365 songs! Phew, was I relieved it was not a leap year! Can you imagine how I would feel seeing all that effort and memories just vanishing?

If my modest covers generate some ad-revenues, the record labels and the social media should come to an agreement on how to share these… but under no circumstances should it affect all of us who want to express admiration in this way for the songs in our life.

By the way I can’t imagine how any of my covers would impede a single sale of a record containing it; in fact, by reminding people of its existence, it could even generate some new sales. I was indeed moved when one of my covers received the following comment: “Thank you for interpreting so well the song of my grandfather…. I am proud that the memory of his work is not erased over time, and that by disseminating it, do not let it die, an affectionate greeting from….”

If there were one reason I could though understand for the owner of a copyright to take down my YouTube cover, it would be that the song’s original composer expressed horror over how I might be murdering it. Sir, I pray not too many will. 

PS. On my, with respect to copyrights I actually wrote:

“One is always worried about issues such as copyrights, as one does not want to end up in a slammer at any age, even if voicing some of these beautiful songs could perhaps be worth it.

What I will try to do is to check out on the web if someone else has been doing a cover of the song or any other one by I believe is of the same composer and, if so, I will presume it is ok for me to do it too.

Of course if someone protests loudly, not only for a copyright infringement but also because the composer feels I am destroying or in any other sense behaving disrespectfully towards his baby, I will ipso facto take it down and replace it with another song.”


December 28, 2016

Populist bank regulators ‘like them’ commandeered a historical triumph of emotions over facts

Sir, Sebastian Payne writes that Keith Craig “defined 2016 as the year ‘People Like Us’ — those who have been filled with despair and disbelief about populist uprisings — lost control…[to ‘People Like Them’]” Payne then describes PLT as “the folks who act on gut not reason. Emotion, not facts.” “The year People Like Them take control from People Like Us” December 28.

Payne, praising the work of PLU accepts these are also to blame for, among other, the financial crash and its after effects. In this he is wrong.

If Payne’s description of PLT applies, then at least with respect to banking, PLU lost control in 1988, when with the Basel Accord the concept of risk weighted capital requirements for banks was introduced.

This because ‘more risk more capital – less risk less capital’ is a pure guts no reason, just emotions and no facts, concept.

Why? Bank crises always result from unexpected events like devaluations, criminal behavior or excessive exposures to something ex ante perceived as safe but that ex post turned out to be very risky. What is ex ante perceived as risky never generates that kind of exposures that could endanger the banking system.

In 2004, with Basel II, the regulators doubled down on their emotions and their lack of facts. Its risk weight of 20% for what is rated AAA, and 150% for what’s rated below BB-, represents a historical triumph of emotions over fact.

That had the banks crashing with little capital into AAA rated securities and sovereigns like Greece, and that has banks impeding growth by staying away from “risky” SMEs and entrepreneurs.

With regulators ‘like them’ ‘People like us’ are toast, most especially if we, like FT, behave ‘like them’ and keep mum on what the regulators are doing.


December 26, 2016

To those who argued Geocentrism, Heliocentrism would have represented fake news.

Sir, Timothy Garton Ash writes: “The real challenge for the craft and business of journalism is to bring those facts to people who have fallen prey to emotionally appealing populist narratives — and may not even be interested in learning the boring truth.” “What to do when the truth is found to be lies” December 24.

Indeed, Garton Ash is right, but let us not forget that quite often there are also those very interested in that the truth is not learned.

For instance in apportioning the blame for the 2007-08 crisis, how much has been laid on bankers and how much on regulators, 95% - 5%? What would then happen to a post that argues, as I truthfully do, that regulators, by setting up irresistible temptations, were more to blame than bankers? Would it be banned as fake-news? Of course you could argue that is an opinion, not news, but the frontier between these is not that clear.

Sir, trying to sort between truth and falsehood, puts us on a slippery road, but must of course anyhow be tried. One possibility would be to ask social media to refrain from linking to any news not signed by a real person; or to any site that specializes in obvious scandalous news. But to ask much more from social media would be naïve, since these derive a lot of their income precisely from generating ad-clicks. I mean just as naïve as when bank regulators allowed banks to calculated their own risk-weighted capital requirements.


December 24, 2016

Regulators placed delicious cookies on the table and only banks are being punished for falling for the temptation

Sir, again, December 24, we read on your front page about banks being hit with penalties for the subprime mess, and still not a word about the responsibility of regulators creating the temptations they should have known that, sooner or later, some would not resist.

Here are four factors that explain the subprime mess, or at least 99.99% of it.

Securitization: The profits for those involved in securitization are a function of the betterment in risk perceptions and the duration of the underlying debts being securitized. The worse we put in the sausage – and the better it looks - the higher the profits. Packaging a $300.000, 11%, 30 year mortgage, and selling it off for US$ 510.000 yielding 6% produces and immediate profit of $210.000 to be shared among those involved in the process.

Credit ratings: Too much power to measure risks was concentrated in the hands of some very few human fallible credit rating agencies. The systemic risk with using credit ratings so much should have been anticipated by regulators.

Borrowers: As always there were many financially uneducated borrowers with needs and big dreams that were easy prey for strongly motivated salesmen, of the sort that can sell a lousy time-share to a very sophisticated banker. 

Capital requirements for banks: Basel II, June 2004, brought down the risk weight for residential mortgages from 50% to 35%. Additionally, it set a risk weight of only 20% for whatever was rated AAA to AA. The latter, given a basic 8%, translated into an effective 1.6% capital requirement, which meant bank equity could be leveraged 62.5 times to 1.

So, clearly the temptations became too much to resist for many of those involved.

The banks, like the Europeans, thinking that if they could make a 1% net margin they could obtain returns on equity of over 60% per year, went nuts demanding more and more of these securities; and the mortgage producers and packagers were more than happy to oblige, signing up lousier and lousier mortgages and increasing the pressure on credit rating agencies.

Of course it had to end bad... and it did… in sort of less than 3 years.

Financial Times, is this a version of the real truth that is not to be named?

PS. “DoJ penalties hit $58bn. If banks leverage 12 to 1, that means $696bn in credit capacity. Why do they not collect these fines in bank shares?


December 23, 2016

The worst we could do, is to treat a structural unemployment as a temporal one.

Sir, Gillian Tett writes: “If there is one thing on which almost all economists agree, it is that digital technologies are performing many jobs once done by humans… [and so there’s an] urgent need for a bigger policy debate about how to prepare workers for this new world”, “How robots make humans indispensable”, December 23.

Absolutely, but in this respect, if we face structural and not temporal unemployment then, as I wrote in an Op-Ed in 2012, “We need worthy and decent unemployments”.

For that we must rid ourselves of the negative bias that current unemployment benefits carry. The best alternative in town seems to be a Universal Basic Income, namely the unconditional payout of a fixed amount per month to all citizens, whether unemployed or not. That would help the economy by keeping up consumer demand, and signify a good stepladder for everyone who wants to reach up to a temporary job, a.k.a. a gig job.

How to fund it? There are many alternatives but, in the context of this article, a payroll tax on robots, driverless cars and similar substitutes for humans, seems the way to go, since that would also create a more level playing field when competing for jobs.

Who will be against it? Naturally the redistribution profiteers as that decreases the value of their franchise.

PS. In my homeland I have for decades wanted my nation's net oil revenues to fund such UBI, in this case a variable one, so as to help free us citizens from living under that servitude that 97% of all the nation’s exports going to central government signifies.

PS. Ask Trump, what’s worse losing your job opportunity to outsourcing, migrants or robots? If robots, where does he suggest we build the wall and who’s going to pay for it?


Martin Wolf, concerned about our young’s future, praises risk-taking culture. Is this change of mind permanent?

Sir, Martin Wolf writes: “With an ageing population, power is over-concentrated in the hands of the old… The solution is to give parents votes on behalf of minor children.” “Ageing Big Ben’s timely reminder that our political system needs repair” December 23.

In February 2007, in a letter responding to an article in FT by Christopher Caldwell titled “Why the ‘right of the children’ is a juvenile concept”, and based on an Op-Ed I published in Venezuela, I wrote: “If the average life length of a person in UK were 80 and our democracies had anything to do with representation of interests, as in companies, then a new born should have 80 votes, a middle age 56 year old like me 24 votes and someone over eighty should count his blessings if he is allowed to keep his single vote. Of course the previous is clearly just an exaggeration, but it serves to argue in favor of the one-child-one-vote concept, in which the votes of the children are to be exercised by their mother, father or older siblings.”

Wolf, in praise of Big Ben and those responsible for it “George Airy, astronomer royal, [and] Edmund Beckett Denison (later Baron Grimthorpe) also writes: “For an amateur to have won such an important commission tells us much about the risk-taking culture of the high Victorians, as does the innovative nature of his unprecedentedly accurate clock.”

What is this? Martin Wolf suddenly thinking of empowering the young and praising a “risk-taking culture”? I ask because for too long Wolf has refused to support my argument that current risk adverse bank regulations, with their risk weighted capital requirements, has the banks only refinancing the “safer” past and present, and not the “riskier” future our young ones need to be financed, so that they don’t have to stay in their parents’ basements, until these pass away.

PS. I am not really sure about: “The future of a country managed for the benefit of the past, cannot be not bright.” Is it my English that is lacking, a typo or just a Freudian slip? Per Kurowski


December 21, 2016

Martin Wolf, what do we call those who exploit elites’ intellectual laziness? Aren’t they also demagogues?

Sir, I refer to Martin Wolf’s “Democrats, demagogues and despots”, December 21.

If a demagogue is “a leader in a democracy who gains popularity by exploiting prejudice and ignorance among the common people, whipping up the passions of the crowd and shutting down reasoned deliberation”, what do we call those that though with more discretion and elegance, do the same among the elite?

In this case I refer directly to those who promise: “We will make the banks safe, because we will force these to hold more capital against what is perceived as risky than against what is perceived as safe”, and are then believed, by for instance many prestigious columnists.

Is that not exploiting a prejudice against those who anyhow, precisely because they are perceived ex ante as risky, already find it harder and more expensive to access bank credit, and therefore pose no major risks ex post to banks?

Is that not exploiting a prejudice in favor of those who anyhow, precisely because they are perceived ex ante as safe, already find it easier and less expensive to access bank credit, and could therefore really pose major risks ex post to banks?

Is that not exploiting the ignorance or naiveté of those who believe regulators could make banks safe without affecting their social purpose of allocating credit efficiently to the real economy?

Of course technocratic demagogues do not operate within any type of democracy, far from it, most often mumbo jumbo and research papers suffices to impress. And of course they are no despots, at least not wittingly.

Like Martin Wolf I do feel very uncomfortable with recent developments. Clearly Brexit needed not to be, and Trump does not fit the profile of what we have grown accustomed to at least hope for as that of a president in the USA.

But the elite must accept it is very much responsible for what is happening. Just for a starter it has allowed many technocratic tribes, like in Brussels and Basel, to operate unencumbered for way too long. It would seem the “elite” has relinquished its responsibilities and now prefers to live in the comfort of blissful ignorance.

If in doubt, just see the difficulties I have had trying to get straight answers to some very basic questions.

The world is under the siege by growing environmental problems, by robots taking jobs, by fake news because truth is not competitive enough, by terrorism and growing violence, by crony statism, by facing excessive debts everywhere… and by much more. Sir, where is your elite?


December 20, 2016

Bank regulation technocrats are among the most powerful and dangerous authoritarians

Sir, Nick Pearce writes “In the year of Brexit, Donald Trump and Vladimir Putin, liberalism has been declared dead and buried”, “Reclaim liberalism from the authoritarians.” December 20.

Sir, let us not forget that authoritarians can come in many different shapes. Some of the most powerful, and most dangerous, are the bank regulation technocrats. On their own, without consulting much outside their mutual admiration club, with immense hubris, they decided they could make our banks safer by imposing risk weighted capital requirements for banks. As if the only purpose of banks in to be safe. They also smuggled in statism by declaring a 0% risk weight for the Sovereign and a 100% risk weight for the citizen.

Their regulation distorted horrendously the allocation of bank credit to the real economy. By for instance pushing those securities that obtained an AAA rating, and empowering Sovereigns like Greece to take on too much debt, they caused the 2007-08 crisis.

By making banks no longer finance the “risky” future and only refinance the safer past or present, they imposed on our economies what some have called secular stagnation.

One could easily argue that many of the difficulties of liberalism that Nick Pearce describes here, are the direct responsibility of these regulators

And their contestability is zero. That I can evidence with hundreds of letters, questions, opinions posed directly to many of them, for much more than a decade. No answers, and when they respond, it is as if they have not heard the question.

Sir, unfortunately, to enlist FT in the quest of getting some answers out of these authoritarians has proved to be impossible, this no matter how much you pride yourself with your motto “Without fear and without favor”.


December 19, 2016

Why has the Financial Times, and other, kept silence for so long about some obvious mistakes in bank regulations?

Sir, Wolfgang Münchau now finally writes: “We should start making a distinction between the interests of the financial sector and the economy at large”, “Reform the economic system now or the populists will do it” December 19.

Of course we must. I have soon written 2.500 letters to FT, many to Wolfgang Münchau, pointing out the fact that our loony bank regulators did not find it necessary to define the purpose of the banks before regulating these. Their risk weighted capital requirements allow banks to earn higher expected risk adjusted returns on what is perceived as safe, than on what is perceived as risky. That might help bankers’ wet dreams come true, but does clearly not serve the interests of the real economy or even the long-term stability of the banks.

Münchau also writes: “We should not be surprised that people have become sceptical about experts who peddle theories that result in comically wrong predictions and that do not square with the reality they perceive.”

Indeed, why should we trust regulators who “comically” believe that what causes bank crises is what is ex ante perceived as risky?

But Sir, since lack of contestability has allowed these ludicrous regulations to survive for way too long, even after a huge crisis made its mistakes evident, we also need to understand how a qualified media like the Financial Times, and other, can be blinded, or silenced for so long on this issue.


December 17, 2016

Animal spirits yes, but of lions, hyenas or pussycats? Do we have irrational exuberance, or rational fright?

Sir, John Authers commenting on how the Dow Jones Industrial Average can top the 20,000 mark for the first time writes: “Animal spirits are back. The enthusiasm is palpable, and is on a scale unseen since the height of the tech boom”, “Echoes of exuberance as the Dow stirs animal spirits” December 17.

Authers, with “markets… were in a very different state” would seem to agree with that we are not talking of the spirits of the same animals. The tech boom had lions with great illusion and too much optimism and bravery pursuing a brand new future. The current boom, resulting from low interests, QEs and excessive public debts everywhere, seems more one of pussycats taking refuge in whatever is offered. Of course, as always, hyenas are present in order to feast on the many cadavers any heightened volatility causes.

What brought all this on? Sir, as you know I think, but you do clearly not want the rest of the world to think, that this is the natural result of regulators taming, or castrating, the animal spirits of banks. That they did with their capital requirements based on ex-ante perceived risks, precisely those risks that were often already being cleared for too much by the ex-ante-risk-adverse bankers Mark Twain referred to.

Authers now writes: “Trump’s deregulatory agenda could delight markets.”

That’s a new view I very much welcome. Over the last decades, public opinion has almost exclusively been fed the notion that all of its troubles were only the result of financial deregulation.

The problem though is that Trump, even though he himself has been a bank borrower, does not really understand that without removing the odious regulatory discriminations against the “risky”, like SMEs and entrepreneurs like Trump, his stimulus plans, that which includes tax cuts, has not a fair chance to work.


December 15, 2016

The Basel Committee for Banking Supervision is the stupidest and most failed oracle of our times

Dan McCrum writes about predictions, “How to grab hold of the conversation with a bold prediction” December 16.

Sir, I just want to notice, for the record, for the umpteenth time, that the risk weighted capital requirements for banks, more risk more capital – less risk less capital, are de facto a prediction by the regulators based on what they believe is the most dangerous for our banking system.

As is, from their desks, they predicted that what is ex ante perceived as risky, is risky ex post. Clearly that must be one of the stupidest and senseless predictions of our times.

Anyone with the slightest understanding of what happens on Main Street, would know that what poses dangers to the banking system is unexpected events, like devaluations, criminal behavior, or excessive exposures to what was ex ante perceived as safe but that ex post turned out very risky.

Sir, I’m sorry but I have to ask, since you seem to have swallowed that prediction hook, line and sinker, has anyone in FT’s establishment ever walked on Main Street?

Sir, you doubt it? Then dare ask the regulators the following questions and observe their silence.


FT establishment, accept that getting rid of a bank regulation that decrees inequality would also help the worst off

Sir, Chris Giles argues that Mark Carney did not live up to his own admonition last week about that the time has come for frank talk about the downsides of globalisation “Frank talk, not warm words, will help the worst off” December 15.

Indeed, Mark Carney, besides being the governor of the Bank of England, is the current chair of the Financial Stability Board, and so presumably well versed in bank regulations. Nonetheless Carney has refused to be frank about the fact that the current risk weighted capital requirements for banks, distorts horrendously the allocation of bank credit to the real economy, hurting growth and job creation; and all this for no purpose at all as major bank crises are never caused by excessive exposures to something ex ante perceived as risky. That regulation de facto decrees inequality.

But with respect to that FT also decided to ignore my soon 2.500 letters sent over the last decade on the subject of “subprime banking regulations”. One of these days, when all truth about the risk weighing really unravels; FT will need to be frank on its reasons for silencing a voice of criticism.

PS. Here are some simple questions that the “without fear” FT establishment has not dared to ask the bank regulation establishment. Or might it be that the “without favour” part of FT’s motto has its exceptions.


December 14, 2016

Because of distortive bank regulations, current tax cuts will deliver much less growth than what could be expected.

Sir, I refer to George Magnus’ “New regime’s growth pledge poses challenge for the US central bank” December 14.

In it, like many other commentators, Magnus draws comparisons between current Trump/Steven Mnuchin economic plans, with the lowering of taxes, and the Reagan years. He find several differences, though again like most or perhaps all commentators, he ignores the fact that during Reagan years, there was no such thing as risk weighted capital requirements for banks that distorted the allocation of credit.

That regulation stops us from getting the most bang out for any stimulus, be it tax cuts, QEs, fiscal deficits, low interest rates, etc.

If adjusted for it, the Committee for a Responsible Federal Budget’s already worrying estimates would even seem too optimistic.

What is truly harrowing though, is that those distortions are not even discussed, as if these did not exist, as if these should not be named.

For instance I have been unable for more than a decade to get straight answers from the regulators to some very basic questions, zero contestability; and Sir, FT’s Establishment has also refused to ignore these questions, notwithstanding my soon 2.500 letters to you on “subprime bank regulations”


Mark Carney, as bank regulator, has no right to talk about an “unprecedented desire for safety”

Chris Giles writes: Mark Carney, governor of the Bank of England, talks about an “unprecedented desire for safety”. “Fed faces dilemma over how high rates should go” December 14.

Hah! Mark Carney is one of those regulators who set the capital requirements for banks based on ex ante perceived risks, and if that’s not an unprecedented run amok desire for safety, what is? Current bank regulators have not failed somewhat, they have failed in such a fundamental way that they should never ever be allowed to even get close to banks again.

Bankers perceive risk, and the more risk they see, the less they lend, and the higher the interest they charge… and yet regulators, if they also perceived more risk, also wanted banks to hold more capital… and so the ex ante perceived risks became excessively considered.

With the Basel Committee’s goggles, the safe seems safer, the risky riskier and the allocation of bank credit to the real economy goes bananas.


Why is obvious crony statism referred to as crony capitalism?

Sir, I refer to Martin Wolf’s “Why Xi cannot succeed with his reforms” December 14.

In it, Wolf quotes the following from Minxin Pei’s “China’s Crony Capitalism”: “The emergence and entrenchment of crony capitalism in China’s political economy, in retrospect, is the logical outcome of Deng Xiaoping’s authoritarian model of economic modernisation… because elites in control of unconstrained power cannot resist using it to loot the wealth generated by economic growth.”

But “Capitalism” (at least according to Wikipedia), “is an economic system based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets. In a capitalist market economy, decision-making and investment is determined by the owners of the factors of production in financial and capital markets, and prices and the distribution of goods are mainly determined by competition in the market.”

Sir, so why does it refer to “crony capitalism” when it is clearly much more a case of “crony statism”? Could it be that the “unconstrained power of the elites” also cover the terminology we are to use? Like for instance when references are made to our economies being under the yoke of “neo-liberalism”, all while bank regulators gladly risk-weigh Sovereigns with 0%, and We the People with 100%. Or like when intrusive and complex bank regulations are mentioned to have happened in a period of "deregulation". 


December 13, 2016

When in a peace process you cannot award both sides a Nobel Prize, you should know you should refrain entirely

Sir, Andres Schipani writes: “coming to Oslo represented a closing chapter for me too. I stood as the victims of the conflict Mr Santos had brought with him received thunderous applause. Oddly, there was no Farc presence. Instead, there was Ingrid Betancourt, a former hostage who has acquired celebrity status” “A Nobel Prize and the struggle for peace in Colombia” December 13. 

Let me be clear. I wish for peace in Colombia as much as anyone else, but the current peace proposal, and this Nobel Prize, represents too little of a closing chapter for many Colombians than what it could represent for irrelevant outsiders, like Schipani and me.

And since Schipani brings up Dylan, again I must speculate on the possibility of secretarial errors at the Nobel Committees in Oslo and Stockholm. Perhaps Dylan was more worthy of the Peace prize, while Santos the literature one. The latter because for Santos to have presented to his people a 297 pages long document for referendum, must surely represent an outstanding moment in required reading. Would anyone in Britain have dared to do such thing? I doubt it.

That said, I do not agree with the Nobel committee’s prize to Santos, for the very simple reason that if in a peace process, you do not find yourself capable of giving both sides the same prize, then you should know that you should better abstain altogether.

Besides even if one could argue that had he proposal won the referendum, Santos would have been worthy of the prize... now, going "fast-track", over the peoples heads, clearly puts the whole process in a much less favorable light. 

And, if the prize was a sort of domestic consolation for the role Norway played as an observer in the negotiation, then it could have been more transparent to give that prize directly to Norway. Why not? Do observers not very often have to play the most difficult role of total neutrality while utterly disliking one or the other side, or both?


Italy would have been far from as troubled as it is, if regulators had not distorted bank credit.

Sir, Mariana Mazzucato writes: “Increasing investment is essential to Italy’s future, as is fundamentally changing public-private relationships to make them less focused on favours and subsidies, and more on transformational opportunities”, “Italy’s future growth hinges on new ways of doing business” December 13.

Let us be clear. Most true “transformational opportunities” arrive by means of the market, and many “transformational opportunities” is just a code word for crony-statism profiteering.

There is one major fact that is being constantly evaded in the debate about Italy’s and most other economies. That is the distortion the risk weighted capital requirements for banks cause in the allotment of credit to the real economy.

Italy would never have accumulated so much public debt, had it not been for the false market signals that resulted when the Basel Committee decided to assign a zero risk weight to the sovereign and one of 100% to We the People, that which includes SMEs and entrepreneurs.

De facto those risk weights translate into a belief by regulators that government bureaucrats know better what to do with bank credit than the private sector… something that unless you are a runaway statist, make no sense at all.

Even at this point, according to Basel II’s standardized risk weights that are still being applied, the weight given to the Italian public sector debt is lower than that of most participants in that real economy that represents Italy’s best chance for the future. Especially when bank capital is very scarce, like now, any little difference in capital requirements means a lot.

Italy and all other have no chance of regaining some rationality in the allocation of bank credit, unless this lugubrious piece of regulations is eliminated.

Obviously, you cannot make the changes all at once, without severely affecting bank credit. But grandfathering previous capital requirements for existing assets, on the margin, for all new bank assets that regulatory discrimination must stop.

PS. Let’s stop talking about crony capitalism when obviously, what is happening, is crony statism.


To who should productivity of robots belong? Why not tax it and share it out with a Universal Basic Income scheme?

Sir, I refer to Carl Benedikt Frey’s “Make technology work for the many not the few” December 13.

In 2012, in an Op-Ed titled “We need worthy and decent unemployments” I wrote: “The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, as a minimum in the sense of these not interrupting those working.” And I feel that statement is becoming truer day by day.

What to do about it? Day by day I am becoming surer that in some sort of Universal Basic Income lies the answer. Let us put some payroll taxes on robots. That would not only allow many humans to compete better for jobs but, if the robots win, then those taxes could help fund a Universal Basic Income.

In Trump terminology: Let us build a wall against robots and have these pay for it!


PS. Canada

December 10, 2016

If government monopoly profiteers de-cash society, in order to impose negative interests, is that not also a crime?

Sir, Kenneth Rogoff writes:“[In] advanced economies, the idea of recalibrating the use of cash is an entirely reasonable one. While paper currency has many virtues that will continue into the distant future (including privacy…) the vast bulk is held in large denomination notes such as the US $100 and the €500 that have little significance in most retail transactions. A broad array of evidence suggests that high-denomination notes… mainly serve to facilitate tax evasion and crime.” “India’s cash bonfire is too much, too soon” December 10.

I have two questions: 

First: Is not the US $100 and the €500 the most effective tools for privacy?

Second: Is not cash, one of the last resources you could use to defend yourself against negative interests?

In future presidential electoral debates anywhere, a citizens obligatory question could be: "Sir, do you want to screw us getting rid of cash, so as to make it easier for you to pay off government debts with negative interests?"


When are regulators grilling Citi to be grilled on their own responsibilities for causing the 2007-08 crisis?

Sir, Katie Martin reports: “Regulators to grill Citi over role in sterling flash crash” December 10.

That’s OK. Grill Citi! But when are regulators going to be grilled on the crisis they caused by allowing banks to leverage over 60 times to 1 their equity when investing in AAA to AA rated securities; or almost limitless when lending to sovereigns like Greece?

And when are they going to be grilled on how their nonsensical risk aversion impedes satisfying the credit needs of the real economy?

I say. Grill Regulators Too!

I suggest that grilling could begin with the following questions that regulators have steadfastly refused to answer me… because I am no one to have the right to ask them questions (and FT has refused to help me)


President Trump. Bankers have already way too much representation. Give the much-needed “risky” borrowers more voice

Sir, I refer to Sam Fleming’s and Alistair Gray’s “Bank’s president is latest alumnus to be tapped for a senior White House job” December 10.

Current bank regulations overtly favor banks earning much higher expected risk adjusted returns on equity when lending to something perceived as safe, than when lending to something perceived as risky, like to SMEs and entrepreneurs.

That of course delights bankers but the other side of the coin, is that the real economy is not getting its credit needs efficiently satisfied.

Therefore Trump would do a lot better assuring the perspective of “borrowers” is more represented in his government, than the clearly overrepresented perspective of bank lenders.

PS. I would love for Trump to convene the regulators and ask them a set of questions that they refuse to answer to someone as powerless as me… that is unless perhaps I threaten them with going on a hunger-strike.


December 09, 2016

When there is no contestability whatsoever, perhaps a disrupting referendum is the citizens' only option

Sir, as a Venezuelan it is with great interest I read Martin Wolf’s “Appeals to the will of the people threaten parliamentary democracy” December 9.

In my homeland, the majority of the vote established a de facto dictatorship but now, when that same dictatorship has lost its majority, it fights back against a recall referendum right, even though that right is imbedded in our Constitution.

But forget crazy Venezuela and let’s consider slightly less crazy countries. Does not parliamentary democracy also require a very high degree of contestability?

Sir, for more than a decade now, I have tried to get anyone even remotely related to bank regulations to answer some very basic questions, to no avail. Even influential columnists like Martin Wolf do seemingly not dare to pose those questions either.

In cases like this, what are “We the People” to do. Perhaps a referendum to recall all bank regulators is our only option? Otherwise…must we go on a hunger strike?

PS. Is it so impossible to have parliamentary dictatorships?


December 08, 2016

For tax cuts to work, regulations that distort the allocation of bank credit to real economy must first be removed

Sir, I refer to Chris Giles interview of Arthur Laffer “Reagan’s tax guru predicts US nirvana” December 8

Let me be brief. Reagan ended his presidency on January 20, 1989. The Basel Accord, with its risk weighted capital requirements, was approved in 1988 but entered into real effect in 1992. Basel II, with its even more distortionary risk weighting is dated June 2004.

I don’t want to rain on anyone’s parade but, whether it is by tax cuts, fiscal deficits, QEs, low interest rates, or by any other thinkable stimulus, for these to work their way entirely into the real economy, the distortions in the allocation of bank credit must be removed.

Sir, as is, tax cuts will not produce what Laffer and other expect, and so resulting public deficits would increase dangerously the levels of public debt.

PS. Let me also invoking the spirit of Charlton Heston in Planet of the Apes: “Keep your stinking monkey paws off our banks, you dirty regulatory ape.


Are risk weights of: Sovereign 0%, We the People 100%, imposed arbitrarily by regulators, compatible with democracy?

Sir, David Pilling refers to a recent paper by Roberto Foa and Yascha Mounk, that cites findings in the World Values Survey, asking Americans whether they approve of the idea of “having the army ‘take over’. In 1995, one in 16 agreed. Since then, that number has risen steadily to one in six.”, “A continent where the democratic dream lives on” December 8.

I come from a country, Venezuela, in which each day more and more people are toying with the idea of calling in a “new” military, not to have less democracy, but to have more.

And so perhaps the American’s desilusion with democracy that the survey hints at might also reflect that democracy has failed being democracy.

For instance, is the decision process going on in Brussels really compatible with the European democracies? Those voting for Brexit seems to have answered NO!.

And in America, the regulators, for the purpose of setting the capital requirements for banks, surreptitiously set risk weights of 0$% for the Sovereign and 100% for We the People. And that, which is something that clearly reads like a slap in the face of its Founder Fathers, seems as big failure of democracy as they can come. 

So in America, supposedly the world’s prime capitalistic society, statism was imposed. Democratically? No way Jose! 


Will we humans end up banning ourselves from driving because we’re too risky?

Sir, John Gapper concludes, “in a world of cheap, convenient self-driving vehicles, only the wealthy and fussy will bother to buy a car” “Why would you want to buy a self-driving car?” December 8.

Wait a second. Is Gapper saying that only the wealthy, buying cars, might save some jobs? That does not sound like too politically incorrect in these get rid of inequality Piketty days.

But, jest aside, what I most fear, is the day we humans ban ourselves from driving altogether, because we are not safe enough, because we are too risky.

With automation substituting us humans in so much, what mutations will that provoke? What capabilities will we lose?

PS. Beware though of a Basel Committee for Transit Supervision. If it interferes, like the Basel Committee in the process of allocating bank credit to the real economy, then the human race might disappear in the mother of all massive car crashes.


December 07, 2016

ECB’s policy makers, without corrective glasses, have no chance of reading the economy’s real signals.

Sir, Claire Jones reports on “How ECB policymakers will be reading the signals ahead of stimulus decision” December 7.

Fat chance they will be able to read those signals correctly. ECBs policymakers are seemingly not even aware of their need to wear glasses that correct for the distortions produced by the risk weighted capital requirements for banks.


Shame on you bank consultants! For a quick buck, you sacrifice the future of our children and grandchildren

Sir, Laura Noonan reports: “Post-crisis consultancy spending soars to $200bn”, December 7.

Clearly that must be the cause why otherwise brilliant consultants, like those of the high powered consultancy firm McKinsey & Company, keep absolutely mum on the fact that regulators, with their risk weighted capital requirements for banks, are dangerously distorting the allocation of bank credit to the real economy.

With it, banks no longer finance the “riskier” future but only keep to refinancing the “safer” present and past.

With it, banks finance basements where jobless kids can live with their parents, but not the SMEs and entrepreneurs who could create the jobs the kids need in order for them to have a chance to become responsible parents too.

Since those bank consultants must also have children and grandchildren to who they owe great responsibility, I can only say: Shame on you!


Damages by Euribor rigging are peanuts compared to bank regulators’ rigging of credit allocation to the real economy

Sir I refer to Rochelle Toplensky and Martin Arnold write on “Brussels will hit HSBC, JPMorgan and Crédit Agricole today with multimillion-euro fines for rigging the Euribor interest rate benchmark” “Three banks fined over rate-rigging” December 7.

For years I have argued that if banks are to be fined, they should pay those fines in shares, since having their capital diminished by forcing them to pay cash, is pure masochism as that will affect their capacity to give credit; and since we also want banks to hold more capital.

But also in this case let me note that whatever damages these banks could have caused with their rigging of Euribor, these are peanuts when compared to what bank regulators did by rigging, with their risk weighted capital requirements, the allocation of credit to the real economy with their risk weighted capital requirements for banks.

If not fined, these regulators should at least be publicly shamed and banned forever from regulating banks… or anything else.


Martin Wolf is still unconcerned with the distortion in credit the risk weighted capital requirements for banks cause

Sir, Martin Wolf writes “so long as the eurozone fails to deliver widely shared prosperity, it will be vulnerable to political and economic shocks” “More perils lie in wait for the eurozone” December 7.

I just want to record that once again Mr. Wolf does not mention that the layering of risk adverse risk weighted capital requirements for banks, on top of the natural risk aversion of bankers, makes it impossible to deliver a sustainable growth that fosters prosperity; and much less an inclusive one, since that piece of bank regulation only decrees inequality.

But then again there might be the possibility that Mr. Wolf does still not understand this.


Current bank regulating technocrats posing as scientifically knowledgeable are just vulgar impostors.

Sir, Anjana Ahuja refers to how Galileo was imprisoned by the Roman Catholic Church for his conviction that the Earth went round the Sun, and warns scientists may well feel the heat from those in power once again, referring here clearly to Donald Trump. “Echoes of Galileo in the populist retreat from reason” December 7.

Sir, careful there, often those in power masquerade as scientists. For instance bank regulators of the Basel Committee and the Financial Stability Board, behave much more like theologians than the scientists they purport themselves to be. Their creed is: Assets perceived ex ante perceived as risky are ex post risky, and so banks should therefore hold more capital against these.

And if a third, or much lesser class Galileo like me, dares to argue that what is perceived as risky, becomes less dangerous precisely because of that ex ante perception; while what is perceived as safe becomes more dangerous precisely because of that ex ante perception, then he has to be ignored and his questions should not be answered. 

Sir, you want further proof about these fake scientists? Ahuja writes: “Why is science under siege? One possible explanation is that it favours objective evidence over subjective experience.” Well, the Basel Committee never even researched in order obtain objective evidence of what has caused all previous major bank crises, before adopting their own subjectivity as their guiding light.

Lately I have been wondering whether I need to go on a hunger strike or take similar extreme actions, in order to get some response to some very basic questions from the impostors. But perhaps I should refrain from doing so, since I could be burned at the stake… and without the science respectful FT, perhaps also feeling alleviated, not even reporting on the incident.

Like Martin Luther I might just nail my questions on some Church door in Basel, and take it from there.

PS. Let us not forget that Galileo's views were at one moment considered "alternative facts" or "fake news"


December 06, 2016

The way FT insists in treating bank regulators so gently, can only lead us to conclude it is part of the establishment

Sir, with respect to Italian bank securities, like Monte dei Paschi di Siena’s €6bn of junior bonds, Patrick Jenkins writes that “it was the banks — not the state — that mis-sold these”, “Italian state must act as backstop to bolster ailing banking system” December 6.

Why on earth does Jenkins’, and you all, defend in such a way the innocence of the state, or more precisely, that of the bank-regulating establishment? Had regulators no responsibility towards the buyers of these bonds? No Sir, I tell you FT has no role washing the hands of the regulators.

First, what got banks into problems, were that regulators allowed banks to hold very low capital against what was perceived as safe. Though of course much of what could have been perceived as risky has suffered a lot after the crisis, nothing of that detonated it. And, if what was perceived ex ante as “safe” would have required banks to hold the same capital as against what was perceived as risky, the overall crisis would not have happened, or would have been much smaller.

Second, don’t tell me that regulators, with their reports on satisfactory levels of capital against risk weighted assets, have not been misinforming the markets all the time, and not only in Italy. Time after time we read or hear “experts” comparing bank capitalizations in the past against all assets, with capitalizations in the present against weighted assets. And that is apples and oranges of course. 


December 05, 2016

Europe, if you do not remove current risk weighted capital requirements for banks, no stimulus will really help.

Sir, Reza Moghadam from Morgan Stanley writes: ECB should switch from buying sovereign bonds to funding the removal of troubled assets from European banks…[that] would do more to alleviate the constraints on economic recovery than sovereign bond purchases ever could. “How to redirect easy money and encourage banks to lend”, December 6.

Of course that would help, but only for a while. If you do not remove the risk weighted capital requirements for banks, those which distort the allocation of bank credit to the real economy, and which therefore impede any stimulus like QE or a European type Tarp to reach were it can do the most good, you’ll soon be back on the cliff, albeit higher up.

Sir, the lower the capital requirement, the higher the leverage of equity, the higher the expected risk adjusted return on bank equity be. Therefore you cannot be so naïve as to expect a banker like Moghadam to say one world that would imply higher capital requirements for anything. In fact, by allowing banks to earn the highest risk adjusted returns on what is perceived as safe, the Basel Committee has made the bankers’ wet dreams come true.

When will you invite someone, like me, who speaks out for the access to bank credit of the “risky” SMEs and entrepreneurs? Or are these beggars for opportunities, those who could help open new gateways to the future, just not glamorous enough for you?


December 04, 2016

The fiscal accounts of most nations seem to be out of whack. Universal Basic Income would help regain much order

Sir, I refer to Lawrence Summers’ “Trump’s misguided tax reform plans” December 5.

It reads quite, or even very correct, but as so many other recent writings by economists, it does not stimulate taking a strong position in favor or against, that because it is getting harder and harder to distinguish real economic prognosis from fake politically framed one.

Everywhere we look we get the feeling we have lost control over the fiscal accounts and government activities in general… no matter who is in charge. Since it is we citizens who at the end of the day are going to pay for whatever happens, it behooves us to urgently put some order to our government’s affairs. 

The most expeditious way for that could be to use a Universal Basic Income scheme to separate, as much as possible, redistribution, from the rest of government activities.

Doing so, by means of an all citizen to all citizens affair, we would be better able to understand what is going on, and presumably governments would thereafter be more elected on the basis of who offers the best in what should be a governments primary responsibilities to all, and not based on who offers the most to some.

Of course, to diminish the redistribution role of governments will be no easy affair. That is not only because redistribution profiteers will naturally fight back; but also because after so many years of being brought up on the need to cry for a larger share of the redistribution pot, voters have become more genetically disposed to be beggars of favors.

That said, if a UBI is used, we must make sure that it is funded with real money… no funny money, no debt.

It could be funded with savings in current redistribution costs, carbon taxes, payroll taxes on robots, driverless cars and similar human employment substitutes, or by special taxes on income and wealth.

That would provide stimulus for the economy, while at the same time allow all who want jobs to easier reach up to the growing gig economy.

PS. In resource rich countries, like Venezuela and Nigeria, it SHOULD primarily be funded by like the net oil revenues.


December 03, 2016

Is “crony capitalism” the right term for what’s going on? Crony statism seems a much more precise label.

Sir, you write correctly: “If political whim means companies are to be blocked, bullied or bribed out of investing where they see fit, a natural part of the functioning of the global economy will be subverted…. The idea of a world in which capital is allowed to flow freely to its most productive location is increasingly under threat… When the capital development of a country becomes the by-product of a game of political bargaining, the job is likely to be ill done.” “Politicizing investment makes the world poorer” December 3.

Indeed most of us dislike any special favoring arrangements between some private sector agents and some public sector representatives, but Sir, let me ask you two questions:

Why do you keep silence when, with their risk weighted capital requirements for banks, regulators do not allow credit to flow freely to its most productive location, just in order to have these flow to where in their petty minds banks can, at least in the very short term be more safe?

And when you know regulators set the risk weight for the sovereign at 0%, while We the People, like SMEs and entrepreneurs, are hit with one of 100%; which translates directly as regulators helping government bureaucracy to have easier access to bank credit than that of the private sector, instead of crony capitalism, is that not really more a case of outlandish crony statism?

PS. Ask the Greeks if the low capital requirements for their government that allowed it to take on so much debt made them any richer?


December 02, 2016

That banks have strengthened is pure wishful thinking, as most of it is the result of weakening the real economy.

Sir, Brooke Masters’ writes: “Eight years after the financial crisis, we were all getting bored with bank stress tests. Most of the institutions are so much stronger and better capitalised than they were” “UK’s tough stance on banks contrasts with global mood” December 3

That’s not really so. Most of the strengthening is the result of banks shedding “risky” assets in favor of safe, so the other side to that coins is having in the medium and long term run made the real economy weaker.

As I have complained about for years, current stress tests only look at what is on the balance sheets of banks, ignoring completely the aspect of what should have been there.

With respect to “imposing “output floors” on the models. These would effectively raise capital requirements for some banks by pushing up the value of their risk-weighted assets”, the real question is, how could regulators be so naïve so as to think those risk models were not going to be tweaked? Lower risk determination, means lower capital requirements, means higher leverages, means higher expected risk adjusted returns on equity.

With respect to “floors unfairly penalise banks with unusually safe assets, such as those who keep a lot of low-risk mortgages on their books”, the question is when will banks keep on favoring the “safer” construction of basements were the jobless young can live with their parents over the “riskier” lending that could allow the young to find the jobs they need in order to become responsible parents too?

Sir, you want strong banks? Keep them on a tight capital leash without distorting what they do? You want weak banks? Make them operate only in what is safe and help them with their returns on equity by being very accommodative allowing high leverages.


Trump should make certain that “risky” Main-Street borrowers, like he, are invited to Basel, Davos or a Dagenham.

Sir, Robert Shrimsley writes: “the Financial Times has learnt the sensational and entirely fictional news that next year’s pilgrimage has been moved from Davos to the rather more earthy and economically deprived location of Dagenham in east London. The move was the brainchild of Sir Nigel Farage, who said it would help the global liberal elite get back in touch with the real world” “A Davos for the Donald — do it in Dagenham, mate” December 2. 

That’s not so farfetched: We have regulators who for the purpose of setting the capital requirements for banks, use risk weights such as: 0% the Sovereign, 20% what is AAA rated, 35% house financing, and 100% for We the People, like SMEs and entrepreneurs. 

Those regulations make it much harder for those who, precisely because they are perceived as riskier, already face great difficulties accessing bank credit. 

Around the world, over the last decade, those discriminatory regulations against have impeded many millions of SMEs or entrepreneurs to have access to bank credit, and if they got it, they have had to pay much more for it, in order to compensate for this unfair regulatory tax. 

I have no specific information about Trump or his enterprises own bank borrowings, but I am absolutely sure that, over the years, he has had to pay millions and millions more in interests to banks, than what he would have had to pay in the absence of these regulations. 

De facto the Basel Committee’s bank regulations represents a wall which impedes all fiscal and monetary stimulus to reach were it should, in order to create a new generation of jobs and move our economies forward, so as these do not stall and fall. 

Obviously “the risky” SMEs and entrepreneurs, have never been truly consulted about their needs, by for instance regulators in the Basel Committee or the Financial Stability Board, much less have they been invited to places like Davos. 

So, if anyone would want to make a reality of moving “Davos to the rather more earthy and economically deprived location of Dagenham”, the guest list should be much revised, and Dagenham marketed as “The best access to Main Street and the real economy” 

If Trump would then appear in a Dagenham, to speak out on behalf of “the risky”, then perhaps the whole world would learn to appreciate the fact that there are conflicts of interests that can be truly helpful… and should perhaps even be nurtured. 

Sir, I can almost already hear Trump shouting out: “Basel… tear down that wall!” 


December 01, 2016

Because of risk-weighted capital requirements, banks can turn out riskier when engaging in regulatory “risk-shedding”

Sir, with respect to British banks you write: “risk-shedding would decrease the cost of capital, if the markets could be made to believe in it” “British banks’ capital is only half of the problem” December 1.

Why is it so hard for you to understand the differences between ex ante perceived risks and ex post real risks?

Currently, the lower the ex-ante perceived risk is, the lower capital banks are required to hold, so the more they can leverage their equity, so in reality the higher can the ex post real risk be.

When banks got rid of loans to SMEs and acquired AAA rated securities, they were just shedding risks following their regulators instructions.

So why on earth should markets believe that risk shedding for regulatory purposes would make banks safer? Have markets not been recently very much deceived by the regulators? One of these days a small shareholder might sue the regulators for having willfully deceived him, by promoting the use of capital to risk weighted asset ratios instead of the usual capital to asset ratios.

PS. And of course British banks' capital is even less than half of the problem. The real problem is that bank credit, because of the risk weighting, is not allocated efficiently to the real economy.


Using Basel Committee’s standardized risk weights could also be worse than using banks' internal risk models.

Sir I refer to Caroline Binham’s, Laura Noonan’s and Jim Brunsden’s “Basel fails to agree key risk measures” December 1.

Currently: The lower the risk - the lower the capital requirement - the higher the leverage - and so the higher the risk adjusted return on equity. Therefore it is clear that, as long as bank shareholders and bank creditors do not own 100% of the skin in the game, you cannot leave it in the hands of banks to use their own internal risk models. The conflict of interest with these is too much to handle for even the most disciplined banker. You would not like your kids to decide the nutritional values of their diets…would you?

But Sir, Basel II’s standardized risk weights makes it clear you can much less place the responsibility in hands of regulators who have no idea about what they are doing. Just an example: for an asset rated AAA to AA they assigned a 20% risk weight, while for what’s rated below BB-, something which would therefore never constitute a major danger for banks, that received a 150% risk weight.

And regulators assigning 0% risk weight to sovereigns, and 100% to We the People, more than regulators, seem to be simple statism activists.


Any regulator stress-testing banks that ignores what should be on the balance sheets and is not, should be fired!

Sir, Emma Dunkley and Martin Arnold report on the recent stress testing of British banks performed by Bank of England, “Stress test flop fuels criticism of turnaround efforts at RBS” December 1.

Just want to remind again that bank regulators who only look at what is on the banks’ balance sheets while ignoring entirely what should be there if the banking needs of the real economy were served, should be fired.

And of course the BoE has most probably not done that. That I say because Mark Carney is one of those regulators who see nothing wrong with capital requirements for banks that uses a risk weight of zero percent for the sovereign and 100% for SMEs and entrepreneurs.

Sir, should the stress testing of our banks also say something about their relative usefulness?

In 1997 I ended an Op-Ed with: “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.”

Sir, I have no detailed knowledge about British banks, but what if RBS was the bank serving Britain’s real 

PS. We need some outstanding Main-Street/Real Economy knowledgeable, to stress test bank regulators