April 29, 2017

Our societal radar does not record sufficiently many crucial problems and less do we discuss their possible solutions

Sir, Gillian Tett refers to JD Vance’s “Hillbilly Elegy” April 28.

The author, having faced “a family and culture in crisis” and in order to “combat a culture of instability, irresponsibility, anger and pessimism, made worse by opioid addiction’ suggests, besides the reintroduction of [some] military service, giving extended family members easier adoption rights over troubled children, enabling people receiving housing vouchers to move beyond poverty-stricken ghettos, and, most crucially, encouraging business to work with schools and community colleges to reshape education for teenagers, with more mentoring and apprenticeships.”

Ms. Tett concludes, “These are profoundly sensible steps. But they are also notably not measures that are getting much attention from Trump, let alone from the Democrats. Therein lies the tragedy of America today.”

Absolutely, it is a tragedy, but not only of America. Too much is not recorded timely by our social radars, or if identified then becomes horribly distorted, most often by those who want to profit, monetary or political, from the solutions.

For example: The world is facing structural unemployment, among other by robots and automation becoming more and more efficient. But was that talked about during the last election? No! It was not as politically juicy as going after, or defending, immigrants. If it had been discussed the Mexican wall could have been a non-issue.

In such a jobless world, in order to remain viable societies, we would have to create decent and worthy unemployments, which would probably have to include some sort of universal basic income? But was that talked about during the last election? No!

Also, for our economies to be able to move forward we have to stop current insanely risk adverse bank regulations, that refinances up to the tilt the safer present and past, while refusing financing the riskier future. Is that distortion discussed? No way Jose! If you do they might not invite you to Davos.

Instead populists agitate for instance with realities such as some few billionaires holding more wealth than half of the world’s population…while conveniently ignoring how un-transferrable such wealth really is… or scream about all the “cash stashed away” as if that cash was cash.

To have a chance to leave something reasonably workable to our grandchildren, we need to dramatically realign many incentives and fight those who are marketing solutions only to profit on these. In that respect here follows some of my wishes:

That we are able to keep the fiscal income lean since that is the only way to guarantee the fiscal spending does not get mean.

That we fight tooth and nail against all redistribution profiteers. By for instance creating carbon taxes that helps to save the environment, but that have all its revenues shared directly, equally, among citizens.

That we develop guidelines that help us classify credits, and as a consequence debts, into legitimate or odious.

That we make the pension plans of academics of the universities entirely contingent on how it goes for their students. As a minimum their pension funds should hold all the education loans that were given out in order to pay their salaries.

And of course, please, we must get rid of the so useless and so dangerous risk weighted capital requirements for banks.

@PerKurowski

April 27, 2017

Congresswoman Maxine Waters… stop rooting for bank regulations that puts inequality on steroids.

Sir, I refer to Ben McLannahan’s and Barney Jopson’s “Republican puts forward alternative to ‘nightmare’ Dodd-Frank” April 27.

Jeb Hensarling, the chairman of the House financial services committee’s Choice Act includes a provision of requiring banks to hold “at least 10 per cent of gross assets, if they want relief from some of the toughest standards on supervision and regulation”

“Congresswoman Maxine Waters, the top Democrat on the committee, told the hearing that the proposals — known as the Financial Choice Act, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs — would unleash more “risky and predatory” practices on Wall Street.”

Holding 10 percent, against all assets, would eliminate that odious discrimination against the access to the opportunities of bank credit of "the risky", which result from the current risk weighted capital requirements for banks.

John Kenneth Galbraith in his “Money: Whence it came where it went” 1975 wrote:

“The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

Allowing banks to hold less capital against what is perceived as safe than against what is perceived as risky; allows banks to leverage more with what is perceived as safe than with what is perceived as risky; which allows banks to earn higher expected risk adjusted returns on equity when lending to what is perceived as safe than when lending to what is perceived as risky; which means banks will lend more than usual to what is perceived as safe, at even lower rates, which could be very dangerous; and less than usual to what is perceived as risky, unless its done at much higher rates than usual… which unfortunately makes the risky even riskier.

So, as I see it this proposal by Chairman Hensarling should not be applied only to those who want “relief from some of the toughest standards on supervision and regulation” but to all banks.

Of course, I pray that 10% capital requirement applies also to loans to the public sector. As is, lower capital requirements for banks when holding the sovereign’s debts than those of the citizens, de facto implies a belief that government bureaucrats know how to use bank credit better than citizens… and that is of course pure statism, totally false and absolutely unsustainable.


@PerKurowski

April 26, 2017

Martin Wolf. When the Basel Committee introduced irresponsible financial miss-de-regulation, why did you keep mum?

Sir, Martin Wolf writes of the risks… of “irresponsible financial deregulation... closely linked to the agenda of the Republicans” and argues: “The short-term effects of taking the brakes off an unstable financial system might also be positive. The longer-term ones might include a more devastating crisis even than the one of a decade ago.” “An upswing is not sustained growth” April 26.

Indeed! The short term effects of the Basel Committee favoring what was perceived as safe with much lower capital requirements for banks, had positive short term effects, but also caused the crisis a decade ago, by pushing too much investments in what was AAA rated and lending to sovereigns like Greece.

But I don’t remember reading Mr. Wolf warning about that miss-de-regulation.

The current (republican) proposals we now hear about, like the Financial Choice Act, that suggests a 10% leverage ratio instead of the Basel risk-based capital standards, seems to head in the right direction of eliminating the distortions in the allocation of bank credit to the real economy caused by Basel’s risk weighted capital requirements.

Of course, that is as long as exposures to sovereigns are not calculated differently from other exposures.

As is, lower capital requirements for banks when holding the sovereign’s debts than those of the citizens, de facto implies a belief that government bureaucrats know how to use bank credit better than citizens… and that is of course totally false and absolutely unsustainable.

@PerKurowski

April 24, 2017

Venezuela’s constitution has de facto decreed that 97% of its exports, is to be managed by some few in the government.

I refer to Daniel Lansberg-Rodriguez’ “Venezuela’s broken system cannot fix itself” April 24

Sir, Venezuela’s constitution has de facto placed 97% of its exports to be managed by some few in the government of turn.

I ask: if that were the reality of your country, would you as a citizen prioritize changing the government or changing the constitution?

I do not think my homeland has a sustainable good future, unless we dilute the excessive powers of our government, by sharing out all oil revenues directly to the citizens.

A government that is not sustained, frugally and solely, by taxes paid by the citizens, will never act sufficiently responsibly in favor of the citizens.

@PerKurowski

A regulator’s rational risk aversion when mounted on top of that of the bankers, produces an irrational risk aversion

Sir, John Authers when commenting on Andrew Lo’s “Adaptive Markets” writes: “our susceptibility to judge risks incorrectly is rooted in the necessities of survival. Fear, our early warning system, makes us irrationally averse to loss. We run greater risks to avoid a loss than to make a profit. “An emotional way to look at market theory”

Indeed, just look at bank regulators.

Even though bankers, because of their rational loss aversion, never create excessive and dangerous exposures to something ex ante perceived as risky, the regulators, with their risk weighted capital requirements for banks, mounted their rational aversion to loss, on top of that of the bankers’, and so it all became an irrational aversion to loss.

If the father’s and the mother’s average risk aversion is used educating their children, these will turn out well. But, if it is the sum of the father’s and the mother’s risk aversion that becomes applied, then their kids are lost... they will dangerously go too much for what is safe, and dangerously too little for what is risky.

In other words, the efficient markets hypothesis, the rational utility-optimising “homo economicus”, has no chance of working efficiently when interfered by regulations produced by some hubris inflated homo distorters.

@PerKurowski

April 22, 2017

“Regression to the mean” is one of the reasons the current risk weighted capital requirements for banks are loony.

Sir, Tim Harford writes: “for statistical reasons, outstanding performances tend to be followed by something less impressive. This is because most performances involve some randomness. On any given day, the worst observed outcomes will be incompetents having an unlucky day and the best observed outcomes will be stars having a lucky day. Observe the same group on another day and, because luck rarely lasts, the former outliers will not be quite as bad, or as good, as at first they seemed. This phenomenon is called “regression to the mean”. “Reversals of fortune have random roots” April 22.

And yet Sir, our dear undercover economist finds it so hard to understand how loony current risk weighted capital requirements for banks really are.

Perhaps he might be interested in what I reflected on when reading Daniel Kahneman’s “Thinking, fast and slow”


@PerKurowski

When you parents prod banks to finance houses more than SMEs, more of your children will have to live with you.

Sir, Stephen Burgen when reporting on the horrifying lack of jobs in Spain, especially for the younger, informs: “According to a report by Spain’s Youth Council, a body of youth organisations, nearly 80 per cent of those aged between 16 and 29 years old live with their parents” “Part-time labour” April 22.

For purposes of setting the capital requirements for banks, in 2004 Basel II set the risk weight for financing residential houses at 35% while that for financing an unrated SME or entrepreneur was set at 100%.

That meant that banks could leverage their equity much more when financing the purchase of a house than when lending to SMEs or entrepreneurs.

That meant that banks would earn higher risk adjusted returns on equity when financing the purchase of a house than when lending to SMEs or entrepreneurs.

And so of course, the result of such distortion in the allocation of bank credit, will mean there will be much more financing of houses than job creations.

C’est la vie! Those who will most pay the consequences of bank regulators being so dumb, are of course the young.

Though their chances of obtaining clear answers are very slim, here are some questions the young could try to ask the bank regulators.

Burgen writes: “Casual contracts keep Spaniards looking for permanent work. Only a minority enjoy the benefits and security of permanent employment”. “Part-time labour” April 22.

Welcome to the new world… in which structural unemployment, created among other by robots and automation, and nurtured by dumb regulators, might mean hundred of millions young never ever having something resembling an employment.

I ask would not a Universal Basic Income, let’s say some 400 Euros allow everyone to adapt? It would be a small but useful ladder with which to step up to the gig economy. 

That could be much more efficient than introducing additional costly distortions such as paying “up to €9,600 per annum to employers who offer young people permanent contracts” or “giving public sector workers on short-term contracts [special benefits to obtain] permanent jobs”. Really? Threatening to take away the permanent jobs of bank regulators if they don’t smart up, fast, seems like a better strategy.


@PerKurowski

April 21, 2017

World Bank: How can we create decent and worthy unemployments to help face a worldwide structural lack of jobs?

Sir, Kristalina Georgieva, writes about the needs for jobs, the difficulties involved with creating these jobs, everywhere, and of how the World Bank is trying to help. “Job insecurity is a fact of life for young people” April 22.

That is all very commendable but what I truly miss, for instance during the 2017 Spring Meetings of the World Bank and IMF, is a discussion, long overdue, about what to do if sufficient jobs are nowhere to be found.

The very real possibility of hundred of millions of young people soon facing the prospects of a lifelong lack of employment, perhaps only eased by some few temporary gigs, is a monstrous social challenge, that must be tackled in time.

For instance if in order to create jobs, we invest so much that there is little left over for taking care of if we fail to do so, then perhaps our problems could compound.

And I am of course not talking about the normal set of social safety nets to take care of a temporary lack of jobs, but of much more fundamental measures… like perhaps the need of a well funded universal basic income paid out to all.


Education is of utmost importance for creating jobs, but business as usual will not suffice. For instance some of the remuneration of teachers and professors need to be contingent on how it goes for the students. The current way of loading up university students with debt, that has to be repaid no matter what, basically in order to pay professors great salaries up front, smells a lot like a scam… or like bankers’ bonuses based on short-term results.


PS. Had the issue of how robots and automation is impacting the job market been raised earlier, we would perhaps not have to be listening to useless Wall construction proposals.


@PerKurowski

Instead of for known unknowns or unknown unknowns, regulators require banks to hold capital against believed knowns

Sir, Ray Soifer writes: “Dennis Kelleher (Letters, April 19) is right that we do not really know how much capital is necessary to prevent catastrophic bank failures. Indeed, we will never know, because not all the risks faced by financial institutions are “known unknowns”. Some of them will always be “unknown unknowns” until after the fact. Thus, there will always be need for effective supervision and market discipline: the other two legs of Basel’s “three-legged stool”.” “Unknown risks explain need for bank oversight” April 22.

But our bank regulators came up with the brilliant idea that banks should hold capital against what could be seen as perceived known knowns. With their risk weighted capital requirements they doubled down on those perceptions of risk that already influenced decisions on the amount of exposure the bank wanted to hold, and the interest rate to be charged.

So what is perceived safe, which can then be held with less capital, now signals even more safety; and what is perceived as risky, which requires more capital, signals even more riskiness.

Sir if you make the “safer” safer and the “riskier” riskier, do you really think the banks will allocate credit efficiently to the real economy? Of course not!

The “safe” like sovereigns, AAA-risktocracy and housing will get too much access to bank credit; and the “risky” like SMEs and entrepreneurs too little.

“Need for effective supervision” By whom, those who do not understand the distortions they are causing?

“Need for market discipline” What market, that who is now so utterly confused by the risk weighing?

The craziness of this capital requirement regulation is unbelievably large… and therein lays the major obstacle. I hear you: “They can’t be so dumb”. Yes Sir, don’t doubt it, they can!

Sir, “Without fear and without favour” dare ask regulators the following questions:


@PerKurowski

April 19, 2017

Why do bank credit’ surpluses and deficits not attract the same concerns as does trade’s surpluses and deficits?

Sir, Martin Wolf writes: “What is frightening about the trade agenda of the administration is that it manages to be both irrelevant and damaging. A relevant agenda would focus on the imbalances in savings and investment across the world economy” “Dealing with America’s trade follies” April 19.

Of course Wolf, like IMF among others, is right to be concerned with growing trade protectionism. What I can’t understand is why he, and IMF among most others, is not at all concerned with the consequences of financial protectionism?

I ask because the risk weighted capital requirements for banks are just like any other sort of tariff. It benefits some, and hurts other… in all it dangerously distorts the allocation of bank credit to the real economy, for no good purpose at all, as it does not promote financial stability, much the contrary.

In November 2004 FT published a letter titled “Basel just a mutual admiration club of firefighters seeking to avoid crisis” In it I wrote: “We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Of course there I was referring to the fact that the Basel Committee had decreed that the sovereigns were safer than the private sectors on which usually the sovereign depended.

Could the problem be that Wolf does not understand that allowing banks to leverage their equity (and the societal support they receive) differently for different assets distorts?

Or is it that Wolf, and the IMF, also belong to that admiration club and therefore dare or cannot breakup with its own groupthink?


PS. If I am obsessed with the risk weighted capital requirements for banks, which I am, then Martin Wolf must be just as obsessed with his “macroeconomic imbalances”.

@PerKurowski

April 18, 2017

Could not artificial intelligence, AI, sometimes prove more intelligent and socially concerned than humans?

Sir, John Thornhill writes: “Mireille Hildebrandt, professor of law and technology at the Free University of Brussels, says one of the dangers of AI is that we become overly reliant on “mindless minds” that we do not fully comprehend. She argues that the purpose and effect of these algorithms must therefore be testable and contestable in a courtroom. “If you cannot meaningfully explain your system’s decisions then you cannot make them,” she says.” “Only human intelligence can solve the AI challenge” April 18.

Indeed, but that should go for humans too! For instance bank regulators should be hauled in front of a courtroom, in order to answer some very basic questions about their risk weighted capital requirements for banks.

I ask this because I am absolutely sure that, if AI regulated our banks, then at least the following two questions would have been asked:

What is the purpose of banks? And something like John A Shedd’s “A ship in harbor is safe, but that is not what ships are for” would have been considered.

What causes big bank crises? And something like Voltaire’s “May God defend me from my friends, I can defend myself from my enemies” would have been considered.

As a consequence we would not be having our banks being regulated to avoid the risk taking the future of our grandchildren need, for no real bank stability purpose at all.

Here follows some of the questions that I would like to ask the current bank regulators in front of a court, since they do not even acknowledge hearing these.


@PerKurowski

April 17, 2017

Should bank shareholders really want lower capital requirements for what’s perceived as “safe” than for what’s “risky”?

Sir, Simon Samuels writes, “it may soon be time for shareholders to place their bets on how they like their banks — skinny on capital but with a ton of rules designed to cramp their riskier activities, or fat on capital with the freedom to take more risks… should [bank] shareholders celebrate or fear more lenient regulators?”, “Shareholders’ dilemma on financial regulation” April 17.

That is a faulty or at least incomplete description of the problem.

Current capital requirements are lenient for what is perceived, decreed or concocted as safe, and more severe for what is ex-ante perceived as risky. And that means, in one word, DISTORTION.

As a consequence banks will not be allocating credit efficiently, so the real economy will stall and fall, something that has severe consequences, at least for the bank shareholders’ grandchildren.

Also, though low equity against assets perceived as safe might in the interim produce high risk adjusted returns o equity, sooner or later the bank will, GUARANTEED, end up holding dangerously large exposures to something ex ante perceived as safe but that ex post suddenly turns out to be very risky.

I can understand some bank managers going for maximizing their bonuses in the short run, at whatever cost, they don’t have to give back their bonuses when shit hits the fan; but I cannot understand a bank shareholder who, aware of the regulatory distortions, find this acceptable.

Samuels ends with “shareholders should focus less on the rules the regulators set and more on how managers navigate their business. To quote Warren Buffett: “Banking is a very good business, if you don’t do anything dumb.”

On the contrary, as is, the regulators must focus on the rules the regulators set because these rules, this interference, is the greatest source of dangers for their banks and for everyone’s economy.

Sir, what good does a great run on bank profits do you if at the end of the day you find yourself standing on top of some worthless rubbles?

PS. Sir, do not forget that, amazingly, these risk weighted capital requirements are portfolio invariant.


@PerKurowski

April 16, 2017

When you hold back banks from financing the riskier future, the pace of disruption and of productivity growth, will both slow.

Sir, I would like to make two brief comments with respect to Tim Harford’s “Disruption sets a less frenetic pace of change” of April 15.

The first is that the ownership of houses as well as the state of the housing market, influences on mobility. When you own a home but your equity in it has disappeared all things get to be more complicated.

The second is that though he mentions Tyler Cowen’s new book The Complacent Class, [which] argues that America has become less adventurous in many ways… he still does not want to understand that the risk weighted capital requirements for banks, more perceived risk more capital – less risk less capital, de facto orders less adventures and much more complacency.


@PerKurowski

April 15, 2017

Loony bank regulators based the capital requirements to cover for uncertainty, on the “certainty” of expected risks.

Sir, Rana Foroohar, when reviewing the former Securities and Exchange Commission regulator and Treasury department adviser Richard Bookstaber’s book “The End of Theory”, begins it with “Economists are forever running forensics on past financial crises to discover clues as to how the next one might occur.” “Uncertainty principles” April 15.

I don’t know about all my economist colleagues, but our current bank regulators, those you most should thought would do that in order to regulate, they definitely did not do that.

If they had done so, they would clearly have noted that all major bank crises result from a. unexpected events (like devaluations) b. criminal behavior (like lending to affiliates) and c. excessive exposures to something ex ante perceived safe, but that ex post turns out to be very risky.

As a consequence they would never ever have come up with something as dumb as risk weighted capital requirements for banks that were lower for what was dangerously perceived as safe, and higher for what was made innocuous, precisely because it was perceived as risky.

Indeed bank capital should be there for the unexpected, to take care of the ex post uncertainties. That is why current regulators, when basing their capital requirements for banks on the ex ante perceived risks, evidence they haven’t a clue about what they are doing.

Sir, as you have silenced some 2.500 letters of mine on this, I know you don’t want to raise this issue but do you really believe it is in your best interest to keep quite on it?

@PerKurowski

April 13, 2017

How many university professors know they are educating kids for jobs not to be had?

Sir, Mo Ibrahim writes: “the more time young people in Africa spend in education, the more likely they are to be unemployed… It highlights the worrying mismatch between the skills our young people are taught and those needed by the contemporary job market. This is a recipe for frustration and anger” “Africa’s youth, frustrated and jobless, demand attention”, April 13.

Scary! But it is even scarier if we connect this to Rana Foroohar “Dangers of the college debt bubble”, April 10 and Alex Pollock’s letter of April 12, “Colleges are acting like subprime loan brokers”.

A question. In our universities how many of the professors might be aware of the slim chances of their students’ landing a job in the future that will allow them to service their student debt and have a life… and still say nothing?

In many occasions over the years I have written about the needs to better align the remuneration of professors, at least their pensions, with the future of their students.

It is amazing to see so many professors criticizing bankers for poaching their clients while they de facto behave just the same. Load up the kids with loans, so that we can collect (bonuses) today! 

It will not work, and it will come back and bite us all.

PS. If I owed a student loan I would ask for a debt to equity conversion, offering a percentage of my after tax earnings over a certain amount for a definite number of years.


@PerKurowski

April 11, 2017

Regulators, why do you fear what bankers fear? Is it not what the bankers trust that which is really dangerous?

Sir, Miles Johnson writes: “Since their inception, financial markets have been driven by greed and fear. No matter how advanced technology becomes, human nature isn’t changing.” “AI investment can ape intelligence, but it will always lack wisdom” April 11.

I am not sure, as is I might prefer a reasonably intelligent artificial intelligence to regulate our banks.

BankReg.AI would begin by asking: What are banks? What are they for? An answer like “to keep our money safe” would not suffice, because for that a big vault in which to store our savings would seem a cheaper alternative than a bank. So BankReg.AI would most probably, sooner or later, be fed that not so unimportant info that banks are also supposed to allocate credit efficiently to the real economy. As a consequence the current risk weighted capital requirements concocted by the Basel Committee would not have even been considered because these very much distort the allocation of credit.

Then BankReg.AI would ask: What has caused all bank crisis in the past” After revising all empirical evidence it would come up with: a. Unexpected events (like devaluations), b. criminal behavior (like lending to affiliates) and c. excessive exposures to something that was erroneously perceived as safe. As a consequence the Basel Committee’s current capital requirements, lower for what is dangerously perceived as safe than for what is innocuously perceived as risky, would never ever have crossed BankReg.AI’s circuits. 

@PerKurowski

April 07, 2017

Politifact, Snopes, AFP, BFMTV, L’Express, Le Monde and Correctiv. Please check this fact for us! Pro-bono of course.

Sir, Madhumita Murgia reports “Facebook plans to pay fact-checkers to monitor news on its platforms in response to sustained criticism that it has not been doing enough to crack down on fake stories... So far, it has formed partnerships with third parties such as Politifact, Snopes, AFP, BFMTV, L’Express, Le Monde and Correctiv. “Facebook fights back against fake news” April 7.

Do I have a fact checking for these organizations to do? I mean pro bono, I am no Facebook.

Current bank regulators, the Basel Committee, in order to set the capital requirements for banks, so that we can all feel calm about the stability of our banking system, have for instance risk weighted those rated AAA to AA with 20%, and those rated below BB- with 150%.

I am absolutely sure no bank crisis has detonated because of major bank exposures to something that was perceived ex ante as risky so as to merit something like a below BB- rating. I am absolutely sure that if a bank crisis has been caused by something connected to the perception of risks, that has been because of excessive exposures to something ex ante perceived as very safe, like a AAA rated borrower, but that ex post turned out to be very risky.

Could you check that fact for us? Risk-weighing this way means that what is rated AAA has now more and cheaper access to bank credit than was the norm in the absence of such regulations; and that what is rated below BB- has now less and more expensive access to bank credit than usual. And that makes no sense.

In terms of how Mark Twain put it, this signifies that the banker is now even more willing than usual to lend you the umbrella when the sun shines, and even faster than usual to want to take that umbrella back as soon as it looks it could rain.

While checking these facts, if you happen to meet a bank regulator, I would appreciate it if you could try to get some answers from him on the questions I link to below. Though I have tried for years, I have had no such luck.


@PerKurowski

More important than air traffic control is to place bank regulation in a public/private non-profit entity

Sir, Gillian Tett discusses the head of the US Council of Economic Advisers’, Gary Cohn, plan to take the air traffic control system away from the Federal Aviation Administration and place it in a non-profit entity, funded by public and private finance. “Canada inspires US reform plans to take off”, April 7.

Sounds like a good idea but, much more important for both America and Canada, would be to place bank regulations in the hands of such an entity… like a BankReg.org!

I mean would BankReg.org have gotten away, like current bank regulators have, with regulating banks without defining the purpose of banks? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, to regulate banks without empirical analysis of what has caused the bank crises in the past? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, with making it harder than it always has been for “risky” SMEs and entrepreneurs to access bank credit? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, with risk-weighing the Sovereign with 0%, and We the People with 100%, and thereby through the Bathroom Window introducing runaway statism? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, with risk-weighing the dangerous corporate AAA rated with 20%, while assigning a 150% risk weight to the so innocuous below BB- rated? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, with giving banks incentives to finance the “safe” basements were our unemployed kids can live over those, who though riskier, could provide our kids with the jobs they need in order to also have kids and basements? No way Jose!

I mean would those working in BankReg.org have gotten away, like current bank regulators have, with not having some psychological tests made on them in order to guarantee their suitability? No way Jose!

I mean would BankReg.org have gotten away, like current bank regulators have, with causing the 2007-08 crisis without suffering any consequences for it… in some cases even being promoted? No way Jose! We would have sued and fined its technocrats for their last socks!

I mean would FT have treated BankReg.org as leniently as it has treated the Basel Committee for Banking Supervision, the Financial Stability Board, IMF and other clearly failed bank regulators? No way Jose!
@PerKurowski

More than from corporate governance failures Britain, and the Western World, suffer a hubristic regulatory failure.

Sir, Martin Wolf, on the issue of: “why [UK] productivity growth is so pervasively low” writes: “One reason could be the exceptionally weak investment, by international standards. This would be another corporate governance failure. Rectifying this disaster is the UK’s most important policy challenge, far more so than Brexit. The government should finance a high-level effort aimed at working out what has gone wrong, why and what (if anything) to do about it. The country’s very future is at stake.” “Britain’s dismal productivity is its biggest policy challenge” April 7.

What corporate governance failure? Most of the responsibility for weak productivity growth can be traced directly to the risk–weighted capital requirements for banks concocted by Andy Haldane and his regulatory buddies at the Basel Committee for Banking Supervision.

Anyone who has walked on main-street and seen first hand how difficult it has always been for “risky” SMEs and entrepreneurs, without bankable collateral, to access bank credit, should have understood that to burden these even more by the fact they would also generate higher capital requirements for the banks than what “the safe” borrowers do, would affect productivity and economic growth.

Getting rid of these regulations that have effectively hindered millions of SMEs and entrepreneurs to access bank loan opportunities they would otherwise have been able to access, must of curse be the number one priority, not only in Britain but in the whole western world.

There will be much written in the future about how on earth regulators could come up with such daft regulations and how little the so much informed and so much connected world, questioned these.

On April 3, in FT, Anjana Ahuja, in reference to Robert Hare’s 1993 “Without Conscience: The Disturbing World of the Psychopaths Among Us,” wrote: “Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans…not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

That convinced me that we should subject those technocrats taking decisions on such vital aspects as bank regulations, to a full psychological assessment before we allow them to proceed. We do mandate such tests for airplane pilots, even if they are engaged in much less dangerous activities for the world.

Frankly we can’t afford the luxury of having regulators so dumb that they set the capital banks should have in order to meet unexpected events, like ex ante perceived as very safe borrowers turning out ex post being very risky, based on the expected credit risks bankers already clear for.

And its not like I have not said it before. Here for instance on Martin Wolf's Economist Forum in 2009

@PerKurowski

April 06, 2017

If the renminbi is as shaky and dangerous as Martin Wolf argues, why was it made part of IMF’s SDRs in October 2016?

Sir, Martin Wolf writes: “US policymakers should worry about China’s capital account, not its current account. That is where danger now lies… Given its macroeconomic imbalances, China could unleash considerable global mayhem… Capital would pour out, the renminbi would tumble and, in time, a globally unmanageable current account surplus would emerge…Today’s credit growth and consequent financial fragility are a direct consequence of the desire to prevent this from happening” “Chinese finance is storing up trouble” April 6.

Aha! And so what do we do? And so what does Martin Wolf suggest President Trump does when meeting his Chinese counterpart Xi Jinping in Florida this week?

Is all this just another excuse to lash out at Trump, in this case Trump’s concerns with the deficits in the trade account, those deficits that Wolf strangely seems to argue are totally disconnected to the capital accounts. In truth all this about “the macroeconomic imbalance” reads just like pure vintage Wolf. 

He for instance insists with a “China’s external accounts already played a significant role in the run-up to the financial crisis of 2007-08.” Significant perhaps but still much smaller than the role the distortions produced by Basel’s risk weighted capital requirements for banks played… like for AAA rated securities and Greece

But Sir, we should ask, where was Martin Wolf when, on October 1, 2016, the IMF made the renminbi part of its Special Drawing Rights… and thereby de facto awarding it a reserve currency status? Was that not a much more important moment for Wolf to step forward and opine, than a meeting at a Mar-a-Lago in Florida this week?

PS. Of course, Trump is Trump, and we should never completely ignore the possibility he will try to arrange a financial conference that could give to Mar-a-Lago the same type of historic fame that the Bretton Woods Conference awarded the Mount Washington Hotel. (What hotel owner would not love that?)

PS. Frankly, how can a country that blocks a search engine like Google has its currency included in IMF's SDRs?

April 05, 2017

The biggest “problem” with a Universal Basic Income is that it leaves many redistribution profiteers without jobs ☺

Sir, Diane Coyle from the University of Manchester, with respect to a Universal Basic Income writes: “it is hard to see that a Universal Basic Income would do better at addressing the economic and social costs of large-scale redundancy than the previous policy of making payments to those who lost their jobs. “Universal basic services are more important than income” April 5.

But suppose this prayer was read next Sunday in all our churches: “For all our young people who are never going to get a job, we pray they feel worthy citizens. Lord, hear our prayer”. 

Would then Professor Coyle still believe that a payment under the dole system is a better option than a Universal Basic Income?

There’s a choice to be made. Either a system with flexible accessible humiliating dole payments handed out by besserwissing redistribution profiteers, or a UBI complemented by strict, very limited, supplementary payments to those of working age with special problems. I have no doubts which one I would choose.


PS. As always I signify that the needs of children and of those who have retired are to be met separately.

@PerKurowski

April 04, 2017

Who sold IMF the fake idea that risk weighted capital requirements for banks do not distort the allocation of credit?

Sir, Shawn Donnan, referring to a IMF paper recently released by Christine Lagarde, “Gone with the Headwinds: Global Productivity”, writes that IMF economists warn: “The world’s economy is caught in a productivity trap thanks to an abrupt slowdown caused by the 2008 global financial crisis, which will yield more social turmoil if it is not addressed hold that” “IMF raises fear of slowing productivity” April 4.

Bank assets, based on how they are perceived ex ante, can be divided into safe and risky assets. The “safe”, by definition, currently include sovereigns and corporates with good credit ratings, and residential mortgages. The “risky” include what is unrated or what does not possess very good ratings… like loans to SMEs and entrepreneurs. It is also clear that she safe includes more of what is known; meaning what’s in the past or present, and the risky more of what is unknown, meaning what lies in the future.

Then suppose regulators had transparently told the banks: “We hate it so much when you take risks so that, from now on, if you finance something that is perceived as safe and stay away from what is perceived as risky, we will reward you by helping you to make you much higher risk adjusted returns on equity”.

In such a scenario, could it not be reasonably expected that IMF would be identifying regulatory risk aversion as something that could be slowing productivity? I mean, as John A Shedd said: “A ship in harbor is safe, but that is not what ships are for"

But, rewarding the banks for going for the safe, and staying away from the risky, is exactly what the current risk-weighted capital requirements for banks does.

And the IMF, even though here the report mentions: “Growing misallocation during the pre-global- financial-crisis financial boom [and] The global financial crisis might have worsened capital allocation further by impeding the growth of financially constrained firms relative to their less constrained counterparts.” says nothing about distorting bank regulations having something to do with this misallocation; an only produces second-degree explanations such as “banks may have “evergreened” loans to weak firms to delay loan-loss recognition and the need to raise capital”. How come?


“Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans…not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

Could it really be that one or more of these spellbinding salesmen of certainty illusions, technocratic besserwissers, managed to enthrall and blind the whole IMF? If so, Mme Lagarde owes herself and the IMF to find who they were… and to put a stop to it.

May I suggest she starts doing so by sending around to all those in the IMF that have had anything to do with bank regulations, some of those questions that, without any luck, I have tried to get answered, many times even in the IMF. Here’s the link: http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

But perhaps IMF already knows who those “charlatans” were, and just want to spare some members of their mutual admiration club some very deep embarrassments. If so then IMF is not fulfilling its responsibilities, as it should.

Too much is at stake! More than ever the world need to develop the capability of filtering out any fake experts, no matter how nice they are and no matter how important the networks they belong to.

PS. Twice I have had the opportunity to ask Mme Lagarde on this subject, and twice she kindly answered me, but nothing seems to have come out of it 

PS. In December 2016, during the IMF’s Annual Research Conference, Olivier Blanchard also agreed with me there were needs to research how these capital requirements distort.

@PerKurowski

April 03, 2017

It would seem our bank regulators should be subjected to a full psychiatric evaluation before allowed to regulate.

Sir, I refer to Anjana Ahuja’s brief message on Robert Hare’s 1993 “Without Conscience: The Disturbing World of the Psychopaths Among Us,” “Text messages: nine business books to help you through turbulent times” April 3.

Ahuja harrowingly writes: “Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans by revisiting the work of the psychologist who pioneered the study of psychopathy. Hare’s short classic covered not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

I have often referred to our current bank regulators as dumb, ignorant, inept, stupid, even dangerous, but never ever as psychopaths, and so this really scares me.

But the truth is that white-collared technocrats, overstating with much hubris their abilities, have been able to exploit the “Uncertainty is unsettling and certainty is alluring”, in order to cajole so many, or even most in the world, into firmly believing that their risk weighted capital requirements for banks, based on ex ante perceived risks, with certainty combats, at no cost, that uncertainty that can cause banking crises.

Sir, I immediately ordered a copy of Robert Hare’s book, but really Anjana Ahuja’s brief message should suffice to understand the benefits of subjecting bank regulators to a full psychiatric evaluation before they are allowed to regulate. Airplane pilots must go through many psychological tests before they are allowed to pilot planes, and that even though they would cause so much less hurt and pain than what some misfit bank regulators could cause… or have caused.

PS. Oops I just discovered that I recently did recommend you a psychological assessment. I assure you that had nothing to do with psychopaths.

@PerKurowski

April 01, 2017

Is it so impossible that something really better could come out from Brexit, for all? Is EU that strong or good?

“We have considerable scope to see things as we prefer to see them” writes Tim Harford, a sensitive liberal internationalist, and then goes on to comment on Brexit with “The EU would benefit from a deal, but the UK needs one desperately.” “Beware the ostriches pursuing a pact” April 1.

That is an argument, in different wordings that I read repeatedly in the Financial Times. It much reminds me of the anti-Trumpists; they have too much vested emotional interest in things turning out bad. They can’t wait for that impeachment that will allow them a definite “we told you so”… and what sufferings is produced on that route is of secondary order.

I of course am not at all pleased with the concept of Brexit (or a Trump presidency) but, as a Venezuelan, I have seen how a puritan opposition can only make things worse.

Do not allow technocratic thugs to take over Brexit negotiations. If there is one message a sensitive British liberal internationalist should at least continuously be asking EU’s sensitive liberal internationalists is: After Brexit, do you want to become a better EU, or is that really indifferent to you?

That Sir because, as I have told you before, I believe Britain will be able to manage any major sacrifices that might result from Brexit, much better than EU any minor sacrifices without Britain.

Harford writes: when “cringing [scared] behind the nearest piece of furniture, trouble lies ahead. Indeed that ostrich effect will simply allow technocratic thugs to take over Brexit negotiations… and Sir that is truly scary… where it not for them there would be no Brexit to begin with.

PS. “terrifying parts of Doctor Who”. Out in the real world it is important to be sure about what really should terrify you. For instance, bank regulators think of what is perceived as risky as something terrifying, ignoring that the really scary parts always turn up among what has been perceived as very safe. As a result they got their risk weighted capital requirements for banks all wrong… and they have still not been able to reconcile their fears… and we’re all paying for it. That is really terrifying, for real.

PS. Do Financial Times journalists need their editor’s permission to ask banks regulators these questions?

@PerKurowski

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