June 28, 2017

Martin Wolf, beware; we all, including you, are not so immune to populism as we would like to think.

Sir, Martin Wolf opines on the dangers of populism and haughtily instructs us with: “those who wish to resist the rising tide of populism have to confront its simplifications and lies”… “The economic origins of the populist surge: Political turmoil in several western democracies is a legacy of the global financial crisis” June 28.

Before preaching us Wolf should know that beside easy to see through vulgar populisms, like the Chavez’ kind, there is also much more sophisticated but not less dangerous populisms, and to which the elite could also easily fall prey.

For example: The Basel Committee, and other bank regulators announced: “Banks and evil banksters are not to be trusted. They want to earn huge returns on equity by taking too many risks with your deposits, and then leave you as taxpayers to clean up their mess. But don’t you worry! We are going to fix that for you, with our risk-weighted capital requirements. More risk more bank capital - less risk less capital”.

And too many super duper experts, like (white guy :-)) Martin Wolf, fell for that nonsense.

This regulation, by creating incentives for banks to build up dangerously large exposures against very little capital to what was perceived as safe, like for instance to AAA rated securities backed with mortgages to the subprime sector, and to sovereigns like Greece, clearly failed and caused the 2007/08 crisis. But the same regulators now tell us: “Be calm, we have everything under control”, and too many keep believing them just the same.

And so now we are offered: some risk independent capital requirements, which could cause the remaining risk-weighing to be even more distortive on the margin; liquidity requirements that will equally distort; some tests of the stresses a la mode the regulators deem to be important; the creation of living wills by bankers who must surely find it hard to know what’s left to will after a severe crisis; and making sure banks do not apply too much of their own risk models but use more of the (loony) standardized Basel risk weights. In summary, all our regulators are managing to do is to assure the creation of more and more systemic risks.

And if someone like me denounces that regulators dangerously distort the allocation of credit to the real economy, those who have fallen to that regulatory populism, like Wolf, have the toupee of telling me that the evil banksters have an obligation to see through all that, and still do what is right. 

So now green is safe so you can finance it, but red is risky so you cannot. That entirely ignoring that green could just be safe houses with basements in which the young can live with their parents, while red could be the risky SMEs and entrepreneurs that if financed, could help the young to find the jobs they need in order for them to afford to buy houses.

Sir, frankly, have you ever heard of such technocratic bullshit populism?

But could I also not be the victim of populism? Surely! Which is why I wake up each day en-garde, ready to question everything, including what you opine Sir, sorry!

PS. Structural unemployment, brought on by robots and automation, is one of the greatest threats to social cohesion. That is why I wish for my world to try a universal basic income scheme, before it is too late. Once social cohesion breaks down it is so much harder to mend it… Venezuela dixit. Does this make me having fallen for some silly populism? If so, tell me so!