November 15, 2017

Martin Wolf, we sure don’t need a Basel Committee for Large Technological Companies Supervision

Sir, Martin Wolf ends his discussions about the monstrously large technological companies (Apple, Alphabet, Microsoft, Amazon and Facebook, Alibaba, Tencent and Samsung) with: “What are the implications? They are that our futures are too important to be left to the mercies of the technology industry alone. It has done magical things. Yet nobody elected it master of the universe. Policymakers must get an intellectual grip on what is happening.” “Taming the masters of the tech universe” November 15.

Does Wolf really believe some probably self appointed technocrats should be able and capable enough to stand in for the current masters of the tech universe, for all these to work more smoothly and safer without any unexpected consequences?

I am reminded of AEI’s Alex J. Pollock’s 2015 article “Martin Wolf’s childlike regulatory faith”. That article referred to Wolf’s “naïve faith in the future superior knowledge and future ability of central bankers and other bureaucrats successfully to tell other people what to do”.

Sir, just look at what those who appointed themselves as the Regulation Masters of the Universe of Banks have done:

They have allowed banks to leverage differently with different assets. As a consequence banks have different capability to obtain risk-adjusted returns on equity with different assets. This has dangerously distorted the allocation of bank credit to the real economy, in favor of what could be leveraged the most. Now instead of banks wanting savvy loan officers to maximize their ROE, they look mostly for equity minimizers to do that.

And, by considering the risk of the banks assets per se, and not the risk those assets represent to the banks, they got their whole risk-weighting totally wrong. A clear example of that is Basel II’s risk weight of only 20% for the dangerous AAA rated and of 150% for the so innocous below BB- rated. Sir, have you ever seen more inept Masters of the Universe?

Would the banks left alone to the markets be able to leverage 62.5 times to 1 only because an AAA to AA rating was present? No!

Would the banks left alone to the markets be able to lend to sovereigns without any capital at all as Basel II’s 0% risk weighting of sovereigns implies? No!

Would we have suffered to 2007-08 crisis had it not been for these regulations? No!

Do I suggest we should leave the tech monsters to do what they want? No, but I don’t think markets will allow them to reign alone and do what they want forever either… things do change, just look at GEs and Siemens.

For instance I can feel some ad-blockers around the corner that could help us users to charge Google and Facebook something for them using our own preferences to earn their advertising revenues.

And I can also smell additional taxes coming up in the future, like for instance a minuscule cost for each advertising connection in social media, which would make sure the marginal cost of exploiting our limited attention span is not zero. But these taxes will hopefully be shared out to all by means of universal basic income mechanisms instead of increasing the franchise value of the redistribution profiteers.

And to combat “people of ill” engaging in “deliberate dissemination of dangerous falsehoods”, much could be helped just by means of having an independent credible register that guarantees us who do not want to engage with unknown strangers, that behind a communication stands a correctly identified and not hacked real person.

PS. Here are some questions I have on tweets and tweeting etiquette that I tweeted.

If without any bad intentions I have re-tweeted a tweet that turns out to be fake news or fake and damning accusations, could I be sued?

If I re-tweet a tweet that I know or should know contains fake news or fake damning accusations, should I be sued?

Don’t we need a sort of ISO quality standard on tweeting that we can adhere to?

Don’t we need somebody to guarantee us that a tweeter is a real identifiable person that has not been hacked?