The Fed and bank regulators have done many times more harm to the real economy than the political leadership, President Trump included.

Sir, Rana Foroohar writes:“It is clear that the power of monetary policy to support the real economy has diminished. In lieu of better political leadership, the key task for central bankers in the years to come may be to roll up their sleeves and do the gritty work of bolstering not the markets, but Main Street.” “Central bankers refocus on Main Street” December 31.

That’s not likely to happen. The Fed and bank regulators have clearly evidenced they are not up to that task. Without the slightest consideration to how banks are to serve the real economy, and its needs for development, with their risk weighted capital requirements for banks, they blocked “the risky” Main Street’s access to bank credit, in order to favor all that which was perceived (or decreed) as safe… like residential mortgages (and the sovereign) 

Now every one of them will eagerly be trying to escape his or her responsibility, by blaming Donald Trump, who in many ways is acting as a perfect godsend scapegoat.

PS. “We are almost 10 years into a recovery cycle — the time when economic slowdowns typically occur”. That might be so, but it still sounds so expertly besserwisser. 

"Paga-peo" a Venezuelan name for a scapegoat

@PerKurowski

European banks that leveraged more than 40 (25) times were (are) not banks; only scary betting propositions.

Sir, Stephen Morris, summarizing the state of European banks writes, “Poor profitability, outdated business models, negative rates and little cause for optimism have driven investors away”“Europe’s banks languish in a climate of gloom”, December 28.

As I see it, something leveraged way over 40 times, as many European banks were before the 2008 crisis, should hardly be called bank. When regulators went along with some bankers’ plea to reduce the capital the banks needed to hold, perhaps for bankers to be able to pay themselves larger bonuses, they simply destroyed the bank system that was. 

If I was a regulator, and wanted my banks to grow stronger than their competitors, the last thing I would do, is to allow them to hold little capital.

The regulators, with Basel II in 2004, showed they believe banks could leverage 62.5 times with assets that have obtained an AAA to AA rating. The market initially believed their risk-weighing capacity and valued banks accordingly. The markets, after 2008, no longer believe such nonsense; “There is better risk-reward elsewhere,” one fund manager is here quoted to have said.

The European Commission assigned a sovereign debt privilege of a 0% risk weighting, meaning no bank capital requirement, to all those sovereigns within the Eurozone that take on debt denominated in a currency that de facto is not their domestic (printable) one. The market had blamed Greece for its excessive public debt and is only now beginning to wake up to that statist horror.

Morris writes: “One activist is trying to force it to exit large swaths of the business, arguing it absorbs too much capital for too little return”. That does not mean capital is unavailable for banks.

Do you want bank investors to return? Then offer them to invest in well-capitalized banks with well-diversified portfolios. To invest in banks that values the highest first class loan officers, not some bright equity minimizing financial engineers.

PS. Seeing “Mary Poppins return” reminded me of why good old George Banks went to fly a kite.

@PerKurowski

President Trump seems to be on route to become one of the greatest “paga-peos” (scapegoats) in history.

Sir, Gillian Tett writes that for her “money, there is another, darker, way to interpret this week’s [extreme volatility in US equity markets]. Two years into Mr Trump’s presidency, global investors are questioning the administration’s financial credibility…Steel yourself to cope with further turbulence triggered by Mr Trump”,“Expect more turbulence from Trump’s Fed fight”, December 28.

Indeed, president Trump is to be blamed for some of it, but the truth is that had the markets been more normal, not so much bubbled-up, he would only cause some ripples never Tsunamis.

That Trump has given indications to fire Jay Powell, the Fed chair, is bad in as far as it interferes with the necessary independence and credibility of a central bank. But, that said, let me also hold that, if a central banker or a regulator believes that what bankers perceive as risky is more dangerous to bank systems than what they perceive safe, and therefore use credit distorting risk weighted bank capital requirements, as they’ve done for a long time, that is a clear justified cause for their removal.

Venezuelan historians sometimes recount that in old days the refined ladies of the society always used to keep a young slave close by. Whenever they let out noisy and smelly gases, they would hit the slave hard and loudly on his head spelling out “Boy/Girl!” whichever applied. These useful blame-takers, scapegoats, were known as “paga-peos”, literally “fart-payers”.

Sir, President Trump clearly produces some gases himself, but he could also go down in history as one of the greatest paga-peos ever.

When booming equity markets, house prices and unsustainable debt levels everywhere, built up with easy bank credit, huge liquidity injections and ultra-low interest rates come crashing down, as they must, sooner or later, those who are much more to blame for it, could all jointly point at President Trump and shout “He did it!” and Ms. Tett might smilingly nod in agreement.

PS. Though in Spanish here you will find more interesting details about the “paga-peos” tradition and about how it can be used with even worse intentions.

@PerKurowski

A governance code that forces regulators to clearly define the purpose of banks is much needed.

Sir you write, “From January 1, a revised corporate governance code will apply to UK-listed companies, for instance. It now states that the board’s duty is to ‘establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned’”. “Taking the measure of good corporate culture” December 27.

Sir, if only such code had existed and been applied by bank regulators.

As is the risk weighted capital requirements for banks which so dangerously distorts the allocation of credit to the real economy, were developed without any consideration to what is the purpose of banks, that is unless you think that being a safe mattress into which to stash away cash, is all that banking is about.

If “What are banks for?” had been asked, the Basel Committee would not have allowed banks to leverage much more with “safe” residential mortgages than with “risky” loans to entrepreneurs, those who could perhaps help to create more of the jobs needed in order to be able to service the mortgage and pay utilities.

You also write: “The Banking Standards Board, set up in 2015 to help the UK sector regain trust, runs an annual assessment of members, monitoring areas from honesty to accountability with a staff survey, focus groups and interviews.”

Sir, with respect to accountability, has that Board ever asked regulators why they think that what bankers perceive risky is more dangerous to our bank systems than what they perceive as save?

@PerKurowski

One country, setting the example of a very high carbon tax, and sharing out all its revenues equally among all its citizens, would be a real game changer, in so many ways.

Sir you correctly argue, “Time is running out for us to halt dangerous rises in temperature…this is no longer a scientific or technological challenge, it is far more a political and social one.”, “How to rescue the global climate change agenda” December 27.

But when you hold “The depressing reality about climate change is that we could solve the problem, at manageable cost” that is not necessarily so. Sir, let’s face it, the truth is that there are way too many whose real interest, more than solving the challenges of climate-change, is to profit from the process, whether financially or politically, whether they are aware of it or not.

I’m as concern as anyone with the problem but in my case I really did not mind so much president Trump’s blindness, since I have always thought of the Paris agreement in terms of being just an interesting photo-op that would serve as a very dangerous pacifier.

So to align political and social incentives; to allow the market signaling how the problems should be best tackled; and to keep costly profiteering out of the process, I have for years thought the best alternative is a very high carbon/pollution tax which revenues are shared out in their totality equally among all citizens.

Why does that idea not meet more interest? The answer is clearly that the redistribution profiteers see that route as one that could very dangerously affect the value of their franchise, since there could be pressure for the revenues to be redistributed to all, a sort of unconditional variable basic income, should also for instance include all income generated by any existing gas/petrol taxes.

Our planet that I often refer to as our pied-à-terre needs a champion that decides to go down this route to set an example to follow. My grandchildren are Canadian so I would love Canada showing the way.

PS. This is exactly what I proposed how Mexico City should tackle its serious pollution problems in a letter you kindly published in May 2016.

@PerKurowski

Let us issue shares fed with some results of our economy to all of us, and then worship these.

Sir, Rana Foroohar asking “At what point does bad corporate behavior become willful malfeasance?” writes, “Facebook is the natural culmination of 40 years of business worshipping at the altar of shareholder value.” “Facebook puts growth over governance” December 25.

Really? If all the incredible developments around Facebook, Google, Apple, Amazon, and Microsoft and similar, results from “worshipping at the altar of shareholder value” then perhaps we should issue a share to each citizens that feeds on a substantial part of profits, like those of Facebook, or taxes, like carbon taxes, and have us all worshipping these shares, instead of trusting the acts of genius politicians or bureaucrats with agendas of their own. 

Those shares, which would pay out an equal unconditional societal dividend to all of us, is by the way what a Universal Basic Income is all about. 

Of course, as usually comes with new developments, there are new and serious problems, and data privacy is one of them. Foroohar asks “ Have we reached one of those watersheds when US and European authorities are going to step up and do something about it? Let us beware, there’s no guarantee that would not be even worse. 

Foroohar says she is reminded of “bank executives who had no understanding of the risks built into their balance sheets until markets started to blow up during the 2008 financial crisis” 

I am though more reminded of regulators who allowed banks to leverage over 60 times their equity with what rated as AAA could be very dangerous to our bank system, and less that 8.3 times with what rated below BB- bankers do not like to touch with a ten feet pole. I am reminded of regulators who assigned a risk weight of 0% to the sovereign of Greece, and thereby doomed that nation to its tragedy.

@PerKurowski

The crisis of modern liberalism is caused more by authoritarian besserwisser distortions than by market forces.

Sir, Wolfgang Münchau writes: Margaret Thatcher’s successful brand of entrepreneurial capitalism in the UK in the 1980s… Through the sale of council houses, she turned tenants into property owners.”, “The crisis of modern liberalism is down to market forces” December 25.

True, but later immense injections of liquidity, ultralow interest rates, and extreme preferential risk weighted capital requirements for banks when financing the purchase of houses, has helped turn houses from being just homes into being investment assets. That of course has left all those who do not own these investment assets, even further behind.

Therefore I cannot agree with Münchau’s conclusion that liberalism is failing because of market forces. At least in this case the distortions are not caused by market forces, but by regulators and central bankers who have insufficient idea about what they’re doing. Of course, if crony statism forms part of market forces, which perhaps de facto it sadly could be, then I would be wrong.

When Münchau finally opines, “Any system that leaves behind 60 per cent of households will eventually fail” that is not necessarily so. The world is plagued by examples by how such systems have too often proven to be even more resilient than those who do not. On a small model scale, just look at how Venezuela’s current regime has been able to hang on to power for at least a decade more than it should have been able to.

@PerKurowski

Why should Goldman Sachs financing 1Malaysia Development Berhad (1MDB) be worse than it financing Venezuela’s Maduro’s regime?

David Crow and Laura Noonan in an FT The Big Read write, “Goldman is under increasing scrutiny over its role in underwriting $6.5bn of bond offerings for 1MDB in 2012 and 2013, a service for which it reaped a hefty $600m in fees and trading gains. After the money was raised, $2.7bn was allegedly siphoned off by the Malaysian financier Jho Low, who is accused of masterminding the fraud, to pay for a lavish lifestyle and to bribe Malaysian officials.” “Tim Leissner: Goldman Sachs banker at the heart of 1MDB scandal” December 24.

Sir, why should this operation be considered so worse than when, in May 2017, Goldman Sachs, Lloyd Blankfein approved to hand over about US$800 million to the notoriously corrupt, criminal and human rights violating government of Venezuela’s Maduro?

GS, in exchange for their money obtained $2.8billion Venezuelan bonds paying a 12.75% interest rate, which if repaid would provide GS with about a 42% yearly return, 2.000% more than what US pays. Is that not bribing foreign government officials and should therefore perhaps fall under the Foreign Corrupt Practices Act of 1977?

With respect to money being siphoned off, if anyone in GS doubts that much of that loan did not go the same route, then the days of GS are soon over. Such naiveté does not survive in the world of finance.

We are now in December 2018, and still not the slightest sign of a "Sorry Venezuelans" from Lloyd Blankfein. An elite, aware of its true responsibilities, would be shaming Lloyd Blankfein… and surely not inviting him to their homes. 

@PerKurowski

If there’s a re-vote on Brexit, what will the Remainers suggest Britain remains in?

Sir, Jeff Colegrave makes a well reasoned case of why, if there is a new vote on Brexit, it is on the Remainers’ shoulders to make very clear what they are supporting to remain in. “Remainers risk hubris without a positive case for the union” December 17.

The three outstanding problems Colegrave wants to have a clear definition on are:

How the Eurozone can avoid that a generation of youth becomes again sacrificed, on the altar of the common currency.

How the EU can avoid manifestly failing to adequately address the issue of migration. 

And “the lack of democratic political architecture within the European project, [which] cannot lightly be dismissed as some kind of arcane irrelevance. 

I could not agree more. I would be a committed Remainer, only if EU shows clear intentions to stop being such a Banana Union. You do not build a real United European States with a bureaucracy such as that currently present in Brussels.

Let me be clearer yet. If a Remain wins, the last thing British citizen, or all of their other EU citizens colleagues need, is for that to be presented as a triumph or an endorsement of Brussels.

PS: With respect to the sacrifices on the altar of the common currency, I have sent you many letters, in which I have blamed EU authorities for the tragic over-indebtedness of many euro sovereigns, when assigning to the public debt contracted in a currency that de facto is not their domestic (printable) currency, for purposes of bank capital requirements, a 0% risk weight. But of course these letters are ignored, because Per Kurowski suffers just an obsession about current bank regulations. 

@PerKurowski

Even the best central bankers can mess it up, royally

Sir, Tim Harford writes: “A flint-hearted technocrat can at times deliver better results for everyone. In the early 1980s, Fed chair Paul Volcker demonstrated the basic idea that inflation could be crushed by a sufficiently badass central banker.” “Stop sniping at central banks and set clear targets” December 16.

Indeed, and Paul Volcker was a hero of mine too, that is until I realized his role as the facilitator of the risk weighted capital requirements for banks.

In his book “Keeping at it”, penned together with Christine Harper, Paul Volcker writes: “The Europeans, as a group, firmly insisted upon a “risk-based” approach, seemingly more sophisticated because it calculated assets based on how risky they seemed to be. They felt it was common sense that certain kind of assets –certainly including domestic government bonds but also home mortgages and other sovereign debt- shouldn’t require much if any capital. Commercial loans, by contrast, would have strict and high capital requirements, whatever the credit rating might be…. At the end of a European tour in September in 1986, at an informal dinner with the Bank of England’s then governor Robin Leigh-Pemberton… without a lot of forethought, I suggested to him that if it was necessary to reach agreement, I’d try to sell the risk-based approach to my US colleagues.”

And that was that! In that moment, accepting the European nonsense that what bankers perceive as risky is more dangerous to our bank systems than what banker perceive as safe, Paul Volcker, a central banker, helped condemn us to suffer especially severe bank crisis, resulting from especially large exposures, to what was especially perceived as safe, against especially little capital. I thank him not!

Harford opines “The health of our democracies demands that our politicians start taking responsibility again”

Absolutely! And with respect to bank regulations that requires the politicians to ask for explanations like: Why do you risk weigh the assets based on their perceived risk and not on their risk based on how bankers perceive their risk? Have you never heard about conditional probabilities?

PS. The Basel Committee document that provides an explanation on the portfolio invariant risk weighted capital requirements does not make any sense to me, but perhaps Tim Harford understands it. If so could you please ask him to explain it to us? 

@PerKurowski

Only a very dependent statist central bank would assign its sovereign a 0% risk weight.

Sir, Lord Skidelsky writes, “The failure of central banks to prevent — or even foresee — the 2008 financial crash stems directly from their acceptance of Eugene Fama’s efficient market theory, which implied that commercial banks needed only light regulation.” “Central banks should not set economic policy” December 13.

NO!

The risk weighted capital requirements for banks, by which banks, according to Basel II, could leverage limitless with sovereigns, 62.5 times with AAA to AA rated, and only 12.5 times with risky entrepreneurs and SMEs is anything but light regulation. It is a very heavy handed intervention.

Lord Skidelsky rightly says: “Most of the money pumped into the economy by quantitative easing leaked out into the financial and real estate sectors rather than stimulating the real economy”. Yes, but that was primarily so because some inept besserwisser regulators were/are convinced that what bankers perceive as risky, is more dangerous to our bank system than what bankers perceive as safe; and those having assets are usually perceived to be safer, something which ain’t necessarily so. 

Sir, also, let me be clearer yet; a central bank that agrees with a 0% risk weight of the sovereign is far from independent; it is a very dependent statist central bank.

@PerKurowski

What produces more bread? An economy with all consumers being equal, or one with some being filthy rich?

Sir, David Redshaw quotes John Kenneth Galbraith from his 1929 book The Great Crashwith: “The rich cannot buy great quantities of bread.” “Excess wealth can lead to speculative froth” December 13.

True, but when the rich transfer their purchasing power by buying assets that would often otherwise not be demanded, might that not be causing others to have job opportunities that would allow them to buy greater quantities of bread, than would have been the case without the rich?

And Redshaw goes on to say “The economy is motored by the regular and reliable spending of a confident workforce rather than by the mega rich, whose erratic and luxury-end spending always seems to end in boom and bust.”

Really? When has an erratic and luxury-end spending by the mega rich ended in a boom and bust? Last time I looked it was poor buyers of homes in the subprime sector in the US, empowered by being packaged into AAA rated securities, these securities in its turn empowered by regulators who allowed European banks and US investment banks to leverage more than 60 times their capital with these only because they had an AAA to AA rating, which ended in boom and bust.

Sir, never forget that a paper is also measured by what it allows to be published.

@PerKurowski

The risk weighted capital requirements for banks have helped cause an utterly dysfunctional capitalism.

Sir, Martin Wolf, after reviewing Colin Mayer’s “Prosperity”,Jonathan Tepper’s and Denise Hearn’s The Myth of Capitalismand Deborah Hargreaves “Are Chief Executives Overpaid?” writes, “These books suggest that capitalism is substantially broken. Reluctantly, I have come to a similar conclusion. This is not to argue for the abandonment of the market economy, but for better companies and more competition” “Rethink the purpose of the corporation” December 13.

Sir, one of the most important tools of a functional capitalism, is the ability to channel efficiently the savings into investments. The most important artery for that have, for a couple of hundred years, been our banks. But our bank regulators, with their risk weighted capital requirements, that which allow a higher leverage with what is decreed or perceived as safe than with what is perceived as risky, have sadly clogged up those arteries.

To “Rethink the purpose of the corporation”? Much more important is for the regulators to define the purpose of the banks, beyond that of being a safe mattress into which stash away cash.

I challenge Mr Wolf to find, in all current Basel Committee bank regulations, a word about the purpose of banks being intermediating credits efficiently. 

Wolf also writes: “We should be explicitly encouraging a thousand different flowers of governance and control to bloom. Let us see what works.”

Absolutely… and that’s why, as an Executive Director of the World Bank, in an official statement I held that "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind.”

Sir, and what when a globalized best practice is based on such a loony theorem that what bankers perceive as risky is more dangerous to our bank systems than what bankers perceive as safe? Are we not then globalizing stupidity?

@PerKurowski

Europe, if you spoil your kids too much they will not grow strong. That goes for banks too.

Sir, Patrick Jenkins analyzes several concerns expressed about European banks when policymakers gathered to mark the retirement of Danièle Nouy from ECB’s Single Supervisory Mechanism (SSM); who is to be succeeded by Andrea Enria as the Eurozone’s chief banking regulator. “As European banks regulator retires, six big challenges remain” December 11.

The former Grand-Chair of the Federal Reserve, Paul Volcker, in his recent book “Keeping at it”, co-written with Christine Harper, recounts the following when, in 1986, the G10 central banking group tried to establish an international consensus on bank regulations and capital requirements:

“The US practice had been to asses capital adequacy by using a simple “leverage ratio”-in other words, the bank’s total assets based compared with the margin of capital available to absorb any losses on those assets. (Historically, before, the 1931 banking collapse, a ten percent ratio was considered normal)

The Europeans, as a group, firmly insisted upon a “risk-based” approach, seemingly more sophisticated because it calculated assets based on how risky they seemed to be. They felt it was common sense that certain kind of assets –certainly including domestic government bonds but also home mortgages and other sovereign debt- shouldn’t require much if any capital. Commercial loans, by contrast, would have strict and high capital requirements, whatever the credit rating might be.”

Sir, even though the Basel Accord was signed in 1988 and further developed in 2004 with Basel II, and with which the European risk weighting was adopted, I am sure we can trace the differences between US and Europe banks to these original differences on capital requirements. The US has been much more strict on capital than Europe. In fact the problems with American banks during the 2008 crisis were mostly restricted to those investment banks, which supervised by the SEC, had been allowed in 2004 to adopt Basel II criteria.

In Europe meanwhile banks could do with much less capital, which meant that much more was left over for bankers’ bonuses. In essence, Europe’s banks were dangerously spoiled. The challenge these now faces is having to substitute their equity minimizing financial engineers with good old time loan officers; and convince the capital markets of that. Good luck!

@PerKurowski

To save the earth, start by saving it from phony saving-the-earth profiteers

Sir, Martin Sandbu writes about “how a conflict of interests over climate change — something that really is humanity’s common challenge — aligns with and reinforces a deeper culture war dividing centrist urban elites from system-critical populists… [So] we have missed the potentially much greater obstacle of political polarization in the age of populism” “The burden of tackling climate change must be shared”, November 5.

Hear hear! This is exactly the type of issues and challenges we must learn to tackle, if there’s going to be any hope for us to survive as the society we always dreamt of, or avoid turning into that society we always dread, something that in fact means even more than our survival on earth.

But, when Sandbu speaks about what “reinforces a deeper culture war dividing centrist urban elites from system-critical populists”, I disagree, because the real hard core divide in this case is between those expected to pay for to help save our planet, and those who expect to profit from those efforts.

But Sandbu also refers to a remedy to that, when he mentions, “the carbon ‘fee and dividend’ approach advocated by climate scientist James Hansen [which] would levy duties on fossil fuels and redistribute the revenue in equal per capita amounts to all residents”

That’s precisely in line with what I recommended in a letter published in FT on how Mexico City should go about in order to reduce its serious pollution problems.

If Emmanuel Macron, perhaps hand in hand with Canada’s government that is also thinking about higher carbon taxes, decides that all revenues from taxes on fuel, and similar, are to be shared out equally among all citizens, that would set an example to other nations, that would at least be worth some ten Paris agreements.

Sir, let me be cleat about it. If I am going to help to save the world, by paying higher carbon taxes, I want all of it translate into a clear market signal that saves the planet, and not into something which unduly enrich those promoting saving the world, or those profiteering on the process.

@PerKurowski

An ESM European bond insurance scheme would make Eurozone sovereign debt crises bigger and more likely

Sir, Michael Heise, chief economist at Allianz writes: “An idea that might be capable of preventing or at least mitigating bond market dislocations is a European bond insurance scheme [operated by the European Stability Mechanism]… It avoids the heavy political burden of debt mutualisation and austerity regimes, actively encourages private sector lending and reduces contagion between sovereign debtors.” “Insurance tackles danger of sovereign bond shockwaves” December 4.

Heise explains:“A critical issue would be the setting of the premiums… A simple formula could apply: the triple A refinancing costs of the ESM, plus a risk premium that reflects both the rating of the country and any progress it has made on its public finances.”

It all sounds very rational, and such an insurance scheme would obviously be very useful for some in the case of a sovereign debt emergency. The harder and more important question though would be whether the existence of such scheme makes a sovereign debt crisis more likely or not.

For the purpose of the risk weighted bank capital requirements EU authorities assigned a 0% risk weight to all those sovereigns within the Eurozone, even though these de facto do not have their public debt denominated in a local domestic (printable) currency, the euro.

That stopped the markets from sending the correct signals and helped caused for instance Greece to contract public debt way in excess of what it should have done. 

Heise correctly states: “Set the insurance premiums too low and it degenerates into a disguised eurobond, a bond whose liability is jointly shared by eurozone countries.”

Sir, there is no doubt in my mind that those insurance premiums would be set way too low by any Eurocrats, and so in fact an ESM European bond insurance scheme would act as another non-transparent sovereign debt pusher, and thereby make any crises likelier and bigger. And that’s not the way to go about solving the challenges posed by the Euro twenty years ago.

@PerKurowski

To understand how the west might be lost it is important to remember how it was won.

Sir, Martin Wolf when reviewing Paul Collier’s “The Future of Capitalism” titles it as “An important analysis of how the west was lost” December 3.

I have not read it yet, but I will be attentive to if Collier gave the film “How the West was won” or John Kenneth Galbraith’s “Money; whence it came, where it went”, or something similar, any consideration when writing this book. That because risk-taking is the oxygen of any development and current regulators, having imposed on banks loony and dangerous risk adverse risk weighted capital requirements, have helped set the west on a downward path.

Wolf does tell us that Collier is for some “updated Henry George type taxation of rent on land, [arguing] we need to tax more forms of rent, including that from agglomeration, which now goes to lucky individuals and businesses.”

I assume “agglomeration” refers here to land and other assets? Of course, if that agglomeration produces higher cash-rents then those rents should be, and already are, mostly taxed, but, if land and assets are taxed on their value, if taxed, land and assets would have be sold, at ever lower and lower prices. How would that asset value deflation solve any problems?

Wolf writes that Collier’s starting point is one on which surely everybody agrees: “Deep rifts are tearing apart the fabric of our societies.” 

Indeed, but as I feel it, much of it is the result of polarization and redistribution profiteers having been so empowered by social media to merchandize their products of hate and envy.

Sir, I’ll stop here until I have read the book.

@PerKurowski

If elites do not socially sanction those they should sanction, there’ll be no society left to sanction.

Sir, Laura Noonan writes “Goldman Sachs is considering a special surveillance programme to monitor higher-risk employees in far-flung locations so the bank can demonstrate that “lessons have been learnt” from the 1MDB scandal” “Goldman eyes monitoring of high-risk staff after 1MDB”, December 3.

Great, but they should also monitor high-risk bosses in home office locations, like Mr. Lloyd Blankfein. And I here refer to that lending by him and Goldman Sachs to a notoriously inept, notoriously corrupt, notoriously human rights violating regime of Venezuela’s Maduro.

Do I want Goldman Sachs’ Lloyd Blankfein to be punished by the justice? No! I much prefer the elite; universities, media among others should do that, shaming him, by socially sanctioning him, by for instance not inviting him to anything.

Sir, do not give Lloyd Blankfein, or an unrepentant Goldman Sachs, one inch more of space in the Financial Times, they do not deserve it.

PS. To this date Lloyd Blankfein has not been able to find in himself to utter the slightest “I’m sorry Venezuelans”.

PS. But perhaps justice might also have a bone to pick with Blankfein.

@PerKurowski

Why is it not obvious that what bankers perceive as safe must, by definition, be more dangerous to our bank systems than what they perceive as risky?

Sir, Jonathan Ford writes, correctly, “One concern with using risk-weighted assets is that bank bosses can influence the calculation by tweaking the asset number”, “Money to burn at the banks? It all depends on how you count it” December 3.

But you really do not have to go there to be very concerned, it suffices to ask yourself: What is more dangerous to our bank systems, that which bankers perceive as risky, or that which bankers perceive as safe?

And then you do not have to use bankers models, it suffices to know that in the standardized risk weights of Basel II, the regulators themselves assigned a meager 20% risk weight to the rated AAA to AA, that which really could be dangerous (like in 2008) and a whopping 150% weight to the innocous below BB- rated, that which bankers won’t like to touch even with a ten feet pole.

I agree with those wanting a straight equity requirement for banks, a leverage ratio, like Mervin Kings’ 10% or Professor Anat Admati’s 15%, but much more than for the safety of our banks, I want that so as not distort the allocation of bank credit to the real economy. 

Sir, I am convinced that, a 0% bank capital requirement, with no supervision of banks, with no deposit guarantees to its depositors, would be much better for our real economies, and much safer for our banks systems, than the current dangerous regulatory nonsense… which only guarantees especially big crisis, resulting from especially big exposures, to something perceived as especially safe, against especially little bank capital.

Unfortunately, you seem to believe our bank regulators really know what they’re doing… or is your motto “Without fear and without favour” just a marketing ploy?

http://subprimeregulations.blogspot.com/2018/08/risk-weighted-capital-requirements-for.html

@PerKurowski