April 29, 2019

A Neo-Inquisition is at work protecting mutual admiration clubs, like the Basel Committee for Banking Supervision

Sir, Ian Goldin writes “Today, the increasing depth of knowledge in any field means that greater specialisation is needed to master ideas. Yet this stifles creativity and the ability to grapple with real-world problems, whose messy complexity has less and less in common with the increasingly fragmented disciplines and professional specialisation” “Da Vinci code: what the tech age can learn from Leonardo” April 29.

Indeed, and that is most clearly evidenced by expert specialized regulators coming up, within the walls of a mutual admiration club, with risk weighted capital requirements for banks, which are based, not on the dangers bank assets could pose to the banking system, but simply on their ex ante perceived credit risk… as if bankers did not perceive these… as if bankers loved taking risks… as if not all major bank crisis had resulted from something ex ante perceived as safe turning up ex post as something very risky. 

Goldin rightly opines: “For progress to prevail, evidence-based, innovative and reasoned thinking must triumph. Genius thrived in the Renaissance because of the supportive ecosystem that aided the creation and dissemination of knowledge — which then was crushed by the fearful inquisitions. Today, tolerance and evidence-based argument are again under threat.”

Indeed those bank regulations, which blatantly failed in 1988, when AAA rating turned out wrong, and which are building up dangerous exposures to 0% risk weighted sovereigns and to 15%-35% residential mortgages, are still not discussed.

In response to a public request of comments on SMS financing, I sent a letter to the Financial Stability Board. It began this way:

“I have not found sufficient strength to sit down and formally write up my comments, because I feel I would just be like a heliocentric Galileo writing to a geocentric Inquisition.

The Basel Committee’s standardized risk weights are based on the presumption that what is ex ante perceived as risky is more dangerous to our bank system.

And I hold a totally contrarian opinion. I believe that what is perceived a safe when placed on banks balance sheets to be much more dangerous to our bank system ex post than what is perceived ex ante as risky; and this especially so if those “safe” assets go hand in hand with lower capital requirements, meaning higher leverages, meaning higher risk adjusted returns on equity for what is perceived safe than for what is perceived as risky.”

Sir, that letter managed to get nailed on FSB’s web-doors and I’m waiting to see what will be its destiny.

PS. In these days when the filthy rich are so much abhorred, there’s room to ask whether Leonardo da Vinci’s Salvator Mundi and Mona Lisa would ever have been painted if not commissioned by some filthy rich.


April 27, 2019

Central banks seem not able to tell their magic porridge pot to stop

Sir, Robert Armstrong, Oliver Ralph, and Eric Platt make a reference to the fairy tale of the magic porridge pot writing “Every working day, $100m rolls into Berkshire — cash from its subsidiaries, dividends from its shares, interest from its treasuries. Something must be done with it all. The porridge is starting to overrun the house.” “‘I have more fun than any 88-year-old in the world’” Life&Arts, April 27.

And the magic porridge pot fairy tale ends this way on Wikipedia: “At last when only one single house remained, the child came home and just said, "Stop, little pot," and it stopped and gave up cooking, and whosoever wished to return to the town had to eat their way back”

Sir, the excessive stimuli injected by means of QEs, fiscal deficits, ultra low interest rates and incestuous debt credit relations, like the 0% risk weighting of the sovereign that provides credit subsidies to who provides banks with deposit guarantees, or loans to houses increasing the price of houses allowing still more loans to houses, against very little capital… all of that is the porridge of our time.

And it’s clear central bankers everywhere, have no idea of how to tell their pot to stop.

Will we be able to eat our way back? Not without sweating it out a lot at the gym. You see too much porridge, meaning too much carbs, and too little proteins, meaning too little risk taking, produces an obese not muscular economy. 


April 24, 2019

Martin Wolf, as part of the elite, should read the “Explanatory Note on the Basel II IRB Risk Weight Functions”, and then tell us ordinary people what he opines of it.

Sir, even if qualifying for degrees of sophistication, when Martin Wolf places a human rights violating dictator Nicolas Maduro in the same list of strongmen as Donald Trump, he certainly seems to have lost it. Nicolas Maduro has now 90% of Venezuela against him and is staying there by brute force, and the elections he won in the past, were fraudulent. Or could it be Wolf still wants to believe that Trump won also because of Putin’s help? “Elected despots feed off our fear and rage”, April 23, 2019.

Wolf argues that the reason president Trump was elected and why is he still trusted by so many, is “partly due to longstanding economic failures, partly to the financial crisis and partly to cultural changes”; and also the willingness of parts of the elite to exploit such emotions, to achieve huge tax cuts and eliminate regulation, something Wolf defines as “pluto-populism”.

Pluto-populism? There’s now more than 30 years since the Basel Accord introduced risk weighted capital requirements for banks that assigned a risk weight of 0% to the sovereign and 100% to the citizen. If that’s not statism that feeds a crony statism what is?

And those regulations based on that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe, is utter lunacy, that is unless its purpose is to realize bankers’ wet dreams of being allowed to leverage especially much with what is perceived as especially safe. 

The financial crisis resulted 99% from excessive exposures to what Basel II in 2004 backed by an AAA rated entity, like AIG, which meant banks could leverage a mindboggling 62.5 times their capital with these assets.

And much of the weak response to the immense post crisis stimuli, is the result of “risky” entrepreneurs and SMEs not having competitive access to bank credit, because of having to make up for the fact that banks can leverage much less their capital with loans to them. 

But yet, the monstrous missregulation by the Basel Committee is still not really discussed, and so it is still not really corrected.

I assume Martin Wolf, as the chief economics commentator of the Financial Times must qualify as part of the elite. So Sir, if you think he should live up to the responsibilities that entails, I suggest you dare him to read the Basel Committee’s “An Explanatory Note on the Basel II IRB Risk Weight Functions” of July 2005 and then inform you, and us ordinary people, whether that mumbo jumbo makes sense or not.

But back to Venezuela. Obama agreed to negotiate with Cuba leaving its de facto invasion of Venezuela out of it. President Trump does not want anything of that sort. Sir, I wonder, if Martin Wolf was one of the so much suffering Venezuelans, what do you think he would prefer, an American “strongman” or an American “weakman”?

April 20, 2019

The more voluminous data is, and the faster it is transmitted, the faster we can be sent over a cliff.

Sir, Robin Wigglesworth writes: “The amount of digital data around the world is unimaginably vast. As more of our social and economic activity migrates online, the quantity and quality is going to increase exponentially. The potential is mind-boggling”,“Big Data’s power to illuminate leaves public sector in the shadows” April 20.

In April 2003, when as an Executive Director of the World Bank I formally commented on its strategic plan I wrote: "Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market"

And it sure happened. The AAA rated securities backed with mortgage to the subprime sector in the US, send us straight into the 2007/08 crisis. 

In other words it is not just a question of data availability, in real time, but also on how we respond to it. It might behoove us all, to take a long time to digest it, before we react to it.

For example, and I quote from a BBC report: “On the 26 of September 1983, in the early hours of the morning, the Soviet Union's early-warning systems detected an incoming missile strike from the United States. Computer readouts suggested several missiles had been launched. The protocol for the Soviet military would have been to retaliate with a nuclear attack of its own. But duty officer Stanislav Petrov - whose job it was to register apparent enemy missile launches - decided not to report them to his superiors, and instead dismissed them as a false alarm. This was a breach of his instructions, a dereliction of duty. The safe thing to do would have been to pass the responsibility on, to refer up. But his decision may have saved the world.”

Sir, so what delay factor do we need to introduce before we respond to any real time data? I have no idea. You tell me.


Any winner in a second Brexit referendum should want to make sure his would not be a Pyrrhic victory.

Sir, Simon Kuper writes: “Only voting Remain will end the stress and tedium (the national divide will remain whoever wins)”, “How Remain can win a second referendum” April 20.

Of course the national divide will remain, but the question is whether it will remain the same whoever wins the second referendum? Could the divide not increase? Who could, if winning, be more capable to set a course towards national unity, Brexiters or Remainers?

Kuper opines, “Remain needs to sound as patriotic as Leave. It must present the UK as a European power, not a sorry victim of Europe.”

Yes, of course, but have the Remainer done so? I don’t think so.

A powerful Remainer would have imposed conditions on Europe that would make it easier to convert Brexiters. Of that nothing has been seen. (A powerful Brexiteer would have looked for the same in order to convert Remainers).

A powerful Remainer might have started out for instance by questioning Michel Barnier as the European negotiator, as there were indications of him having conflicts of interest. (A powerful Brexiteer should have had to do so too).

A powerful Remainer would have asked Europe for a clear answer on how they intend to solve the problem with having assigned a 0% risk weight to all Eurozone sovereign that take on debt in a currency that de facto is not their own domestic (printable) one. I mean a powerful Remainer would not risk standing their with egg on his face having won the second referendum and then having nothing to remain in. (A powerful Brexiteer might not really have had to do so).

Kuper also opines “In a second referendum, Remainers can borrow the anti-elitist language of Leave to inveigh against privileged Brexiters.” 

Yes, that could help the Remainers to win the referendum, but that would also increase the chances of the divisions growing and they having won a Pyrrhic victory.

Sir, at the end of the day Britain’s problem is that the Brexit vs. Remain debate was taken over way too much by those wanting to profit on it by it turning it into a battle between good and evil. If you do not possess a sufficient strong elite capable of stopping such nonsense, you will pay the consequences, 

Sir, when thinking about what second referendum result would have the best possibilities over to regain some workable unit, each day that passes, makes me feel closer to have to give, a quite reluctant, “Brexit” response to that.

PS. London’s West End needs urgently an Oklahoma revival adapted to Britain. “The Brexiters and Remainers should be friends”


April 19, 2019

To unite Britain, Brexiters and Remainers must negotiate a compromise. Sadly, its polarization profiteers object to that.

Sir, Martin Wolf writes: “Brexit, has weaponised identity, turning those differences into accusations of treason. … Once the idea of “treachery” becomes part of political debate, only total victory or total defeat are possible… The country is so evenly divided, and emotions are so intense, that resolution is at present impossible” “Britain is once again the sick man of Europe”, April 18.

Indeed, as I wrote to Martin Wolf on April 13th, when walking on Fleet Street I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” Thank God, in this case, the mother was clear about the answer. 

But that question must have popped up in this girl’s mind, as a consequence of a growing worldwide radicalization. Children elsewhere could also be thought asking similar questions, like: murder or Trump, murder or climate change, murder or filthy rich, murder or whatever.

Much of it is the direct result of that creating division, especially in these days when messages of hate, envy or fake news, can be sent out to millions at zero marginal cost, is a much better business proposition than uniting… or reporting real news.

Sir, honestly, how many efforts have been invested by Britain’s elite in requesting changes to EU that could make sense to Brexiters, or to design a Brexit that could be acceptable for Remainers? I believe way too little!

Now when Wolf’s asserts that Britain’s most important crisis is economicand that “Britain is once again the sick man of Europe”I am absolutely not sure about that. Wherever you look in Europe you find way too many symptoms of economic and social ailments. 

For instance, just the fact that Eurozone’s sovereign were assigned a 0% risk weight, even though they take on debt in a currency that de facto is not their domestic (printable) one, presents more dangers to EU, than a Brexit would present to a Britain with a Pound based economy.

Sir, has FT played a responsible role as a unifier? Since we all have to live with our own consciences, which is not for me but for you to respond.

Let me though here say that as much as the little girl’s question shocked me, more did your ample coverage/publicity given to a minuscule “Extinction Rebellion” “Inside the new climate change resistance” April 11. That group predicates and “plans mass civil disobedience”, and is one that has wet dreams such as: “After two previous attempts to get herself arrested, Farhana Yamin …hopes she will soon see the inside of a police cell”.

Finally, and back to Brexit, if as Wolf says: “only total victory or total defeat are possible”,what do you believe Sir poses the greatest opportunities for Britain to ever become united again, Brexit or Remain? (I have an inkling that each day that passes, makes me feel closer to have to give a quite reluctant Brexit response to that)

PS. London’s West End needs an Oklahoma revival adapted to Britain. “The Brexiters and the Remainers should be friends”


April 16, 2019

“Mommy, what’s worse, murder or Brexit?”

Sir, Bronwen Maddox writes: “Britain’s Parliament Square has returned to a kind of peace. MPs are off on their Easter break, thanks to the latest Brexit deadline extension. Most of the protesters are taking an Easter break too, it seems, and have suspended their pageantry of 12-foot banners and elaborate costumes, competing for the world’s attention. “Brexit has broken the political parties, not the constitution” April 16.

But Maddox predicts the peace is just temporary, because “the deadlock of Brexit is a political failure”.

Sir, I absolutely do not know enough about Britain’s constitution or political systems to opine on the article, but what I do know for sure is that in the Brexit vs. Remain type of deep divisions you are not alone. These odious divisions are happening everywhere, with all type of issues, as a result of polarization and redistribution profiteer being able, often anonymously, to send out their messages of hate, envy or fake news, on the web, at a marginal zero cost.

On April 13, briefly visiting London, while walking on Fleet Street, I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” “Thank God, in this case, the mother was at least very clear about the answer, but how could that question have popped in this girl’s mind? 

And I know that many children around the world might ask similar questions about for example: murder or Trump, murder or climate change, murder or filthy rich, murder or etc.

Sir, I do believe we should declare a worldwide emergency, before we lose all possibilities of a civilized social cohesion.

What to do? I don’t have a complete answer, but I would suggest the setting up parallel social media, in which no one that has not been completely identified can participate, so as that we can at least shame anyone producing excessive divisions.

To instate also a very small payment for each web contact produced by anyone that might be looking for some type of political funding, could be helpful.


April 15, 2019

If AI systems were trained on using historical data that could sometimes help to avoid human biases.

Sir you write “Just as with any other computer system, the adage “garbage in, garbage out” applies to AI. If systems are trained using historical data, they will reproduce historical biases.”“Guidelines are a welcome step towards ethical AI” April 15.

Not necessarily so. Currently because human regulators suffer from something known as confirmation bias, they introduced risk weighted capital requirements for banks based on that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. The analysis of historical data about the origin of bank crises would clearly have shown this to be totally wrong. 


We might not end up homeless, but homes might be the only thing we end up with… and so how do we eat homes?

Sir, Rana Foroohar writes “Central banks can’t create growth by themselves. They can only funnel money around.” “What Trump gets right” April 15.

Indeed, but the way they funnel money around can also promote obese growth, and impede muscular and sustainable growth.

If you fill a financial irrigation system with huge amounts of liquidity, QEs, and ultra low interest rates, and some of its most important canals, like the financing of entrepreneurs are, because you consider these as risky, blocked with high risk weighted bank capital requirements, there’s no doubt bad things will happen. Among other, that those channels relatively wider because they’re perceived “safer”, like sovereign and the purchase of houses, will get dangerously much credit.

Sir, just consider the role of so much the credit for the purchase of houses has had in turning houses from being homes into being investment assets. I have not done the calculations but were we to deduct from the assets of the 99% less wealthy the worth of their houses, I am sure that we would be horrified about what little savings we would find. We might not end up homeless, but homes might be the only thing we end up with… and how do you eat a home?


April 13, 2019

If you kick a crisis can forward, without correcting for what caused the crisis (2008), then when you run out of kicks, the can will roll back on you, only so much worse.

Sir, you write “The view of the global economy can best be described as murky but unencouraging”, “More gloom gathers over the world economy” April 13.

Since I have never thought of murkiness as a great promoter of encouragement, I must say that “but” was a bit disconcerting to me, that is, unless I should read it as a source of blissful ignorance.

That said, you refer to what monetary and fiscal policymakers must do, but you leave out the bank regulators, those who most definitely helped cause the 2008 crisis.

Though with Basel III they have introduced a leverage ratio the fact remains that, on the margins, there where it most counts, the risk weighted capital requirements for banks are still distorting, perhaps more then ever, the allocation of bank credit to the real economy.

How can I explain it? Sir, if you fill a financial irrigation system with huge amounts of liquidity (QEs) and ultra low interest rates, and some of its most important canals are blocked with high risk weighted bank capital requirements, there can be no doubt that bad things will happen. 

In 2006 you published a letter I wrote that exposed “The long-term benefits of a hard landing”. Sir, you tell me, where would we be today if our decision makers had taken that route? 


Yes we sure need a carbon tax, but its revenues, should be shared out equally to all

Sir, Tim Harford writes: “The exciting thing about the Green New Deal is that it has serious political momentum focused at addressing climate change.” “Why the world urgently needs a carbon tax” April 13.

No! That “Green New Deal” “vague, and [with] grand aims [to] win… support than [with] hard practicalities”, far from being exciting is scary. As Harford thinks, “climate change is far too important a challenge to entrust to oil companies” I am sure that “climate change is far too important a challenge” to entrust its spending decisions of the fight against it, to some few who might be pursuing a different objective.

As I’ve said over and over again, the more you are concerned about climate change, the more you should be concerned with keeping the climate-change-fight profiteers as far away as possible.

Harford writes: “A lump-sum subsidy can encourage the uptake of electric cars — but a carbon tax will also reward those who cycle instead of driving.” Sir, I just ask, would the rewards for cycling not become so much real, if all carbon tax revenues were shared out equally to all?

PS. Harford mentions “a carbon permit auction” as a “close sibling” to a carbon tax. Not so. A carbon permit auction is nothing but a new type of those indulgences that were sold by the Catholic Church in order to permit sinning. It is a twist of history to see that Martin Luther’s Protestant Germany is one that now most supports such indulgences.


April 12, 2019

In the Fed, more than Trading Floor experiences, we need Main-Street experiences.

Sir, Mohamed El-Erian writes “Let’s not forget some market participants’ growing interest in modern monetary theory, including the view that persistently low yields enable higher central bank financing of government deficits. But such comfort risks being short-lived.” “Attacks by Trump risk damaging the Fed’s credibility”, April 12.

El-Erian leaves me a bit confused. Does he think the “modern monetary theory” could be any source of comfort even if short lived? I myself consider it a prime example of a dangerous fake theory, probably concocted by redistribution profiteers, and that because it offers such an “Easy Street” has simply gone viral. If we had any respect for Edmund Burke’s holy intergenerational bond, we should all do our utmost to destroy it.

Then El-Erian speaks of the need of the Fed to have a “‘feel’ for markets — that is… officials on the Federal Open Market Committee who have been properly and comprehensively exposed to operational responsibilities on trading floors.”

He is surely right that some of the members of FOMC should have that experience but, even more important than that is the experience from Main-Street, like when entrepreneurs want to access bank credit. 

Had there been just one single of those in the Fed, he would most surely have asked: “Colleagues, why do you set the risk weighted capital requirements higher for that which is perceived as risky, and which precisely therefore have such difficulties getting credit from the banks, and so therefore are quite innocous to our bank system?” 

Had that question been posed with enough firmness in requiring a clear answer, the 2008 crisis would not have happened and the world would definitely look better than now.


April 11, 2019

For banks to lend to businesses it takes two to tango, liquidity and bank capital.

Sir, Valentina Romei, with respect to ECB’s targeted longer term refinancing operationswrites “According to TS Lombard: In both Spain and Italy, TLTRO borrowing corresponds to about 15 per cent of gross domestic product… Yet in both Italy and Spain, growth in commercial bank loan books has been weak”. Francesca Vasciminno, of Fitch Ratings in Milan explains it with “Partially this is the result of banks using the cheap funds “opportunistically to invest in government bonds if yields are attractive” “ECB loans fail to ignite bank lending” April 10.

Does ECB not know that banks in Italy and Spain, which as most banks are not awash with capital to say the least, need to hold 8% in capital against risk weighted assets and currently, because of EU’s insane Sovereign Debt Privileges, 0% against loans (or bonds) to their government?

There simply is no way that a TLTRO, or any other fancy program, is going to sustainably result in more and in relative equitable terms business lending by banks, without the removal of the risk weighted bank capital requirements. One might think that the introduction of a leverage ratio might have reduced its distortions but the truth is that, on the margins, there where it most counts, the distortion pressure of these has only increased.

Sir, soon for the three thousands time, before the insane risk weighted bank capital requirements disappear, there will be no muscular economic growth, which requires risky proteins, and all we will see is increased bank obesity resulting from increased exposures to safe carbs.


April 09, 2019

Way too many have kept busier defeating Brexit than saving Britain, come what may.

Sir, Philip Stafford writes “City executives describe the EU’s no-deal plans as a ‘nakedly political’ grab for London’s business” “Tail risk” April 9.

Alex Barker in “Barnier vs the Brits” FT November 2011, wrote about the fears of Sir Mervin King with that some Brussels reforms will reshape a vital British industry, banking, to the benefit of eurozone rivals. 

Specifically Barker mentioned: “Underlying the alarm in London is a more visceral fear: that Mr Barnier’s backers on the mainland are using this regulatory marathon to sap London’s strength as Europe’s pre-eminent financial centre.”

And that was when Michel Barnier was only the “European internal market commissioner – a perch giving him oversight of the continent’s financial industry. Arguably, no European Union job is of more consequence for the UK.”

Well yes, there was. Now Michel Barnier, since December 2016, is the European Chief Negotiator for the United Kingdom Exiting the European Union, a job with even more consequence for the UK.

Given the previous rough relationship between Britain and Monsieur Barnier, one could have made a very well argued case that his appointment served no one well. And I am sure many EU nations would have understood that.

As a friend of Britain, I have one way or other argued the previous on several occasions, but with no luck. I believe that is because way too many were kept too interested in just defeating Brexit and so, to try for a better Brexit, did not fit their plans.


April 08, 2019

If the Basel Committee was hosted in Singapore, could I be put in jail for 10 years?

Sir, you write “Singapore… would allow authorities to publish corrections to claims about public institutions which they deem false. Publishing such statements with “malicious intent” could incur fines up to S$1m (US$740,000) or up to 10 years in jail.”“Legislation against fake news is open to abuses”, April 8

So, if the Basel Committee for Banking Supervision was hosted in Singapore, could I be put in jail for 10 years for arguing that the regulators got it all upside down, when they set their risk weighted capital requirements for banks based on that what is ex ante perceived as risky, is more dangerous to our bank systems than what is perceived as safe. 

Of course Singapore would have to prove “malicious intent”, but perhaps for that they would consider wanting to shame the regulators as more than enough, and which is something that I would have to confess guilty of.

You write: “It [is] difficult for legitimate journalism to pierce such [fake regulations] bubbles”

Indeed Sir, but authoritarianism is also to be found here, there and everywhere.


April 07, 2019

The selection of independent central bankers should not be politicized, but neither should the criticism of the candidates be

Sir, you argue that Stephen Moore nor Herman Cain seem to be “remotely qualified to sit in the monetary cockpit of the world’s reserve currency”, “Trump must be stopped from packing the US Fed”, April 6.

Sir, you might very well be right, I know very little about those candidates but I do know that those who have been sitting there for the last decades were perhaps not sufficiently qualified either. 

The 2008 crisis was caused by the distortions in credit allocation produced by the risk weighted capital requirements for banks. To then having central bankers to inject huge amounts of stimulus by means of QEs and ultra low interest rates, without removing those distortions, does show they don’t have a sufficient understanding of what they are up to. Sir, what they have achieved is only to kick the crisis can forward and upwards. Let us pray it will not roll back too hard on us, our children or our grandchildren.

Sir, to be sincere, I do believe that FT’ team, with its silence, has lost any right it could have to throw first stones in the matter of who are suited or not to man the Fed, or any other central bank for that matter.

You argue: “The merest hint that Mr Powell is doing Mr Trump’s bidding is enough to corrode the Fed’s independence.” Sir, for the umpteenth time, when the Fed and other central banks, in 1988, Basel I, approved of risk weighted capital requirements for banks that assigned a risk weight of 0% to the sovereign and 100% to the citizens, they went statists and gave up their independence.

In truth they did exactly what a Hugo Chavez or a Nicolas Maduro would want a Venezuelan central banker to do, namely to be act under the presumption that any bank credit to the government is managed better than a credit to the private sector.

Look back three decades; have you seen any president anywhere who objects to such a Sovereign Debt Privilege?

Greece, a Eurozone nation that takes on debt in a currency that is de facto not its domestic printable one, was even more crazily assigned a 0% risk weight, and ECB knew about it, and kept silence on it. I do not remember you thinking ECB’s bankers as inept.


The “having just enough” opens the door for a discussion on relevant and irrelevant inequalities

Sir, I refer to Janan Ganesh’s “The holy grail of having just enough” April 6.

It is a great article, though because of its honest shadings, those who want to see all in black or white will criticize it. But its real importance could be in helping to put the finger on the need to redefine all discussions and measuring of inequality, by allowing these to focus much more on the relevant existing inequalities, and much less on the irrelevant inequalities.

That some “filthy rich” has decided to use his purchase power to buy a yacht, something which makes yacht builders happy, or to contract a yacht crew, something that gives those crew members a job, or freeze $450m of it in a painting, such as Leonardo da Vinci’s Salvator Mundi, which should make the one who sold him that painting very happy, does not make me feel one iota unequal to him. But, I can perfectly understand that the fact I own a house, a car and a reasonable amount of money, can make many owning much less feel unequal to me, and many who have nothing feel unequal to all.

And clearly those without a job must feel unequal to those with a job… and in that case unequal to the yacht crew, not unequal to the yacht owner.

In these days when redistribution and polarization profiteers seeding so much hate and envy, at zero marginal costs, create so much odious societal divisions, it behooves us to, as a minimum minimorum, make sure those divisions are in reference to something real and relevant, and not just fake divisions that can lead to absolutely nothing good.

PS. My generous feelings towards what the “filthy rich” own, are of course based on that they have obtained all that wealth in legal and decent ways.

April 03, 2019

If China abandons the risk weighted bank capital requirements, and the West does not, the West is lost.

Sir, Martin Wolf with respect to China quotes premier Li Keqiang stating: “We will reform and refine monetary and credit supply mechanisms, and employ . . . a combination of quantitative and pricing approaches . . . to guide financial institutions in increasing credit supply and bringing down the cost of borrowing”… [and that he] stressed the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”. “The Chinese economy is stabilising” April 3.

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. He wrote, “Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.”

And that hits the nail. Risk taking is the oxygen of any development.

The current risk adverse risk weighted capital requirements for banks that assigns a risk weight of 0% to the Sovereign, 20% to any AAA rated corporation, 35% to residential mortgages and 100% to the unrated citizens, like those entrepreneurs on whom a nation’s strength depends on, is the perfect recipe for a secular stagnation.

God make us daring!


IMF, where’s the regulators’ discipline when needed to stop the procyclical risk weighted capital requirements for banks?

Sir, Chris Giles writes that IMF’s Christine Lagarde warning about “70 per cent of the global economy to experience a slowdown in growth… acknowledged that budgetary discipline in good times was difficult for finance ministers to achieve, but necessary to create “fiscal space to act in bad times”. “IMF Lagarde highlights risks to global economy” April 3.

Times are good, lesser the perceived risks; less the capital must banks hold; even though it is a good time to raise bank capital.

Times are bad, higher the perceived risks; higher the capital must banks hold; even though it is a bad time to raise bank capital.

But are regulators doing something to diminish this regulatory pro-cyclicality? No, or absolutely not enough. Why? Because doing so would require to admit that their risk weighted bank capital requirements are based on the nonsense that what is perceived as risky, when place on banks’ balance sheets, is more dangerous to the bank system than what is perceived as safe.

Sir, that slow down Ms. Lagarde speaks of is much the result of the obese growth that results from excessive exposures to what is perceived as safe. Muscular, sustainable growth requires, by definition, a lot of risk taking.

God make us daring!