Artistic inheritance does not cause excessive centralized powers, as too often natural resources do...though intellectual inheritance could

Sir, Janan Ganesh discussing the possible effect on Europe of its “intellectual and artistic inheritance” refers to the natural“resource curse” in terms of retarding development, as “The temptation is to coast on the proceeds from the natural assets.” Clive James and Europe’s culture curse” November 29,

Indeed, that could play a role but the by far worst part or the “resource curse”, is the fact that its revenues are way too often way too much centralized in way too few hands. 

Take my homeland Venezuela. Had its (geographical) liberator Simon Bolivar not accepted to impose in Venezuela in 1829 Spain’s mining ordinances, which deemed all natural resources under earth to be the property of the King/state, our destiny would have been quite different. As is, as someone from another oil cursed nation mentioned to me years ago, “we do not live in a nation, we live in somebody else’s business”, the redistribution profiteers’.

And this does not apply to the artistic inheritance’s culture curse. The Museum of Louvre might centralize a lot of cultural treasures, but it does not remotely benefit as much from it, as do the citizens of Paris.

Of course, when it comes to an “intellectual culture curse”, which could result from handing over too much influence to too few intellectuals, like to Ph.D.’s and opinion makers, that can contain all the inheritance in a silo, in a mutual admiration club, all bets are off, in Europe and everywhere.

https://theoilcurse.blogspot.com/2016/05/the-last-thing-venezuela-needs-is-to.html

@PerKurowski

Beware when issues, no matter how important, like climate change, become mostly discussed because of their distraction value

Sir, Martin Wolf, after taking on a history tour argues: “A positive-sum vision of relations between the west, China and the rest has to become dominant if we are to manage the economic, security and environmental challenges we face”. That said Wolf frets our chances our small “given the quality of western leadership, authoritarianism in China and rising tide of mutual suspicion”, “Unsettling precedents for today’s world”, November 27.

Indeed, use history to illuminate the present, but never allow it to hide it. In the same vein let’s also include the caveat of not using any of those challenges to distract us from other just as important issues, like the very delicate state of our financial system.

Consider the following facts: 

1. As a response to the 2008 (AAA securities) and the 2011 (Greece) crises, by means of QEs and similar, there were/are huge injections of liquidity. 

2. Since the distortions produced by the risk weighted capital requirements were not eliminated, our banks have dangerously overcrowded all “safe” harbors, like sovereigns and residential mortgages.

3. As a result the rest of market participants had to take to the risky oceans like highly leveraged corporates debts and lending to emerging countries.

4. To top it up plenty of other high debt exposures abound, e.g. student and credit card debts.

5. Finally there are huge unfunded social security and pension plans all around the world.

And I refer to ”distraction” because everywhere we turn, we find regulators and central banks frantically looking for excuses to talk about other things, so as not have to answer some basic questions like:

Why do you believe that what bankers perceive as risky, is more dangerous to our bank system than what bankers perceive as safe?

Do you understand that allowing banks to leverage differently different assets distorts the allocation of credit to the real economy?

Do you understand that the other side of the coin of decreeing a zero risk to sovereigns, just because they can print the money to repay, is that it implies bureaucrats know better what to do with bank credit they are not responsible for, than for instance entrepreneurs?

EU you assigned a zero risk to all eurozone sovereigns’ debts even though none of these can print euros. What do you think would have happened to the USA’s union, if it had done the same with its 50 states, even though none of these can print US$ on their own?

Sir, when an architect takes on a project, he usually signs a contract by which he assumes personal responsibility “for the facility and its systems' ability to function and perform in the manner and to the extent intended” Should not bank regulators sign similar contracts?

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

https://www.stimmel-law.com/en/articles/architect-responsibilities-and-disputes

@PerKurowski

Current bank regulations are evidence free rather than evidence based

Tim Harford suggests, “Pick a topic that matters to you”, “How to survive an election with your sanity intact” November 16.

Ok. Bank regulations. And Harford argues, “Politics… is now evidence-free rather than evidence-based”. Indeed but so are current bank regulations. 

What has caused all big bank crises was something ex ante perceived very safe that ex post turned out very risky… in other words incorrect risk assessments.

But instead of basing the capital requirements based on this empirical evidence, regulators concocted risk-weighted capital requirements based on credit risks being correctly perceived. And so they assigned a meager 20% risk-weight to dangerous AAA rated, and 150% to the so innocous below BB- rated. 

If I were a regulator I would consider my role to guard against the possibility that bankers could perceive risks incorrectly, instead of, like the Basel Committee has done, betting our bank systems on bankers always being correct. Sir, wouldn’t you too?

Harford suggests, “When someone expresses an opinion, whether you agree or disagree, ask them to elaborate. Be curious.”

Unfortunately, when thousand of times I’ve asked the question “Why do you believe that what’s perceived as risky by bankers is more dangerous to our bank systems than what they perceive as safe?” that has not generated much curiosity. What it has generated is a lot of defensive circling of the wagons. “There again goes Kurowski with his obsession”

Harford also reminds us of Alberto Brandolini’s “bullshit asymmetry” principle, “The amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.” With soon 3.000 letters to FT on the topic of “subprime banking regulations”, I can sure attest to that being true.

https://teawithft.blogspot.com/search/label/subprime%20banking%20regulations

@PerKurowski

If Brexit goes hand in hand with a Baselexit, Britain will at least do better than now.

Sir, Martin Wolf titles, [and I add], “Irresponsible promises will hit brutal economic reality" November 15.

Just like the irresponsible and populist promise of “We will make bank systems safer with our risk weighted bank capital requirements" and that is based on that what bankers perceive as risky is more dangerous than what they perceive as safe, brutally hits our real economies.

Wolf quotes the Institute for Fiscal Studies with, “over the last 11 years [before any Brexit], productivity — as measured by output per hour worked — has grown by just 2.9 per cent. That is about as much as it grew on average every 15 months in the preceding 40 years.”

And I ask, could that have something to do with that Basel II that introduced capital requirements that allowed banks to leverage their equity much more with the “safer” present than with the “riskier” future, for instance 62.5 times with what has an AAA to AA rating while only 12.5 times with a loan to an unrated entrepreneur? Of course it has. With it regulators gave banks the incentives to dangerously overpopulate safe havens, and to abandon their most vital social purpose, which is to allocate credit efficiently to the real economy.

So compared to the damage done by the Basel Committee for Banking Supervision any foreseen negative consequences of Brexit seem minuscule.

And with respect to obtaining financial resources for financing the investments in infrastructure that Wolf so much desires, and which would cause larger fiscal deficits he argues “a necessary condition would be the confidence of the world’s savers and investors in the good sense, self-discipline and realism of British policymakers.”

Indeed, what if British policymakers stated. “We abandon the Basel Committee’s regulations. Not only are these with their 0% risk weight to the sovereign and 100% the citizens outright communistic, but these also introduced a risk aversion that truly shames all those British bankers who in past times daringly took risks and with it bettered Britain’s future”. 

Sir, I hold that would be a much-needed example for the whole world of good sense, self-discipline and realism. “A ship in harbor is safe, but that is not what ships are for.” John A. Shedd.

Sir, Wolf seemingly thinks that remaining in a EU in which its authorities assigned a 0% risk weight to all Eurozone’s sovereign debts, even though none of these can print Euros is better for Britain. As I see it, that is a reason for running away from it even more speedily.

PS. Should not bank supervisors be mostly concerned with bankers not perceiving the risks correctly? Of course! So, with the risk weighted capital requirements, what are they doing betting our bank system on that the bankers will perceive credit risks correctly?

@PerKurowski

If US’s 50 states had been assigned a 0% risk weight, as was done in the Eurozone, where would America and the US dollar be?

Sir, Gyorgy Matolcsy opines: “Two decades after the euro’s launch, most of the necessary pillars of a successful global currency — a common state, a budget covering at least 15-20 per cent of the Eurozone’s total gross domestic product, a eurozone finance minister and a ministry to go with the post — are still missing.”, “It is time to recognise that the euro was a mistake”, November 4.

Bad as that is, it’s still much worse. Even if all those “necessary pillars of a successful global currency” were present the euro would still be in serious trouble. This a result of the sovereign debt privilege of the 0% risk weight that for purposes of bank capital requirements was assigned to all Eurozone nations, even though none them can really print euros on their own.

Sir, if all USA’s 50 states had been assigned a similar 0% risk weight, as was done in the Eurozone, where would America and the US$ be?

http://teawithft.blogspot.com/2019/06/the-still-ticking-0-risk-weight.html

@PerKurowski

Who is going to fact check the political ads on social media fact checkers? Big Brothers?

Sir, you opine: “The spread of political advertising on social media requires companies fact-check political ads in collaboration with trusted, independent organizations”, “Online political ads are in urgent need of regulation” November 1.

“Trusted, independent organizations”, does that not ring a bell with respect to trusting the human fallible credit rating agencies with so much power to decide on the risk weighted bank capital requirements?

I am reminded of an Op-ed I wrote in 1998 in which I argued, “In many cases even trying to regulate banks runs the risk of giving the impression that by means of strict regulations, the risks have disappeared” 

And in it I opined “in matters of financial regulations, the most honest, logical and efficient is simply alert to alert about the risks and allow the market, by assigning prices for these, to develop its own paths”

Sir, if I was concerned then, how much more concerned should I not be with the possibility of social media, fact checkers and Big Brothers entering joint ventures. 

So no Sir! Much better is a continuous reminder that: “Nothing advertised here has been fact checked and so even though it sounds interesting and correct, it is quite possible that it is all fake, even an outright shameful lye”

@PerKurowski