Degrowth and downsizing are family

Sir, Soumaya Keynes in “What’s wrong with ‘degrowth’ research?”, FT September 20, mentions: “A… gap is research look­ing into ways of get­ting people on board with rad­ical eco­nomic change.”

I’m in the midst of a major downsizing project. From a large home to some much smaller without stairs apartments in other countries. That includes, among others, having to decide on what to do with monstrous amounts of very dear memorabilia; and foremost with what now evidences to be a life-long purchasing compulsion; put on steroids with the help of wife and daughters.

I’m certain that research on what a thousand of downsizers randomly selected did, and felt while doing it; assisted by some dozens of decluttering and downsizing consultants, would in so many ways immensely advance ‘degrowth’ research.

Sir, IKEA has recently started a program called “Second hand - let old furniture find new homes”. That sure sounds like growth by degrowth to me.

When will the history of the Basel Committee’s concoctions haunt us?

Sir, I refer to Owen Walker’s “Haunted by his­tory” FT Magazine, August 10. It ends with “Unfor­tu­nately Monte dei Pas­chi will not help to develop and sus­tain Siena as it has done for more than five and a half centuries.” 

Unfortunately, that goes for all banks that were of importance to their localities.

In 1988 regulations known as Basel I was approved. It favored government debt and residential mortgages. That distorted but not too much. Loan officers used to follow the wishes of diverse Medici, must not have been too surprised. But then, in 2004, Basel II hit the banking world. With its risk weighted bank capital requirements so much dependent on credit ratings, the traditional loan officers, like Britain’s beloved George Banks, were thrown out. In came dangerously creative financial engineers. Their mission was now to maximize return on equity, not by good lending, but by minimizing bank capital, meaning bank equity, meaning bank shareholder’s skin in the game; in other words by maximizing leverage.

Not that all loan officers have been saints. Of course not. As in all parts of life, embezzlement and general uselessness was way too often present; but it was localized. Now it has been globalized. Monte dei Paschi’s financial engineers’ use of derivatives fabricated by Deutsche Bank or Nomura is just a minor example of it. A major one is how those securities backed by USA subprime mortgages, that when rated AAA allowed banks to leverage 62.5 times their capital, inundated European banks and caused the 2008 GFC.

How long will it take for the world to wake up to the fact that their expert bank regulators and supervisor, who lately, with all Basel III complexities multiplied in number and complexities, all missed their lectures on Bayesian conditional probabilities. As a consequence, they never understood that if they were going to use risk weighted bank capital requirements, something that for a starter was a bad hubris filled idea, then at least the weights should be conditioned to how bankers could be expected to act when perceiving risks.

Sir, David Rossi’s death, no matter how it occurred, is sad, but not remotely as much as the death of our banking system, that which made the western world prosper beyond belief.

One day our grandchildren will ask: How could our grandfathers so much favor banks refinancing their safer present, instead of financing our riskier future.

PS. Recently I asked ChatGPT which alternative, a leverage ratio or risk weighted capital/equity requirements, would most empower loan officers, and which one creative financial engineers. Here its answer

@PerKurowski

http://teawithft.blogspot.com/2012/07/its-whats-safe-thats-risky.html

https://teawithft.blogspot.com/2016/12/the-way-ft-insists-in-treating-bank.html

What the world needs is to introduce true diversity in its financial architecture.

Sir, I refer to “The world needs a new fin­an­cial archi­tec­ture” by Michael Krake, the exec­ut­ive dir­ector for Ger­many at the World Bank.

What if, keeping the UN, World Bank and IMF, we instead reform these institutions? As is, these are managed and governed by bureaucracy autocracies. 

November 2004, at the end of my short two-year term as an executive director in the World Bank, FT published a letter in which I wrote: “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)? In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

I had often expressed this at the World Bank Board but, those colleagues who understood what I referred to, and nodded in agreement, could do nothing. How could they, they were nominated by governments and most expected, and needed, to return to the government. What did not exist was real diversity. Not diversity based on gender or race, but diversity based on interests, life experiences and needs. 

Then I often suggested substituting some on the current executive directors with e.g., a plumber or a nurse; or at least to give a place at the board to that migrant community that, by means of its remittances, provided development countries with much more financial assistance than the multilateral financial entities could ever dream to do.

Now 2024, if I had the blessing to again be at that board of directors, I would drive my fellow directors to despair by, over and over again mentioning: “Give me ten seconds, I want to see what my friend ChatGPT opines on this.”

Would, “Without Fear and Without Favour” FT, be willing to publish a letter on what ChatGPT thinks?

http://voiceandnoise.blogspot.com/2006/05/world-bank-needs-to-go-truly-global.html

http://subprimeregulations.blogspot.com/2004/11/some-of-my-early-public-opinions-on.html

@PerKurowski 

How much transparency can democracy handle?

Sir, Martin Wolf writes: “The more com­plete the set of rights, the more potent will be the con­straints: there will then also be open debate, free­dom to protest, free media and independent insti­tu­tions.” “Democracy is still bet­ter than auto­cracy” FT April 3.

Twenty-five years ago, when my homeland Venezuela was launched into discussions about a new Constitution, in several Op-Eds, I opined the following:

“It is said that Democracy with hunger is not Democracy, but if this is true, Democracy without information is even much less Democracy. In the constitution I want, I consider a citizen's right to information about government management to be of vital importance.”

Sadly, nothing came out of it. But, last year, I sat down to chat with ChatGPT about how artificial intelligence A.I. could empower us citizens to enjoy a more significant democracy. It answered positively in many ways.

So, e.g., what if A.I. was able to report real time – 24/7 the earmarks are handed out by US Congressmen?

Sir, I ask, can democracy handle such transparency?

Human pilots and autopilots need to be trusting friends.

Sir, last year, flying to Washington DC, in a Boeing 337 MAX 9, the clouds were so low that the pilot missed the first approach to land at Dulles International Airport. We passengers were instructed: “Please, please completely turn off all, absolutely all your computers, iPad cellphones and similar, even if closed or placed in air-mode. We cannot afford any type of interference. The pilot has decided he can’t land the plane, and so he will have the auto-pilot do it.” 

Very long minutes of praying and checking up on co-passengers’ cellphones ensued. Finally, without having been able to see any land, thanks to God we landed.`` I asked my wife: “If they have to use the auto-pilot when things get really hard, why do they have pilots at all?”

Tim Harford answers that question in “Of top-notch algorithms and zoned-out humans” FT February 1. Harford writes: “A storm that blocked the sys­tem’s air­speed instru­ments with assist­ive fly-by-wire sys­tem that trans­lates the pilot’s jerky move­ments into smooth instructions. This makes it hard to crash an A330. But para­dox­ic­ally, it means that when a chal­lenge does occur, the pilots will have very little exper­i­ence to draw on as they try to meet that chal­lenge.”

What does it indicate as a solution? Clearly humans and autopilots need to communicate faster and clearer about who is more qualified to be in command. And that means they need to be able to trust each other much more.

Sir, after the experience I described, even though I have often complained about pain over my eyes when landing with a Boeing 337 MAX 9, probably because of some issues with its air pressure control, sincerely, after that landing, tell me how could I ever complain about that Boeing plane?

@PerKurowski

Mr. Martin Wolf, what do you mean, is liberalism not broken?

Sir, I refer to “Liberalism is battered but not yet broken” Martin Wolf, FT January 10, 2024.

Since 1988, with Basel I, non-elected by the citizens bank regulators, with risk weighted bank capital requirements, in the name of making our banks safe, have allowed themselves to distort the allocation of bank credit to the economy. 

Wolf opines: “What liberals share is trust in human beings to decide things for themselves.” So, Mr. Wolf, why have you been silent on this clear breach of free market liberalism?

These days, in reference to the farmer’s protests in Berlin I have tweeted/Xd: “Would now John F. Kennedy have wanted to deliver his 1963 ‘Ich bin ein Berliner’ speech? - If the Berlin Wall was still up, would Ronald Reagan now have needed to tell Putin, ‘Tear down this wall’?”

My answer in both cases is NO! US and Russia – West and East Berlin, have been too long exposed to communistic weakening. But it’s coming to an end. More and more nations now need more public debt in order to service their current public debts, and are thereby, de facto, becoming zombie nations.

I pray someone with real political standing would dare to stand up and order: “Basel Committee, tear down your regulations.” I fear that might not happen until this “wall” has crumbled on its own. Those regulations have empowered bureaucracy autocracies, and way too many want to be members or beneficiaries of it. And by the way, if they speak up, they risk not being invited to the World Economic Forums in Davos; and we would not want to risk that, would we?

Sir, how can we make sure to capitalize on the opportunity of artificial intelligence helping to empower a citizens’ democracy? I mean before AI regulators decide to send it to Gulag too.

PS. I tweeted - Xd: "If there’s anything that could help focus on what has happened in the world, and on what’s going on, that is to have a record of all those who, since 1971, have assisted World Economic Forum #WEF meetings in #Davos."