John Kenneth Galbraith would probably include Alan Greenspan among men of wisdom that missed the point.

Sir, Robert Gordon, reviewing Alan Greenspan’s and Adrian Wooldridge’s “Capitalism in America: A history” writes: “Three themes are highlighted — productivity as the measure of economic progress; the “Siamese twins of creation and destruction” as the sources of productivity growth; and the political reaction to the consequences of creative destruction.”, “After the gold rush”, October 20.

I have not read that book yet, I will; creative destruction plays absolutely an important role in the acceleration and sustainability of growth.

I do not know Adrian Woodridge, but, when it comes to the former Fed Chairman Alan Greenspan, I have an inkling that if John Kenneth Galbraith was still around, he would suggest Greenspan does not have all what it takes to write that book.

Let me explain that by quoting from Galbraith’s “Money: Whence it came where it went” 1975: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]

It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent.”

Alan Greenspan clearly fits in with those “Men of economic wisdom” (of the East) who are distasted by unstable banking. To make banks stable, he supported risk-adverse risk weighted capital requirements, much lower for what’s perceived safe (the present) than for what’s perceived risky (the future). 

Sir, and if one is to tellthe real “full, epic story of America's evolution from a small patchwork of threadbare colonies to the most powerful engine of wealth and innovation the world has ever seen”; which is how this book is being promoted, one would need to begin with the willingness of its people to take risks.

What would have happened to America if banks with risk-weighted capital requirements had met its immigrants? Probably that imagined 1620 meeting in Davos about the future world, in which “one region goes unmentioned: North America. The region is nothing more than an empty space on the map” would not have found its way into this book.

The saddest part of all this is that our current generation of central bankers and regulators, like Alan Greenspan, those who prioritized bank stability over growth, as if these two aspects could be separated, anyhow did it totally wrong. With their risk weighted capital requirements, they only guarantee that banks will end up with especially big exposures, against what’s perceived as especially safe, against especially little capital; something which can only cause especially big crises, like that of 2007-08.

PS. Galbraith’s book also explained that, de-facto, regulators had also decreed inequality

PS. Gordon writes about “millions of immigrants being drawn in from Europe as the ever-expanding railroads, enjoying massive government subsidies in the form of free land, in turn subsidised the new arrivals so that they would populate the west.”.  I am not sure that amounted to “massive government subsidies”. If not zero, most of it must have been extremely low valued land. It was those migrants who with their sweat, inventiveness and willingness to take risks built up the value of that land.

PS. Gordon complains the book has “only a page or two reckons the human cost of underpaid labourers, including the consequences of malnutrition [and on] labour unrest”. That reads just like political correctness’ flag waving; and belief in that if only the task of development was assigned to the right kind of central planners, his kind, it would be achieved in a nice and fair way, with no sufferings and no inequality.

PS. In Venezuela, during a conference, 1978, forty years ago, John Kenneth Galbraith autographed “Money” for me. Mine was the only one he signed explaining he did so because it was a pocket book and much underlined  J His book inspired the first Op-Ed that I wrote, more than twenty years ago.

@PerKurowski

When will someone invited dare to pose the question that shall not be made at a Davos or Jackson Hole gathering?

Sir, Gillian Tett writes: “The International Monetary Fund calculates that between 1970 and 2011, the world has suffered 147 banking crises... But whatever their statistical size, the pre-crisis period is marked by hubris, greed, opacity — and a tunnel vision among financiers that makes it impossible for them to assess risks.”, “When the world held its breath” September 1.

Sir, and why should regulators, who impose risk weighted capital requirements for banks, and stress test these be less affected by that “tunnel vision”? 

If regulators knew about conditional probabilities, if they absolutely wanted and dared to distort the allocation of bank credit, they would have set their risk weights based, not on the perceived risks of assets, but on how bankers’ perceive and manage risks.

Tett quotes Alan Greenspan with “I originally assumed that people would act in a wholly rational way, that turned out to be wrong.” Shame on him, had he just done his homework, he would have known that what was perceived as risky never ever causes financial crises, that is always the role of what was thought as very safe.

Tett also quotes Paul Tucker, the former deputy governor of the Bank of England with, “There is a dynamic which pushes banking and the penumbra of banking to excess, over and over again”. That “dynamic” force was the regulators pushing bankers into excesses, for instance by allowing them to leverage 62.5 times if only an AAA to AA rating issued by human fallible credit rating agencies was present.

Tett recounts: “One day in the early summer of 2007, I received an email out of the blue from an erudite Japanese central banker called Hiroshi Nakaso”, who warned her “that a financial crisis was about to explode because of problems in the American mortgage and credit market.” 

Tett was astonished, though she did, by then, not disagree with the analysis. May 19th 2007 I wrote the following letter to FT, which was not published.

“Sir, after reading Gillian Tett’s “A headache is in store when the credit party fizzles out” May 19, it is clear we should all go down on our knees and pray for that she is right, in that it is only a headache that is in store for us. 

As for myself I have serious doubts that the consequence of this blissful-ignorance-bubble resulting from our hide-and-not-seek the risks with derivatives, is unfortunately going to be much more painful than that. When that day comes though, before putting the sole blame on the poor bankers earning their luxurious daily keep; I suggest we look much closer at the responsibility of our financial regulators.”

Sir, sadly, that suggestion has been way too much ignored until now. 

“Why do you require banks to hold more capital against what by being perceived as risky is made less dangerous to our bank systems, than against what by being perceived as safe, poses so many more dangers?” That is the questions that seemingly shall not be asked by anyone who markets his name in the debate and does not want to risk being left out from Davos or Jackson Hole gatherings.

PS. Here is somewhat more extensive aide memoire on the mistakes in the risk weighted capital requirements for banks.

@PerKurowski

Current central bankers are just as lost as Greenspan and friends were lost before 2008, for exactly the same reason

Sir, Sebastian Mallaby when discussing the “alarming froth” in asset prices like shares, bonds and houses, due to “extraordinarily loose monetary policy”, but yet producing “low growth and low inflation” writes: “A … troubling echo concerns the role of regulation. If financiers seem to be taking too much risk, today’s doctrine holds that regulation should restrain them.” “Bubbly finance and low inflation cause alarm” October 8.

NO! NO! NO! Today’s regulations hold that banks should be taking on too much safety. Banks are not allowed to build up dangerous exposures to what is perceived as “risky”, like for example the below BB- rated, which has been assigned a risk weight of 150%; but banks are sure allowed to leverage immensely their capital, and the support they receive from society, with assets rated AAA to AA, risk weighted a mere 20%.

And, if the banks are big and “sophisticated” enough, then they are even allowed to use their own risk models even if, by definition, banks are always interested in minimizing their capital requirements so as to allow them to maximize their expected returns on equity.

There must be something in the air that stops expert central bankers from reaching out to their inner common sense and be able to understand how loony current bank regulations are.

The risk-weighting completely distort the allocation of bank credit to the real economy, making banks ignore their vital role in financing the “riskier” future, and having them to concentrate solely in refinancing the “safer” past. That dooms the world to gloom and doom or as they prefer to call it, to secular stagnation.

And all for nothing! Major bank crises never ever result from excessive exposures to what is ex ante perceived as risky; these always result from unexpected events or from excessive exposures to what was ex ante erroneously thought to be very safe.

@PerKurowski ©

Yes! Central banks must be made accountable

Sir, Alex J Pollock, of American Enterprise Institute in Washington, asks that “Central banks must be made accountable”, November 13.

Absolutely! I totally agree: “there is zero evidence that these central bankers have superior knowledge, obvious that they have no superior insight into the future, and dubious that they command superior virtue.”

Anyone thinking that by distorting the allocation of bank credit in favor of those perceived as ex ante as safe, and which discriminates against the fair access to bank credit of those perceived as risky, will make the bank system safer, has not the slightest idea about what he is doing.

Not only are bank crises always the result of excessive exposures to what is perceived as safe but turn out to be risky; but also the strength of the real economy is a direct function of banks lending intelligently to those perceived as risky, like to its SMEs and entrepreneurs.

Let me just name some of these failed regulators that should be held accountable: Jaime Caruana, Mario Draghi, Stefan Ingves, Alan Greenspan, Ben Bernanke and Mark Carney.

@PerKurowski ©

In terms of capital requirements for banks, when travelling towards 20 or 30 percent, how do we survive the journey?

Sir, Jonathan Ford writes Alan Greenspan exhibited both candor and clarity in an article for the Financial Times in which he called for banks to raise substantially more capital “Higher capital is a less painful way to fix banks” August 26.

First, in that article Greenspan compared the evolution of traditional bank capital levels, with the much newer risk-weighted capital requirements concocted by the Basel Committee. They cannot be compared and so in doing Greenspan clearly evidence why he should take his retirement more serious, and better do like soldiers, just fade away.

And then, in terms of what capital requirements he has in mind, Greenspan writes about “20 or even 30 per cent of assets (instead of the recent levels of 10 to 11 per cent)”. Not mentioning whether he refers to risk-weighted assets or not, something which has implications not to be frowned at. For instance, with current risk weights of 100 percent when lending to unrated SMEs and entrepreneurs, banks could be required to hold 30 per cent in capital, while allowed to hold zero capital when lending to the zero risk weighted sovereigns… Is that what we need? And how do we get from here to there, without dying during the journey? Can you imagine the initial bank credit austerity that could ensue? 

Greenspan argued: “if history is any guide, a gradual rise in regulatory capital requirements as a percentage of assets (in the context of a continued stable rate of return on equity capital) will not suppress phased-in earnings since bank net income as a percentage of assets will be competitively pressed higher, as it has been in the past, just enough to offset the costs of higher equity requirements. Loan-to-deposit interest rate spreads will widen and/or non-interest earnings will increase.”

And I would just ask Greenspan: If you were thinking of buying bank shares… and heard about “a gradual rise in regulatory capital”, would you buy those shares now, or would you prefer to postpone that decision to when the increase in regulatory capital seems closer to being completed?

@PerKurowski

Alan Greenspan is either blind to what caused the financial crisis 2008, or does just not want to admit it

Sir, I refer to Alan Greenspan’s “Higher capital is a less painful way to fix the banks” August 18.

Greenspan has either no idea about what happened, or does just not want to admit it. Suppose the base capital requirement had been the 30% he speaks of instead of that basic 8% required in Basel II. What would that have meant in terms of effective capital requirements using the risk-weights of Basel II. Banks, when lending to prime governments with a 0% risk weight, would then have had to hold, just as today, zero capital. Banks, when investing in AAA rated securities, or getting a default insurance from an AAA rated company, to which a 20% risk weight applied, would then need to hold 6% in capital instead of Basel II’s 1.6%; while for loans to SMEs and entrepreneurs risk-weighted 100% they would then be required to hold 30% in capital instead of the 8% they must currently hold.

Would that have created more or less distortions in the allocation of bank credit? No way Jose! The current crisis has resulted much more from the existence of different capital requirements than by their standard level. Just reflect on the fact that all assets that caused the crisis have in common they originated very low capital requirements for banks compared to other assets. To fix the banks, much more important than the size of the basic capital requirement is getting rid with of the risk-weighting.

Greenspan is also guilty here of serious misrepresentation. He writes: “Bank equity as a percentage of assets, for example, declined from 36 per cent in 1870 to 7 per cent in 1950 because of the consolidation of reserves and improvements in payment systems. Since then, the ratio has drifted up to today’s 11 per cent.” The 36 percent in 1870 and the 7 percent in 1950 was bank equity based on all assets, while today’s 11 percent is based on risk weighted assets… and are therefore absolutely not comparable. Besides, analyzing bank equity without considering other security factors, like reserve requirements that have fluctuated considerably, cannot tell the whole story.

FT, may I suggest you ask all experts writing on capital requirements for banks the following two questions, before allowing him space in your paper:

First: Why are the bank capital requirements, those that are to cover for unexpected losses, based on the perceptions of expected losses?

Second: Why do you believe government bureaucrats can use bank credit more efficiently than the private sector, as your risk weights of 0% and 100% respectively de facto imply?

If they can’t give you satisfactory answers to those questions do you FT really think they have the necessary expertise to opine on this issue?

@PerKurowski

Was Alan Greenspan just a mole planted in the capitalistic system by statist ideologists?

Sir, I refer to Daniel Ben-Ami’s review of David M. Kotz’ “The rise and fall of neoliberalism capitalism” FT-Wealth, Spring 2015.

It states: “It is richly ironic that the Fed chairman from 1987 to 2006 was Alan Greenspan, an ardent devotee of Ayn Rand, an arch free marketer”.

Hold it there!

Put that in the perspective of the Basel Accord having approved, in 1988, that the risk-weights for determining the equity banks needed to hold when lending to central governments was to be zero percent, while the risk-weight when lending to an SME, or to an entrepreneur, or to an ordinary citizen were set to be 100 percent.

Put that in the perspective of that with Basel II, in 2004, the regulators determined that the same risk weight for a member of the private AAArisktocracy was to be only 20 percent, while the risk-weight applicable to an SME, or to an entrepreneur, meaning to an ordinary citizen was to remain 100 percent.

If anything distorted free markets, that was it!

And in 2007-08 the AAA-bomb detonated and short after "infallible sovereigns" like Greece ran into big troubles

And so what conclusions can we have to reach? Could it perhaps be that Alan Greenspan was just one of many moles, planted by statist or anti-capitalist ideologists, in the heart of the capitalistic system, meaning its banks?

The real oil revenue fixer is not Opec, much less American shale oil, but the European taxman.

Sir, I can’t believe you use extremely valuable influential space such as your “Comment” space to allow Alan Greenspan to opine such nonsense as the higher cost American shale oil extractor’s having taken over from Opec the power over the price of oil.

What’s wrong with him? Does he not know that the price per barrel of oil is between $50 and $60? Does he not remember that as late as March 1999, The Economist, in “The next shock?” wrote” “$10 might actually be too optimistic. We may be heading for $5”. Had oil not gone over $50, there would be no American shale oil extraction to talk about. 

But, if there is anyone who effectively has taken over the power of generating revenues from oil, which is even more important than influencing the price of oil, well that is the European taxman who by means of gas (petrol) taxes, gets way more revenue than what is paid for a barrel of non-renewable oil of any provenance.

PS. In fact Opec and American shale oil extractors have a common interest fighting the European taxman.

We must indeed fret the possibility of some fundamental lack of character at the Federal Reserve

Sir, Henny Sender makes a well argued call in “The Federal Reserve must not linger too long on QE exit” July 5; concluding with opining that “The Fed wants to have its cake and eat it too”, and asking “Might it be that the Fed has everything in reverse?" It is truly scary stuff! 

On August 23, 2006, you published a letter I sent titled “Long-term benefits of a hard landing”. Therein I wrote:

“Sir, While you correctly argue (“Hard edge of a soft landing for housing”, August 19,) that “even if gradual, a global housing slowdown would be painful” you do not really dare to put forward the hard truth that the gradualism of it all could create the most accumulated pain.

Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

And now Sir, soon eight years later, we can only observe how the Federal Reserve, even when facing clear evidence all what their liquidity injections and low rates have achieved is increasing or maintaining value of existent assets, and little or nothing has it done for the creation of any new real economy… are unwilling to cut the losses short, and keep placing more and more bets on the table… with our money!

Sincerely, no matter how we look at the Greenspan-Bernanke and incipient Yellen era at the Fed, we have reasons to fret the existence of some fundamental lack of character.

PS. Of course, when it comes to banks, the regulators have already evidenced plenty lack of character with their phobia against “the risky”. And so now they also have our banks placing ever larger bets on what is “safe”, blithely ignoring that in roulette, as in so many other aspects of life, you can equally lose by playing it too safe.

Mr. Richard Madigan would you not like to know the real not subsidized US bond based risk-free rate?

Sir, Richard Madigan, chief investment officer at JPMorgan Private Bank writes “US bond markets leads all markets because they act as the risk-free rate for all risk-assets”, “Rate rises will come despise lower bond yield”, June .

I would love to ask Mr. Madigan the same question I asked Mr. Alan Greenspan some years ago namely… would you not like to know the real US bond based free-rate, without that regulatory distortion resulting from allowing banks to hold US bonds against so much less capital than what they need to hold when lending to citizens, and which in effect makes it therefore a subsidized free-rate?

Mr. Greenspan after hesitating for some moments advanced a "Yes".

Classic economics, models and free markets, stand no chance against arrogant intellectually sloppy regulators

Sir I refer to Gillian Tett’s interview of Alan Greenspan, October 26.

In it Tett writes that “There is a profound irony here. In some senses, Greenspan remains an orthodox pillar of ultraconservative American thought… And yet he, like his left-wing critics, now seems utterly disenchanted with Wall Street and the extremities of free-market finance – never mind that he championed them for so many years.”

What free market finance is Tett referring to? That which requires banks to hold reasonable amounts of capital (equity) when lending to medium and small businesses and entrepreneurs but allowed banks to hold basically no capital when lending to those considered absolutely safe like sovereigns housing and the AAAristocracy? Is that “free-market finance”? She´s got to be joking! 

And Tett also writes “Greenspan has had a change of heart: he no longer thinks that classic orthodox economics and mathematical models can explain everything… he thought – or hoped – that Homo economicus was a rational being and that algorithms could forecast behavior”

No Tett! And no Greenspan! The problems had nothing to do with faults in classic orthodox economics or of mathematical models per se, or with “The ratings agency failed completely”, the problem is to be found entirely in the sloppiness with which these were applied.

Simple common sense should have forecasted what was going to happen, namely too much easy bank credit to what was considered as “absolutely safe”, and too little to what was ex ante perceived as “risky”. Or, what would Tett, or Greenspan, think that I could be referring to, when in the Financial Times in January 2003 I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds.”?

If banks used “perceived risks”, which includes of course the perception of rating agencies, then why should the regulators reuse the same perceptions for the capital requirements? What the regulators had and need to do, is of course to base the capital requirements for banks on the possibilities and implications of those ex ante risk perceptions being wrong. And in that case, since what ex post turns out riskier than the ex ante perception was, is always riskier than what turns out safer, if anything, the capital requirements should be higher the safer the ex ante perception are.

It is sad to hear Greenspan admitting: “When I was sitting there at the Fed, I would say, ‘Does anyone know what is going on? ... I couldn’t tell what was really happening”.

But, that more than five years after the crisis began, Greenspan and the Fed (and Tett of course) seemingly do still not know what happened, and is happening, well that is truly scary stuff… especially for all those unemployed young who are going to pay for it.

Big time meddler Greenspan is no one to warn us about meddling with the market.

Sir, Alan Greenspan is one of those responsible for the regulations which require banks to hold quite a lot of capital when lending to small businesses and entrepreneurs but allow these to lend to the government against no capital at all. As such he is de-facto one of the biggest market meddlers of our time, and has no moral right to appear in the Financial Times preaching us with “Meddle with the market at your peril” January 26. 

As former chairman of the US Federal Reserve he must be aware that the whole world economy is flying blind, because of those capital requirements… like what would the rate on US treasury be if the banks had to treat citizens and government alike?

Alan Greenspan, silently fade away, please

Sir, Alan Greenspan writes “Had banks and other financial entities maintained adequate equity capital-to-asset ratios before the 2008 crash, then by definition no defaults or contagion would have occurred as the housing bubble deflated…. Bank management, currently repairing their flawed risk management paradigm…”, “Regulators must risk more to push growth” July 27. What on earth is Greenspan talking about? 

If the regulators, like Greenspan, had not decided that the capital requirements for the banks were to be set in accordance to the perceived risk of default of each individual asset, then those triple-A rated securities backed with lousily awarded mortgages to the subprime sector, and which in essence became to coffin of the housing bubble, would not even have existed. 

Of course any safety buffer comes at a cost, but also, if that cost is not shared equally, the final real cost could go up exponentially. In this case the regulators, by discriminating against those perceived as “risky”, like the small businesses and entrepreneurs, have, just like the Lilliputians tied up Gulliver, effectively tied up the Western World in an arbitrary and defeatist risk-adverseness, and that we must urgently break away from. 

Greenspan, as the other regulators, after what they´ve done and in much are still doing, have no right to sermon anyone about the need of risk-taking. He, for his own good, should just do as old soldier are said to do… silently fade away, instead of hanging around trying to impose on history their version of their Basel-Waterloo. I hold this because in order to understand the real need for risks, you have to be able to understand the real dangers of risk-aversion.

PS. Our loony malfunctioning bank regulations explained in an apolitical red and blue!

Where do you get the “more productive” from Mr. Barney Frank?

Sir, Barney Frank in “Greenspan is wrong: we can reform finance” April 4 writes “This combined with the new Basel III capital standards and the ability of regulators to insist on even greater capital, will ensure more prudent and more productive lending”.

One could argue that it might indeed lead to more “prudent” lending, though in this world of Potemkin credit ratings there is of course no guarantee of that. But, what seems a too gigantic intellectual leap is to believe the resulting lending to be more “productive”. There is absolutely not one single word in the whole Basel Committee for Banking Supervision literature that connects the capital standards to the term “productive”, as they are exclusively connected with avoiding defaults. The Basel capital standards are stooped in the banking traditions of providing the umbrella on sunny days and taking it back when it rains.

By the way, it is funny, or sad, to read a US Congressman Barney Frank referring to Basel as a sort of an essential element in bank regulations, and then consider that Basel is not mentioned even once in the over 2000 pages of Dodd-Frank Act.

Start by controlling the blind runaway fear shown by the bank regulators

Sir, Alan Greenspan is absolutely right in that “Fear undermines America’s recovery” October 7. But instead of complaining about market fear and market risk-premiums, he should attack what really caused the crisis and so much stand against us getting out of it, namely that stupidly blind fear that bank regulators showed, when they ordered banks to have 5 times as much capital when lending to small businesses and entrepreneurs, than when lending or investing to anything related to a triple-A rating.

That is the blind runaway fear that first must be controlled.

FT should not give Alan Greenspan voice just so he can utter platitudes.

Sir you keep on giving voice, more than a third of your most important Comment page, second week in a row, to someone like Alan Greenspan who did nothing with all the voice he had to save us from this crisis, much the contrary. And then salting the wounds, he only uses it to utter platitudes.

In “Equities show us the way to a recovery” March 30, he says “Restoration of normal global lending could be as effective a stimulus as any fiscal programme of which I am aware” and that “restoring a viable degree of financial intermediation is the key to recovery. Failure to do so will significantly reduce any positive impact from a fiscal stimulus”. Do you believe there are some of your readers that are not fully aware of the above?

Do you believe there are some of your readers that are not fully aware of that a rising stock market could also be beneficial as the creation of capital gains augment spending and gross domestic product, whereas capital losses lower spending.

I do not wish to imply that Greenspan should be silenced forever, of course not, but the least we should be able to expect in order to give him additional voice is that he uses it for something really important.

Times are hard enough for the press but if the Financial Times does not do a better job of defending the quality of one of its most important pages then it will encounter even harder times.

Greenspan commanded an amazingly naïve and gullible generation of financial regulators.

Sir Alan Greenspan starts out his “We need a better cushion against risk” March 27 with his silly chorus that all this mess was because we trusted “the enlightened self-interest of owners and managers of financial institutions”. If that was true, why would the world have contracted the services of Mr Greenspan?

Thereafter he gets into more real explanations though, like accepting that “regulators cannot fully or accurately forecast whether, for example, sub-prime mortgages will turn toxic”. Of course not, when Greenspan and his buddies in Basel decided that a bank could leverage itself 62.5 times to 1 as long as it lend to corporations rated AAA by human fallible credit rating agencies they showed themselves to be amazingly naïve and gullible regulators

Greenspan also writes about the need for higher capital requirements for the banks but before this even more important is to get the financial regulators to stop meddling and imposing their own risks preferences on the banks and letting that to the market.

Did Congress never ask Greenspan about his opinion?

Sir with reference to your editorial “Saying sorry” October 25, if anyone had answered “I presume that the self-interest of organizations, specifically banks and others, is such that they are capable of protecting their own shareholders” we would never ever dream of appointing said person to anything that has to do with banking regulations. Since this is what Alan Greenspan now tells us he always believed does that imply that, in their confirmation hearings, the US Congress never asked him about his views? Can Bernanke be hurriedly recalled to Congress for a brief follow-up question?

The saddest part of the story though is that had only Alan Greenspan regulated according to his beliefs, he would never ever have imposed upon the banks the opinions of some few credit rating agencies, and these agencies would therefore never ever have been officially empowered as the supreme risk guides, and therefore they would never ever have been so much enabled to have so much of the market follow them over the subprime precipice.

Global confusionism!

Sir Philip Stephens in “Globalisation and new nationalism collide” October 24, tells us that the summit of world leaders announced by Bush in order to “advance common understanding of the crisis” would be a success “if the leaders did no more than reach the beginning of understanding”, which presumably means admitting, like Greenspan, that they never understood much of the boom either.

But the summit could also be helped by each party bringing forward mutually helpful proposals. For instance China had a business model based on lending the US money so that it could buy from them which thereby creates jobs the Chinese. And, as so many business models do, it did fine until, in this case until the US could not afford to take on much more debt. What now? If they do not lend the US more money, Chinese could lose their jobs and China could lose a lot on their actual dollar loans to the US.

It might therefore be time for a US public-debt to Chinese jobs conversion plan. In it millions of Chinese workers would pay 10% of their gross Chinese salaries to the US in order to retain an access to the US markets. At a Chinese salary of 500 dollar per month, to repay this way the current 1 trillion dollars of outstanding US debts to China (no interests), that should take only about 10 year, for only about 167 millions of Chinese.

Competitive financial markets and risk information cartels do not go hand in hand

As global public goods go credit ratings have certainly not proven their worth. Alan Greenspan, the former chairman of the US Federal Reserve, now has the galls to tell us “The world must repel calls to contain competitive markets” August 5, after having been absolutely silent while the credit rating agencies, empowered by the financial regulators as risk information cartels, imposed their opinions on the markets in clearly uncompetitive ways. Why do not regulators, like soldiers, just fade away?