Odious debts, odious credits and odious regulations are all yin-yang elements of the financial sector

Sir, M Shepherd, when commenting on Alex Pollock's letter "Sovereign debt has a pretty bad record" August 16 writes that “All too often, debates about defaults on government bonds focus on the borrowers and neglect the lenders.” “The other side of the sovereign debt story”August 18.

Absolutely, and that is why when I write about odious public debt, like that contracted in Venezuela, I always follow it up with one about odious public credit, like those awarded to Venezuela.

But, of course I have to add a point. For instance the immensely excessive public debt in Greece would never have happened had regulators not, for the purpose of setting the capital requirements for banks, assigned Greece a zero percent risk weight.

Those regulators have not been held accountable either, among others because of the network solidarity FT has showed them … in fact they have been promoted to central banks… and our banking system still lives under the distorting thumb of risk weights.

@PerKurowski

How many university professors know they are educating kids for jobs not to be had?

Sir, Mo Ibrahim writes: “the more time young people in Africa spend in education, the more likely they are to be unemployed… It highlights the worrying mismatch between the skills our young people are taught and those needed by the contemporary job market. This is a recipe for frustration and anger” “Africa’s youth, frustrated and jobless, demand attention”, April 13.

Scary! But it is even scarier if we connect this to Rana Foroohar “Dangers of the college debt bubble”, April 10 and Alex Pollock’s letter of April 12, “Colleges are acting like subprime loan brokers”.

A question. In our universities how many of the professors might be aware of the slim chances of their students’ landing a job in the future that will allow them to service their student debt and have a life… and still say nothing?

In many occasions over the years I have written about the needs to better align the remuneration of professors, at least their pensions, with the future of their students.

It is amazing to see so many professors criticizing bankers for poaching their clients while they de facto behave just the same. Load up the kids with loans, so that we can collect (bonuses) today! 

It will not work, and it will come back and bite us all.

PS. If I owed a student loan I would ask for a debt to equity conversion, offering a percentage of my after tax earnings over a certain amount for a definite number of years.

http://teawithft.blogspot.com/2010/04/if-incentives-are-correctly-aligned-all.html

http://onechildonevote.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

PS. We need worthy and decent unemployments

@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 ©

Can we have some more trigger-happy bank regulators please?

Sir, Alex J Pollock, of the American Enterprise Institute, comments on John Kay’s article “The design failures that lead to financial explosions” saying that when Kay holds that “attempt to design a system for zero failure is impractical” that he would suggests it being “a mission impossible”. And as an argument for this, Pollock correctly writes “The greater the belief in their success grows, the higher the probability of their failure becomes.

And I would also have to add that the larger and more dangerous those failures also become.

In 2003 addressing some hundred bank regulators who were learning about what was being planned by some few regulators for Basel II, I said: “A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises.”