FT, are you afraid of the Basel Committee on Banking Supervision curia excommunicating you?

Sir, you loudly preach from your very high pulpit, that the “non-partisan Congressional Budget Office’s updated [fiscal] forecast… should shock Congress out of its complacency…so as to put American’s wellbeing ahead of its differences…[though] even if they do find a solution; the outlook is hardly rosy”, “Vertigo atop the US fiscal cliff” August 24. 

And again I find myself wondering why you do not include in your sermon, some words on the fact that when bank regulations like the current are so much biased in favor of bank lending to those perceived as “not-risky”, and against those perceived as “risky”, this dooms the economy to dangerous obesity and simultaneous muscular dystrophy. Could it be that though you declare yourselves “without fear”, you are scared of what the high priests of the Basel Committee on Banking Supervision curia would have to say? FT excommunicated? 

Well, in the best protestant traditions, I at least am nailing up, wherever I can, my protest against that silly-nanny belief that economic prosperity can be reached, or even maintained, by avoiding, or even punishing, risk-taking and risk-takers, such as the small businesses and entrepreneurs. 

I also wonder what the US congress would have to say, if they understood that current regulations are making their bankers, in “the Home of the Brave”, to lend the umbrella when the sun is out much more than what Mark Twain ever thought possible, and to, similarly, take it away much faster than what Mark Twain could ever have imagined?

Obama heads in the absolute wrong direction!

Sir Tom Braithwaite reports “Obama to renew call for stricter capital levels” February 19. This is just what the US, and the world, least need now.

Allowing the private banks to help out the economy by lowering their capital requirements now, even at the risk of more bailouts tomorrow, is much better than having government bureaucrats do the lending or decide on fiscal spending.

A dollar spent by a bureaucrat is a tax dollar spent but a dollar lent by a banker does not necessarily mean a future tax dollar spent and this is what anyone concerned with a fiscal deficit should know by now.

Whatever, don’t forget the tax bill will be in the mail, quite soon.

A thirty year mortgage of 300.000 dollars at 11 percent rate to the subprime sector will, if made part of a security that because it has a prime rating is discounted at 6 percent, be worth 510.000 dollars. The difference of 210.000 dollars in financial air, pocketed as profit by an intermediary, will most probably be lost completely, no matter what happens to the housing sector. And so, if by any chance these are the kind of loses the governments are helping out with, they will not recover a single cent from it, and the taxpayer will have to make up for it, or it all breaks down in more inflation or in, gulp! … sovereign defaults.

This is why I agree and commend FT on starting to beat the drums on “Austerity must follow a stimulus”. November 13. Let us hope now that the G20 meetings do not take the form of an electoral campaign where only fiscal stimulus and tax rebates are offered and no one even speaks about the tax bill that must follow.

If it would not be for its very tragic implication it would be outright comic to see so many neo-Reaganites preaching the benediction of the Laffer curve, promising less taxes and more fiscal income… and even bail-out profits. What an amazing irresponsibility!

About priorities and painting firehouses

Sir, Edwin Truman in “Time is running out to rebuild the Fund, Mr Paulson”, July 12, screams out for putting the IMF fire-brigade in order so that it will be better prepared to confront whatever disasters might come out of the global “massive distortions” of which some of these, for instance the doubling of foreign exchange reserves over the last five years, he suggests has somewhat occurred as a response to a “weakened Fund” Wow! Yes, a good functioning Fund is an absolute must for the World, it needs new equipment, it needs new young forces and it probably needs a totally new mindset, and so let us make it really sure that we are not just rearranging the drawer or painting the firehouse, just to calm our nerves.

I for one have for a long time sustained that the way the Fund has given in to their bank regulator chums in Basel, forcing the substitution of some few credit rating agencies for the diversified views of a free market, has just been one of the most incredible build up of systemic risks the world has ever seen and so, to me, enhancing the Fund’s legitimacy, post Argentina, needs a lot more “than redistributing voting shares and executive board chairs” based on whatever concocted ratio someone might deem appropriate. The reshuffling of pure local interests will not lead us anywhere in a global world. Where I do agree completely with Mr. Truman is in his call against the “irresponsible fiscal position” of the US and that on remedying this is where the new Secretary “needs to exert leadership at home to achieve results abroad”, perhaps even to such an extent that he should instead ask Mr Paulson to forget about the Fund for now, do not even go to Singapore!, less it becomes an excuse for him painting his firehouse too.

Edwin Truman Paulson IMF Fund IBS Basel systemic risk USA fiscal deficit