Chile can also set a great example for the developed world.

Sir, in “Chile can set an example for the developing world” FT, March 10, 2022, you refer to “the risk of European levels of debt”

With bank capital requirements mostly based on perceived credit risks, not on misperceived risks or unexpected events, like a pandemic or a war in Ukraine, you can bet that, at any moment, many banks will stand there naked, precisely when they’re most needed. 

When that happens Chile could set a great example for the developed world… and FT could provide much help with a Big Read that describes better than I can, how Chile so intelligently managed their huge 1981-1983 bank crisis.

The main elements of Chile’s plan were, in general terms:

a. The purchase of risky/defaulted loans by the Central Bank by means of long-term promissory notes accruing real interest rates and with a repurchase obligation out of the profits of the banks' shareholders before those promissory notes came due, plus some limitations on the use of their operative income… e.g., limits on bonuses. 

b. A forced recapitalization of the banks, in those pre-Basel days one capital requirement against all assets, and in which any shares not purchased by current shareholders, would be acquired by the Central Bank, and resold over a determined number of years. 

c. And finally also an extremely generous long-term plan for small investors to purchase equity of banks. 

Just think about where e.g., Deutsche Bank could be, if the Bundesbank and Germany’s Federal Financial Supervisory Authority (BaFin), had applied a similar mechanism during the 2008 crisis?

Here's more details on Chile's handling of its bank crisis

PS. Not the first time I suggest this

@PerKurowski

The still ticking 0% Risk Weight Sovereign Debt Privilege bomb awaits Mario Draghi’s successor at ECB

Sir, Martin Wolf, sort of implying Mario Draghi followed his recommendations, which of course could be true, holds that “Draghi did the right things, above all with his celebrated remark in July 2012 that ‘within our mandate, the ECB is ready to do whatever it takes to preserve the euro’”. “Jens Weidmann casts a shadow over the ECB” June 11.

Did Draghi resolve that crisis for the better, or did he just postpone it for the worse?

That’s is not at all clear. In March 2015 the European Systemic Risk Board (ESRB) published a “Report on the regulatory treatment of sovereign exposures.” Let me quote from its foreword:

“The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. 

The report recognizes the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets. 

I trust that the report will help to foster a discussion that, in my view, is long overdue.” Signed Mario Draghi, ESRB Chair

The regulatory aspect that report most refers to is, for purposes of risk weighted capital requirements for banks (and insurance companies), the assignment of a 0% risk weight to all Eurozone sovereigns. 

Though the report states that: “Sovereign defaults… have occurred regularly throughout history, including for sovereign debt denominated and funded in domestic currency”, it does not put forward that all these eurozone sovereign debts are denominated in a currency that de facto is not a domestic printable one of any of these sovereigns.

Since Mario Draghi seems to have done little or nothing since then to diffuse this 0% Sovereign Debt Privilege bomb, which if it detonates could bring the euro down, and with it perhaps EU, this is the most important issue at hand. 

So when choosing a candidate to succeed Draghi as president of ECB the question that has to be made is whether that person is capable enough to handle that monstrous challenge. Who is? Jens Weidmann? I have no idea.

Sir, it would be interesting to hear what Martin Wolf would have to say to the new president of ECB about this. What would a “Do what it takes” imply in that case? 

PS. And when Greece was able to contract excessive debt precisely because its 0% risk weight should not the European Union have behaved with much more solidarity, instead of having Greece walk the plank alone?

PS. If I were one of those over 750 members of the European Parliament here are the questions I would make and, if these were not answered in simple understandable terms, I would resign, not wanting to be a part of a Banana Union.

PS. "The current regulatory framework may have led to excessive investment by financial institutions in government debt." Really?

PS. Is there a way to defuse that bomb? Perhaps but any which way you try presents risks. One way could be to allow all banks to continue to hold all eurozone sovereign debt they current posses, against a 0% risk weight, until these mature or are sold by the banks; and, in steps of 20% each year, bring the risk weight for any new sovereign debt they acquire up until it reaches 100%... or more daringly but perhaps more needed yet set the risk weight for any new sovereign debt acquired immediately to 100%, so as to allow the market to send its real messages. 

The same procedure could/should be applied all other bank assets that currently have a risk weight below 100%, like for instance residential mortgages.

Would it work? I don’t really know, a lot depends on how the market prices the regulatory changes for debt and bank capital . But getting rid of risk weighted bank capital requirements is something that must happen, urgently, for the financial markets to regain some sense of sanity.

PS. An alternative would be doing it in a Chilean style. Being very flexible with bank capital requirements, even accepting 0%, even having ECB do repos with banks non-performing loans: BUT NO dividends, NO buybacks and NO big bonuses, until banks have 10% capital against all assets, sovereign debts included.

PS. I just discovered that Sharon Bowles, MEP, 
Chair Economic and Monetary Affairs Committee
 of the European Parliament, in a speech titled "Regulatory and Supervisory Reform of EU Financial Institutions – What Next?
 at the Financial Stability and Integration Conference,
 2 May 2011, said the following:

“I have frequently raised the effect of zero risk weighting for sovereign bonds within the Eurozone, and its contribution to removing market discipline by giving lower spreads than there should have been. It also created perverse incentives during the crisis.”

That is very clear warning that something is extremely wrong... and yet nothing was done about it.

PS. And in 2015 the European Commission also described the problem with the zero-risk weighted sovereign debts within the eurozone.

PS. https://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

PS. In Financial Times 2004: “How long before regulators realize the damage, they’re doing by favoring so much bank lending to the public sector? In some countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits”

The empowerment of the Bureaucracy Autocracy

“Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

@PerKurowski

Should not EU cut its grand bargain with all its over-indebted sovereigns before any Brexit vs. Remain voting took place?

David Folkerts-Landau, the chief economist at Deutsche Bank writes, “An Italian debt crisis poses an existential risk to the eurozone. The current game of chicken is irresponsible. It also ignores the dangers inherent in any financial crisis, the costs of which would dwarf those of having the ESM step in”, “Europe must cut a grand bargain with Italy” November13.

Of course Italy cannot be expected to pay €2.450 billion, meaning over €40.000 per citizen, denominated in a currency that is de facto not Italy’s real domestic (printable) currency. Be sure Sir, Italy will not walk the plank, as Greece had to do.

But of course what Folkerts-Landau writes, “The option of a debt write-down with private sector involvement is also unfeasible”, is not possible either.

One way to solve Italy’s (and Europe’s) sovereign debt crisis as painless as possible could be by using a Brady bond/zero coupon mechanism as used creatively by the US in 1989 during the Latin American debt crisis. I mentioned the use of those bonds to FT in a letter of 2008, “"Après us, le déluge", as did William R. Rhodes in 2012 with “Time to end the Eurozone's ad hoc fixes”.

A complementary tool to help fix Italy’s (Europe’s) banks, as I wrote to FT in 2012, would be to do what Chile did during its mega bank crisis in 1982 namely: a. having central banks issue bonds in order to buy “risky” loans not allowing banks to pay dividends until those notes had been repurchased; b. forcing banks to hold more capital with central banks subscribing shares not wanted by the market with these shares resold over a determined number of years and c. generous financing plans to allow small investors to purchase equity of the banks.

Obviously, for Italy’s (and Europe’s) banks to be really helpful to the real Italian economy, it would be imperative to get rid of the credit risk weighted equity requirements for banks, those which erode the incentives for banks to give credit to those who most could do good by receiving it, like SMEs and entrepreneurs.

What is absolutely true though is that to solve Italy’s (Europe’s) problems, more zero risk weighted loans to the sovereigns, in order for government bureaucrats to allocate the resources derived from bank credit, will just not cut it… no matter how much haircut on Italy’s (or other European sovereign’s) debt you accept.

Europe would need to start the process of helping Italy (and Europe) by getting rid of all current high-shot regulators. Not only would they be too busy, as until now, covering up their mistakes, but also, as Einstein said, “We can't solve problems by using the same kind of thinking we used when we createdthem.”

Sir, I suspect all in FT would vote for a Remain if given a chance, but before doing so, would you not prefer EU authorities to clearly explain to you how they intend to fix the European sovereign debts overhang. That which if not fixed will crash the Euro and thereby most probably also crash the European Union? Sir, would it not look truly silly Remaining in something gone?

PS. It is clear that without the help of those wanting immensely more to save the European Union than to save some cushy jobs, the future of the EU very sadly looks very bleak.

@PerKurowski

Banks with better capital will not stifle investment and growth. Bank capital requirements that are not neutral to perceived-risks will

Sir, I refer to David Miles, Professor of Financial Economics, Imperial College letter in which he argues that “Better capitalized banks will not stifle investment and growth” November 30.

He is of course right, but with some caveats.

First, it has to be reasonably well capitalized banks since, going overboard on capital requirements, might reduce the margins arising from leveraging and make getting that additional capital (equity) needed quite difficult.

Second, it is a delicate matter of how going from here to there. If you impose some drastic immediate adjustments then you must be prepared to go for instance the Chilean way, where its central bank made some important capital contributions but allowed former shareholders to repay them and buy them out when they could.

But, but, but! If you insist in that capital being risk weighted, it will just not work.

Suppose you want a 100% capitalized bank, but when calculating that 100% you keep on risk weighting the sovereign with 0%. That would mean that a bank would come up with 100% of equity if lending to a 100% risk weighted entrepreneur, but would be allowed to hold zero capital (equity) when lending to the sovereign. Would that just not be 100% top down Stalinism? How much non-governmental jobs could be created that way?

So, if we are to have economic growth, and banking sector stability, much more important than how well capitalized is that they are perceived-risk neutral capitalized. 

Sir, you know how much I have been criticizing current bank regulations, but my first Op-Ed ever, in 1997, was titled “Puritanism in Banking”, and I still think that what we least need is too much of that. God make us daring!

And, since I will try to copy this letter to Professor Miles, I will hereby take this opportunity to ask him whether he has any idea of why regulators want banks to hold the most capital for when something perceived risky turns out risky? Is it not when something perceived ex ante as very safe turns ex post out to be very risky, that one would like banks to have the most of it?

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

@PerKurowski

How did the world get into such a mess, and will it happen again? Here is why, and yes, as is, it will happen again!

Sir, Patrick Jenkins quotes Lord King — now a professor at the LSE and New York University with: “it was inevitable that a crisis was going to occur… The banking system as a whole was very highly leveraged. It had on its balance sheet a large volume of assets that were very difficult to value and no one could work out what the exposure of one individual bank was” “Financial crisis: 10 years on Where are we now?” September 2.

“How had the world ended up in such a mess — and has enough been done to stop something similar happening again?”, asks Jenkins.

First: The crisis resulted from: Basel II of 2004 allowing banks to leverage capital (equity) more than 60 times if only there was an AAA-to AA rating presents or if the exposure was to a friendly sovereign, like Greece. 

Jenkins writes “When the 2007 crisis broke, fingers of blame were pointed in all directions…. at policymakers for presiding over an environment of low interest rates and lax regulation” Lax regulation? No! Extremely distorting regulations. Had banks not been regulated by means of risk weighted capital requirements for sure some other crisis could have happened… but not that one that is here referred to.

Second: Since the risk weighing of some capital requirements is still used that guarantees that sooner or later, some safe-haven, like that of sovereign debt, will become dangerously overpopulated. Add to that the fact that risky bays, like SMEs and entrepreneurs, will not, as a result have sufficient access to credit, which will debilitate the real economy… and you can only come to the conclusion that, yes a crisis of the same nature is bound to happen again.

How can we stop it! To begin by removing all those who had something to do with current bank regulations because, as Einstein said: “No problem can be solved from the same level of consciousness that created it”.

To not debilitate the banks with fines and go after those responsible for any misbehavior would also help.

What would I do? Impose a straight 10% capital requirement against all assets; and if that puts a too big squeeze on bank capital, I would go a Chilean route of having central banks take on loans in order to capitalize the banks; and thereafter prohibiting banks from paying dividends before those shares that would have a preferential dividend have all been repurchased from the central banks. But that’s just me.

@PerKurowski

More than tighter or looser, what EU needs are capital requirements that distort less the allocation of bank credit

Sir, I refer to Jim Brunsden’s “EU set to resist tighter capital requirements” September 30.

EU (and all other) needs to decide what’s more important for it, the short term stability of its banking sector, or the future perspectives of its real economy. If it is the first then increasing the capital requirements must be a priority.

But, if the real economy is more important, then instead of being more accommodating with the capital requirements, as is now being discussed, it needs much more to rid itself of those risk weighted requirements that so distort the allocation of bank credit.

That would not not necessarily entail having to increase too much bank capital. Some increases for holding what’s “safe” could be compensated by some decrease of capital required for holding what’s “risky”, like loans to unrated SMEs. The latter would not affect the stability of the banks since there is never excessive dangerous bank exposures built up with what is ex ante perceived as risky.

How to proceed? I do not have data to recommend something exact but, one way of doing it, could be that of assigning a risk-weight of 60% for all assets… and then increase it by 5% in order to reach 100% for all assets in eight years.

Another, much more cumbersome of course is to define individual capital requirements for each bank, starting with were each one of these currently find themselves.

And of course a Chilean type recapitalization plan that entails central banks taking much of the not performing loans off bank’s balance sheets, subject to conditions such a not paying dividends, and at one time having to repurchase those loans, would give a big needed boost to the whole credit market.

@PerKurowski ©

Poor Greece is squeezed between a bad regulators’ rock and a leftist-ideological-blocking hard place.

Sir, Mark Mazover writes about “A last chance for Tsipras to choose country over party” June 25.

In it the Professor refers to “the country’s sky-high unemployment rates” and to “Greek banks on life support”.

That would call for two things:

First the elimination of the credit risk weighted capital requirements for banks which effectively blocks the fair access to bank credit of those perceived as “risky”, like the SMEs who could most help to generate sustainable jobs.

Second, something like Chile’s capitalization of its banks during the 1982-83 crisis, by purchasing their non-performing loans, in the understanding that these loans would be re-purchased by the banks before their dividend payments could resume.

But to get bank regulators, like the former Chair of the Financial Stability Board, Mario Draghi, to admit how wrong they have been is no easy task.

And to get Tsipras and Syriza, to back a plan executed during the Pinochet regime, that is no easy task either.

In my opinion, without doing both those things the chances of Greece recovering in a foreseeable time are nil. But, for Greece to get out of this trap between a rock and a hard place, would require some real strong leadership, from Greece and from Europe.

@PerKurowski

Here are two heartfelt recommendations to India.

Sir, I refer to Henny Sender’s very comprehensive “India’s shadow banks step in to lend where others fear to tread” May 26.

I just want to add the following:

First, India, as a developing country, can certainly not afford bank regulations that favors the allocation of bank credit to the safer past than to the riskier future… and so it urgently needs to get rid of the distortions that the Basel Committee’s credit risk weighted capital (equity) requirements for banks produce.

And second, with respect to its private sector banks, these could also benefit from a major re-capitalization plan, like the one Chile did in the early 80s. The central bank should issue bonds using the proceeds to acquire the banks’ non-performing loans (which will permit the reversal of all provisions) and the banks would commit to repurchase those loans from the Central bank, plus interests, before they can proceed with any dividend payments.

That could turn it around much faster for India.

Of course Europe would also benefit from implementing a similar plan.

@PerKurowski

Here are two recommendations to Raghuram Rajan on how to get India’s banks to become functional banks

Sir, I refer to David Keohane’s and James Crabtree’s “India’s central bank struggles to ensure lenders pass on interest rate cuts” April 22.

There are references to a “broken down process of monetary transmission through which the wishes of the central bank are transmitted to the real economy”, and to “a banking system frozen by high rates of bad loans”.

The following is what I would advice Raghuram Rajan to do, if he really wanted banks to become functional financing efficiently the real economy.

First, get rid of stupid Basel bank regulations that, with their different equity requirements based on credit risks, so distort the allocation of bank credit. These introduce a regulatory risk-aversion that has no place anywhere, but much less in a developing country, since risk-taking is the oxygen of any development. In its place put for instance an 8 percent equity requirement on all bank assets, and throw out forever, the portfolio invariant credit-risk equity requirements. Of course that could create a big need for fresh bank equity, and so…

Second, in order to take away the dead weight caused by the bad loans, and to help to fill any new bank equity needs, the central banks should proceed like Chile did during its financial crisis. Namely capitalizing all the banks by purchasing their non-performing loans, against the commitment by the banks to repurchase these assets from the central bank with their retained earnings, before any substantial dividend payments to their shareholders could be made.

You would then have well capitalized banks, ready to give credit on non distorted terms to for instance “risky” SMEs and entrepreneurs, and simultaneously been made so much safer that, presumably, they would have to pay less interest rates to depositors, and in the medium or long terms less dividends to shareholders. Not bad for a couple of hours work eh?

@PerKurowski

Greece and Europe, allow your banks to function like banks again…look how Chile did it.

Martin Wolf writes: “It is Greece’s fault. Nobody was forced to lend to Greece.”, “Mythology that blocks progress in Greece” April 22.

Perhaps not forced. But regulators produced irresistible temptations, like allowing banks to leverage their equity, and the support they receive from society, more than 60 to 1 when lending to Greece, comes extremely close to forcing. Put a plate with a good chocolate cake in front of children, and see what happens.

And then Wolf writes: “The ECB should not lend to clearly insolvent banks”… And I ask, why not? To have ECB competing with pension funds and widows and orphans for whatever little “safe” assets there is left does not make any sense.

Now if the ECB did like Chile did in 1982-83; capitalizing all banks by purchasing their non-performing loans; against an agreement that banks would not pay dividends until they had repurchased these loans from the ECB, then Greek banks would be fit to operate again as banks.

Of course, for the Greek banks to be helpful to the real Greek economy. you would have to get rid of the credit risk weighted equity requirements for banks, those which impede that banks will give credit to those who most could do good by receiving bank credit, like to the SMEs and entrepreneurs.

Whatever, to solve Greece’s problems, more zero risk weighted loans to the sovereign, in order for government bureaucrats to allocate the resources derived from bank credit, will just not cut it… no matter how much haircut on Greece’s debt you accept.

And “the Centre for Economic Policy Research notes that excessive debt hangs over the entire eurozone, not just Greece.”

Yes indeed, and that is why I would suggest applying the Chilean solution all over Europe.

Europe, allow your banks to finance the riskier future, and keep them from only refinancing the safer past.

PS. This was written before I discovered that, in the case of Europe the regulations were even worse than Basel II's. The European Commission adopted Sovereign Debt Privileges which assigned a 0% risk weight to all their sovereigns. That meant banks could lend to Greece without holding any capital at all. Holy moly! To top it up Eurozone sovereigns are indebted in a currency that de facto is not a real domestic (printable) currency for them.

@PerKurowski

All Eurozone’s banks are also in a periphery, which is something that should be considered by ECB’s-Draghi-QEs

Sir, I refer to Christopher Thompson’s “Banks seek lower cost risk capital” February 3.

It states “Under proposals from international regulators, the biggest 27 “globally systemic” banks will have to double the capital they must hold under the Basel III requirements by 2019. This implies a €200bn-€300bn capital shortfall in Europe alone according to estimates by Citi.”

Is that not a clear indication that where an ECB-Draghi-QE could be most useful, would be by filling that equity gap, as fast as possible, subscribing bank shares to be later resold to the market.

Otherwise the travel from here to there in terms of bank equity is going to hurt a lot… especially all those “risky” small businesses and entrepreneurs which borrowings generate the largest equity demands on banks.

And the beauty of that is that even Germany would agree because, in terms of the Eurozone’s banks, including the German, all find themselves, just like Greece, in the periphery.

The ECB might also benefit from looking at how Chile solved its bank problem

The more you stabilize, the more you risk making the system brittle, so the more you really destabilize.

Sir, I refer to Paul Tucker’s “The world needs different ways of taming capital flows” October 10.

I have always, in the case of small bath-tubes placed next to the global oceans, been in favor of capital controls. And I have most specially liked what Chile used to do, namely forcing funds to park themselves for a time doing nothing, in order to show their serious intentions, before these were allowed to court beautiful Chilean daughters.

But, I have also been aware that every time you stop funds from going somewhere, those funds could remain somewhere even more dangerous.

Here Paul Tucker, a former deputy governor of the Bank of England, holds that “the objective [of capital controls] should be limited: guarding against threats to stability”

But, when regulators, with their credit risk weighted capital requirements for banks decided to create great incentives for banks not sailing risky waters, and instead stay in safe havens… they completely ignored that safe-havens can become dangerously overpopulated… in a very short time.

In other words, the more you stabilize, the more you make the system brittle, so the more you really destabilize.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926

But IMF never said a word against the mother of all capital controls.

Although I have been a long opponent on capital controls for outgoing flows, I am a great believer in capital controls on inflows, the Chilean type, which helps small economies in their small bathtubs not being drowned by global financial tsunamis. And so of course I welcome the International Monetary Fund´s less dogmatic standing in respect to this sort of “Capital controls” December 4. 

But to say “As far as intellectual shifts go, the turn by the IMF on capital controls is remarkable” is in truth a big exaggeration. 

I say this because with respect to the greatest and most subtle and harmful capital controls ever, namely that of capital requirement for banks based on perceived risks, I have never heard one iota from IMF opposing it. That control helped to channel trillions of dollars to “The Infallible”, most especially the “infallible sovereigns”, and away from “The Risky”, like small businesses and entrepreneurs. And the saddest part is that the overwhelming capital in the world is not even aware of that control.

There´s a hole in the bucket dear Andy dear Andy

Sir, when we can read about 500 billion Euros in bank capital shortfall in Europe alone, and no one swears that would suffice, it should be clear that no one wants to be the first drop in the bucket… and I am reminded of Harry Belafonte singing “There´s a hole in the bucket dear Liza dear Liza”. 

And yes, I agree completely with Andrew Haldane in that “We should go further still in unbundling banks” October 3, especially since we really have not even started doing that. But, how can you unbundle without solving the lack of bank equity issue? Are you intent on leaving all those nude and famished bundles lying there on the beach for everyone to see? 

No, any unbundling has to come hand in hand with monstrously large equity injections into the banks. And these could in my mind only occur in two ways. By government injections, and for which I would much recommend you look into how Chile intelligently handled that during its 1981-83 crisis, or, by giving private capital massive incentives to invest, for instance by assuring it significant long term tax benefits. 

And of course, you need to convince the market that you have a different banking sector, a safer one, so that investors could be satisfied with lower returns. And for that, throw out the concept of risk-weights which determine the effective capital requirements for any particular bank asset, and that so much confuses, distorts and makes it so complex to stop regulators from understanding what they are regulating and for what purpose.

The eurozone might be better off fixing its banks the Chilean way

Sir, it is completely counterproductive for the economy if banks can comply with harsher capital requirements by switching to holding assets which require less capital. That is an aspect amiss in Philipp Hildebrand´s and Lee Sachs' “The eurozone should fix its banks in the US way". September 25. 

To have the ECB propose purchasing bank equity in order to blackmail private investor into increasing their bank equity while Basel II or III´s discrimination based on perceived risk is still in effect, does simply not work. 

Set instead a fix capital ratio for any asset, like 8 percent, for loans to infallible sovereigns the same as for loans small businesses, and then you will get some real action. 

If that would require too much capital then perhaps ECB, and Europe, could benefit from doing something along the way Chile did during its monstrously large bank crisis 1981-1983. Excluding for some foreign exchange considerations, those Chilean actions were in summary based on: 

a. The purchase of risky loans by the Central Bank by means of long term promissory notes accruing real interest rates and with a repurchase obligation out of the profits of the banks' shareholders before those promissory notes came due, plus some limitations on the use of their operative income. 

b. There was a forced recapitalization of the banks and in which any shares not purchased by current shareholders, would be acquired by the Central Bank, and resold over a determined number of years. 

c. And finally there was also an extremely generous long term plan for small investors to purchase equity of banks. 

The above, together with some strong revisions of bank regulations, helped to set Chile on a track that Europe would currently envy.

Serious intentions or just a one night stand?

Sir Jonathan Wheatley and Alan Beattie in “Brazil taxes foreign portfolio flows in bid to stem exchange rate rise”, October 21, make a reference to the Chilean capital controls, and it is important to understand that these were of quite different nature than Brazil’s tax.

Chile’s capital controls, intelligently, wanted to make certain that the foreign investments flows wanting to go in into Chile, as pretenders, had serious long term intentions, and were not just looking for any one night affairs. It was therefore based primarily on freezing the use of funds for one year, so as to assure a proper courting.

Compared to that, Brazil’s 2 percent tax, just raises the price of having an affair in Brazil. And what is 2 percent in these days of hedge-funds fees if the signorina is beautiful?

The education of your neighbor’s kids is part of your own kid’s education

Sir, Mr Manuel Riesco when arguing “Chile’s experience belies claims of those who believe in superiority of private schools”, February 24 is rightly concerned with “the poorest remaining in the public schools which have deteriorated” but somehow he seems to imply this would be the fault of the private schools, which obviously it is not. As I have always believed that the education of your own children might turn out to be dangerously useless if your neighbor’s children are left behind, I have always been a supporter of public education. Nonetheless, public education can be given through private mechanisms such as the vouchers and so Mr Riesco’s concern should perhaps be why the poorest of Chile have not received a sufficient large voucher to be able to access a private school. And of course this does neither imply that the public schools cannot or should not be good too.