When in doubt just announce a Nobel Peace Price Objective

Sir personally I am convinced that Obama got the Nobel Prize for Peace by default since the committee could not really find someone else. That said I would not suggest for Obama to return the prize as Clive Crook does in “It is too early to land Obama – or to be disappointed” October 12, as that would be an unnecessary slap in the face of the Norwegians who must find themselves going through much pains anyhow trying to come up with a worthy winner each year. May I suggest to them the following alternative?

Those years when they do not find thee natural candidate why do they not declare an objective and that if accomplished would automatically give right to a Nobel Peace Prize sort of placing the carrot more explicitly before any possible candidates. As is it is not really sufficiently clear whether Obama got it for past or future achievements.

Let us avoid subtle muddle

Sir I have participated for many years in the debate on the regulations for banks coming out of Basel but, in order to have an even fuller understanding of what happened, I recently completed all the requirements to be a mortgage loan officer and a real-estate salesman in the state of Maryland. From what I have been able to gather Clive Crook, and many with him, is wrong when he slips by some questions that seem to attribute much of the subprime crisis to Fannie Mae and Freddie Mac, “A thin outline of regulatory reform” June 22.

There might be other real problems with these “government sponsored entities” but the subprime avalanche was created by mortgage originators that managed to channel unbelievably lousy awarded mortgages into Wall Street created securities which had managed to hustle up AAA credit ratings, so much that even Fannie Mae and Freddie Mac fell into the trap of buying up some of this securities, as investors.

There might be other real problems with these “government sponsored entities” and there is a lot of pent up criticism of these by conservatives, and much of it might be valid, but creating regulatory reform in hard times like this is not made easier by subtle muddle being thrown into the debate.

In his article Clive Crook also asks “what would better regulation of the [credit rating] agencies look like? To this I would have to reply by asking? Why would we need better regulation that could make the credit rating agencies even more dangerous? Why do we not just take away the official powers they have had since only June 2004?

But there is a minimum minimorum reform that the US health sector needs for a starter.

Sir, being a foreigner living in the US I have thanks God not needed to get too acquainted with its so heatedly debated health sector; and I pray it stays that way. In this respect I cannot really comment much on Clive Crook’s “Medicare for all may be the best cure” June 15, but yet I feel the need to point out something that to me seems to go against any sense of justice, which is that as I have witnessed, the uninsured are often required to pay many times the price insurance companies pay for exactly the same medicine or treatment.

If beer companies compete that is good for beer drinkers and does not affect those who do not drink beer. But in the case of health services it is obvious that many of the cost reductions negotiated by the competing insurance companies, end up expected to be recovered from those uninsured.

If it was in my hand (perhaps it's good that’s not the case) I would put up a prohibition to charge anyone more than 5% to max 20% over the minimum price offered to any insurance company… and then take  health reforms from there. Not doing so forces millions of uninsured who could pay reasonable fees to either swamp free service emergency rooms, or being financially abused.

Is not cost-discrimination against the uninsured a much worse discrimination than many of those other discriminations being protested so loudly? 

A regulatory bias that favours the big prevails

Sir Clive Crook recommends to “Strike faster on death-wish finance” March 23 and he is right though that would clearly require a dramatic reversal of the regulatory bias in favour of the big that now prevails.

In May 2003, at a workshop on risk management for some hundreds of financial regulators held at the World Bank, as an executive director, I said the following:

“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. Knowing that “the larger they are, the harder they fall”, if I were regulator, I would be thinking about a progressive tax on size.”

And, as you might guess, that recommendation went unheeded and I would even dare say unwelcomed… unfortunately.

In taxes we need to start from scratch.

Sir I certainly appreciate Clive Crook’s “Four fixes for America’s fiscal fiasco” January 19, since the very first thing that came to my mind in this crisis was a… how are we now going to pay for it all? … especially since taxes have lost so much credibility around the world that they are even described more and more solely in terms of growth inhibitors.

In order to regain their credibility the taxes have to be of a progressive nature; they have to stop being overly targeted at the salaries in the formal economies; and they have to be aligned with new global realities. The only way to achieve a tax system that fulfils those criteria is by means of a sincere non-partisan cooperation that is allowed to reconstruct the whole tax systems… from scratch. In the US as in many other countries there is no way of making much sense out of the existent voluminous and confusing tax-codes.

Let the American motorist pays 50 cents per gallon of gas for new equity in their automobile industry

Sir is Clive Crook panicking? It is hard to draw a different conclusion from his “A question of first things first” December 8. Of course we need some fiscal stimulus and of course we should not procrastinate getting it out on the street… but what is wrong about thinking on the future in terms of what the stimulus should stimulate and what not, and about how to pay for it all?.

The truth is the sooner the market gets a feel for the full circle, “this is what we spend and this is how we pay for it”, in ways that make sense, the faster it will regain the confidence it needs.

For instance I am proposing that the American motorists subscribe and pay for fresh equity in their automotive industry with 50 cents per gallon of gas, as a tax. That should help to raise more than 70 billion dollars a year to take care of the current problems of their industry and finance the green retooling they must embark on. If at the end of the exercise the equity is not worth what the motorists paid, it is still only right that those who drive should primarily carry the burden of rescuing the automobile sector.

The system was not overwhelmed by innovation it was overwhelmed by negligence

Sir I bet that Clive Crook does not know of anyone who knows of anyone who knows of anyone that has lost a single dollar giving a subprime mortgage on too generous or outright stupid terms to anyone who classifies as belonging to a subprime sector.

But I do bet that Clive Crook knows of many persons or institutions that have lost fortunes investing in securities collateralized with mortgages just because these securities were rated AAA by one, two or even three of the three credit rating agencies that everyone, including the financial regulators uses.

In this respect unless Clive Crook classifies a mortgage given on stupid terms as an innovation he is absolutely wrong about “A system overwhelmed by innovation”, October 13. The system was overwhelmed by the sheer negligence of those sentries that the regulators appointed and empowered, the credit rating agencies, and the negligence of the regulators and the market participants who thereafter went to sleep in the belief they no were safe.

Stop dodging the issue about the credit rating agencies

Sir the real line of division does not go that much between those who want more or less financial regulation per se but between those who argue that you can give so much power to the credit rating agencies to influence the financial flows and those who like me have always held this to be absolute madness; that sooner of later the market could follow these pipers over a precipice… as indeed it did in the case of the securities collateralized with subprime mortgages. Clive Crook in “Regulation needs more than tuning” April 7, is at least clearly admitting that sooner or later he needs to make his mind up on this thorny issue and for this he should be commended, since most have just been dodging it.

By the way just to help sort out a deep misunderstanding; the fact that the credit rating are private do not make them less official.

Mr. Clive Crook. Now you please repeat after me too

Sir Clive Crook is absolutely right when titling “Markets need more than a patch-up” March 31, and ending it with “We need an entirely new model” as in between he really wavers around among a world of possibilities.

Now given that Crook gives so much weight to the issue of moral hazard that he orders us to “Repeat after me: you encourage recklessness if you protect people from its consequences” and which I duly did, I would love Crook to return the favour and also repeat after me that “you encourage carelessness if you make it to be seen that risks could indeed be measured and nominate credit rating agencies as duly qualified to do just that.”

Regulators really have tremendous workload cut out for them especially when they have not yet really decided the objective of their regulation correctly, since avoiding defaults and crisis cannot be the only societal role of a financial system.

If Gore is really right then Lomberg is really right

Sir Clive Crook when reviewing Bjorn Lomberg’s recent book “Cool It”, “An inconvenient Danish pasting” October 15, underlines the differences between the Gore camp and the much smaller group of Lomberg followers. This is somewhat unfortunate because the more the truth in Al Gore sermons the more the need for a truly sceptical attitude that considers carefully every opportunity costs, not only to help us to attack the problem wisely but more importantly to keep at distance all those peddlers of green magic potions that could sure tempt us into monumental waste. If on the other hand Gore is not right and climate change induced calamities are not waiting for us around the corner well then a little waste does not matter that much since it would just constitute another drop in that brimming bucket of wasteful spending and throwaway investing

Does procreation include the possibility of adoption?

Sir Clive Crook with “Let the rich go forth and multiply” has really fired up my interest in reading Gregory Clark’s upcoming “A farewell to Alms: A brief Economic History of the World”, August 10. Besides of course forcing me to look up the meaning of “alms” it also left me with the question of whether this generous procreation of the rich so that it spills over into the less fortunate development method does also extend to Angelina Jolie’s adoptions of poor children.

In immigration, more than barriers new riverbeds are needed

Sir Clive Crook in “How to untie the immigration knot” June 14 gives a glimpse of what is needed by arguing that instead of working on how to solve the 12 million stock of illegal immigrants the US would be better served by first working at the flow control valves. Doing that it is important to remember that the best way to control a flow is not always by building a barrier but sometimes by finding new riverbeds where it could run more orderly. It is in this respect that I believe FT’s readers could be interested in hearing about an initiative of trying to have private insurance companies stepping up to the plate and offer to guarantee the payment of a substantial indemnity to the US government for each worker who being favored by a temporary visa program does not return home in a timely fashion.

A hidden tax is neither acceptable nor efficient

Kyoto with its system of selling indulgences for undefined carbon-sins and invest the proceeds in equally undefined carbon-good-deeds, while capping carbon emissions at a globally unsustainable level, is something like building a labyrinth in order to make the search for the exit door for our environmental emergency more interesting.

Sir, Clive Crook in his “Bush may be on to something…” June 7, presents the alternative of another labyrinth, in this case a national one, that would make it possible to “simulate a carbon tax . . . avoiding the word tax”. Forget it! If we are to find our way out of the very difficult environmental hardships transparency is a must and we have to be able to call a spade a spade. If what we need is a direct carbon tax let us work on that and shame governments into action.

Crook also mentions that the sale of “perpetual permits” would create a constituency with a vested interest in enforcement of carbon caps as that would make the value of the permissions go up. Forget it! If we are to find our way out of our global and public predicaments we cannot afford having the income to ex ante deviate into private rents when so much investment is needed, just as we also must be extremely wary of any signalling risk. Place these “perpetual permits” investors in front of a forest and ask yourselves whether their profit motives would induce them to reach for water to put out a fire… or for the matches.