Martin Wolf, a neighbor, Russia, can become dangerous by Europe’s and US’ own weakening.

Sir, Martin Wolf is absolutely right when he writes “For Europe and, I believe, the US, there is no greater foreign policy question than how to deal with today’s Russia”, “Russia is our most dangerous neighbor” September 17.

But that said let us not never ignore the dangers with a neighbor becoming more dangerous, only because ones’ own country is becoming weaker. And in this respect something is happening both in Europe and in the US. 

Only as an example I cannot shake off the impression it made on me seeing the image of Britain’s David Cameron, Germany’s Angela Merkel, Holland’s Mark Rutte and Sweden’s Fredrik Reinfeldt, in a row boat, in a little lake, probably surrounded by thousands of life guards… wearing life vests… exactly where, perhaps in the same boat, 50 years earlier, we had seen Tage Erlander of Sweden and Nikita Khrushchev, rowing… without life vests.

What I said to those around me was “Never ever would Winston Churchill (or Putin) have allowed to be photographed in a little row boat, on a small lake, close to the shore, wearing a life vest!”

And with respect to the US, I just heard on the radio of a soccer team being sued because one of the players hurt his head while playing… come on... in the "home of the brave"?

And of course I do not refer here to any silly bare-chested testosterone showing-off, like Putin often does… but, of course, I do refer here to that de-testosteroning of our banks, which risk adverse regulators are causing with their credit-risk-weighted capital requirements.

PS. By the way, in order not to become dangerously cocky, we should never forget that one of the reasons for the fall of Russia was the low oil price at that time.

The quality of its unemployed is also vital for the strength of a nation

Sir, Janan Ganesh refers to the relative political tranquility that has prevailed in Britain over the last years, even in the face of 21 percent unemployment among young people, and other hardships resulting from the current crisis/recession, “The British have met crisis with understatement”, November 19.

That is of course extremely valuable and commendable, as long as it is of course much more the result of stiff upper lips, than of a feeling of resignation or sheer apathy, especially in coming generations.

In June 2012 in an Op-Ed I wrote “The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, at least in the sense of these not interrupting those working.”

Martin Wolf’s risk aversion, which favors bureaucrats over banks making investment decisions, is indefensible.

Sir, Martin Wolf writes: “What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross of gross domestic product retrenches as the private sector retrenches is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started”. And then Wolf repeats his beliefs that “the markets deem the government solvent, since they are willing to it at the lowest rates in UK history” and so therefore he concludes, in essence, that the UK Government should invest more, “Britain’s austerity is indefensible” March 13.

To me what is truly incredible is that Mr Wolf does not understand that while there is a severe shortage of capital in banks, and banks are required to hold immensely much more capital when lending to the private small businesses and entrepreneurs, than when lending to the infallible sovereign, those who are the first private line of responders in any crisis, will not have access to bank credit in competitive terms, while the government will find the demand for its debt artificially increased, and therefore the rates it pays subsidized.

Wolf ends with “we have to consider why the economy has proved so fragile and rebalancing so difficult”. I have tried to explain it to him many times. Once again, if you allow banks to earn immensely more expected risk-adjusted returns on their equity when lending or investing in what is perceived as “absolutely safe”, than when lending to what is perceived as “risky”, you are doomed to end up with a fragile and dying economy. It is the risky risk-takers those who most can make it move forward, so as not to stall and fall, especially in a crisis.

So Mr Wolf, why this insistence in favoring bureaucrats over bankers making investments decisions? What is needed instead is something like, while the capital ratios of banks are rebuilt, the banks are allowed to lend to both “risky” and “infallible” alike, with their current capital ratio.

PS. I just read again, I guess I could not believe it the first time, Wolf opining: “The rating of a sovereign that cannot default on its debt in its own currency means little”. I am amazed, as if it would not matter whether they repay you with something worth something or with something worthless.

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?

Sir, I refer to your editorial “Diplomatic fallout from EU bonus cap” March 1. 

Solving the absolutely valid concerns about excessive bonuses paid in banks, by means of capping the bonuses to staff to a maximum percentage of their salaries as the European Parliament proposes, only introduces another distortion… on the road to overmedication 

What I would suggest doing, and thought it might seem to be similar regulatory distortions to you, is in fact reducing other distortions that influence the bonuses paid. 

First, since tax-deductibility is in itself a source of distortion that favors big bonuses, I would limit how much remuneration a banker can get in order for it to be a tax deductable expense, 

And secondly, I would eliminate those extremely low capital requirements for banks for exposures to what is considered as infallible, since these impede the existence of sufficient shareholder´s compensation requirements which can keep the bonuses in check. 

I would of course also do the latter as you know, because the minimalistic capital requirement for what is “safe” and which thereby discriminate what is perceived as “risky” is in fact, on its own, the greatest source of distortions which makes it completely impossible for banks to help allocate economic resources efficiently. 

Why must UK say “No!” to EU on a bonuses cap, without presenting any decent counterproposals?