A strong national spirit/character is what’s most needed for any preparedness, even against a pandemic.

Sir, I refer to Tim Harford’s “Is it even pos­sible for coun­tries to pre­pare for a pan­demic?” FT June 24, 2023.

“Be pre­pared! It’s the scout’s motto. But pre­pared for what?” I was never a boy-scout but as I have understood that movement it was to be prepared courageously for the unexpected, not silently accepting a lockdown; and to be able to lit a fire without matches, not to learn to deploy sewage monitors.

So sadly, though Harford does indeed know much of economy, here I think he does not even scratch the surface of what’s most needed, like:

First: The understanding that, for a nation/society as a whole, a response to the pandemic can be much more harmful than the pandemic itself.

Second: That just as George Clemenceau opined, “War is too serious a matter to entrust to military men”, a pandemic is also too serious a matter to entrust to epidemiologists” Any preparedness against a pandemic must include a wide diversity of opinions.

Third: Information, information and information: With respect to this Harford mentions: “Joshua Gans, eco­nom­ist and author of The Pan­demic Inform­a­tion Solu­tion (2021), argues that we’ve learnt that pan­dem­ics can be thought of as inform­a­tion and incentive problems.” No, begin by giving the people full information and then let them understand and decide if and what incentives are needed.

In July 2020 I tweeted:

“Sweden kept all schools until 9thgrade open. Parents of children in 9th grade are almost always less than 50 years of age. In Sweden, as of July 24, out of 5,687 Coronavirus deaths 71, 1.2%, were younger than 50 years.”

“Conclusion: Keep schools open, keep older teachers at home and have grandparents refrain from hugging their grandchildren. Disseminating data on Covid-19 without discriminating by age, is in essence misinformation.”

Clearly information on the relation between Covid-19 and age was available but was not sufficiently provided. One explanation could be that the Covid-19 pandemic hit the world in the midst of a polarization pandemic. 17 October 2020 I wrote in a letter to FT “way too many polarization profiteers just don’t want harmony vaccines to appear.”

March 2020 I tweeted: 

“In February, I visited Churchill War Rooms in London Reading UK’s plans of building up herd immunity against coronavirus, I have a feeling Winston would have agreed with such stiff upper lip policy: “I have nothing to offer but fever, coughing, chills and shortness of breath”

Sir, Neville Chamberlain’s spirit inspired UK’s pandemic answer. Just like he is present in the risk weighted bank capital requirements which incentivize much more the refinancing of the “safer” present than the financing of the “riskier future”

I summarized the result of the above three failings in a letter published by the Washington Post in October 2020 in which I stated: "Roughly 90% of all coronavirus deaths will occur in those 60 years of age and older. Equally roughly 90% of the virus’s social and economic consequences will be paid by those younger than 60. It’s an intergenerational conflict of monstrous proportions."

PS. Sir, if you are interested you might want to read what ChatGPT – OpenAI answered when I asked "Suppose a virus hits a nation, and to its authorities its evident that its mortality rate depends the most on age. In such a case, transmitting data to the population about the total number of deaths without discriminating this by age, could that be deemed to be misinformation?"

https://perkurowski.blogspot.com/2023/06/ai-chatgpt-openai-if-mortality-rate-of.html

PS. Sir, you should be interested in the above, it evidences how humans can begin dialoguing with artificial intelligence, so as to have a better chance of keeping their Human Masters and appointed experts in check.

@PerKurowski

Britannia, to have a chance to become its former self, needs to free its financial systems from its mis-regulators.

Sir, Martin Wolf asks: “Britannia is not ‘unchained’. It is instead sailing in perilous waters. Can the new captain and first mate even see the rocks that lie ahead?” “The economic consequences of Truss” FT September 21.

Wolf writes: “Thatcher and those who followed her allowed the search for safety in corporate pensions to shift portfolios away from the supply of risk capital to business to ownership of government bonds. This in effect turned the plans into state-backed pay-as-you-go schemes.”. 

Sir, more than three decades late Martin Wolf seems to notice that huge rock of Basel I that, for its risk weighted bank capital requirements, decreed weights of 0% government, 30% residential mortgages and 100% citizens. Better late than never… but really?

These bank capital requirements are based on that what’s perceived as risky, e.g., loans to small businesses and entrepreneurs are more dangerous to bank systems than what’s perceived as safe, e.g., government debt and residential mortgages.

That de facto translates into it being much more important for banks to hold government debt and residential mortgages than loans to small businesses and entrepreneurs. Something which, with Solvency II, applies to its insurance companies too. Really, is that how Britannia got to be strong?

Sir, the Western world’s banks were taken from the hands of savvy loan officers who knew their first duty was to know their clients and understand what their loans were going to be used for and placed into the hands bank own capital minimizing/leverage maximizing dangerously creative financial engineers.

“UK has a deregulated economy… in which the successful are well rewarded, but those who do less well are penalised. Such Thatcherite aims then are now a reality” No! Bank regulators reward those ex-antes perceived or decreed as safe over those perceived as risky. That has zero to do with their ex-post success. Has the UK's public debt been well employed?

Let’s hope someone like Liz Truss dares to set aside whatever mandates she might have, no matter how worthy these might be, in order to tackle a real financial regulatory reform.

Sir, what would Edmund Burke with his intergenerational social contract have opined about prioritizing the refinancing of the “safer” present over the financing of the riskier future?   

 

The main ingredient of any safe pension system is a healthy and sturdy economy.

Sir, I refer to Martin Wolf’s “It is folly to make pensions safe by making them unaffordable” FT, June 28.

Wolf writes: “We also need true risk-sharing within and across generations, which is absent from today’s defined-contribution schemes”

But current risk weighted bank capital requirements, with lower risk weights for financing the “safer” present, e.g., loans to governments and residential mortgages, than when financing the riskier future, e.g., small businesses and entrepreneurs, is a clear example of how that intergenerational holy bond Edmund Burke wrote about has been violated.

John Kay and Mervyn King.“Radical uncertainty”? Please, give us a more stupid "radical certainty", than credit risk weighted bank capital requirements.

And way back, when observing how many Social Security System Reforms were based on the underlying assumption that they will be growing 5 to 7 percent in real terms, I also warned, time and time again, that it was not possible for the value of investment funds to grow, forever, at a higher rate than the underlying economy, unless they are just inflating it with air, or unless they are taking a chunk of the growth from someone else. In this respect the 'chickens are only coming home to roost'.

PS. Historically, through all economic cycles, there is nothing that has proven so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that, in real terms, you can't beat with any social security reform.

A letter to Martin Wolf in 2015. An essential component of an Edmund Burke intergenerational holy bond, must be the willingness to take risks.

Another letter on this subject sent to Martin Wolf in in 2017

And another letter on the Covid response intergenerational conflict of monstrous proportions, also published by the Washington Post in 2020

How much lower fertility, less children, is caused by “habitual well-being”?

@PerKurowski

Expert technocrats, like those in the Basel Committee, can be shameless and dangerous populists too.

Sir, Takeshi Niinami writes “Japan’s populism leads to mounting government debt and short-term solutions for immediate issues without a clear long-term vision for recovery. This is not unique to Japan. I believe that the US and EU will begin taking quite a similar path” “Japan has a unique form of populism” September 16.

1988’s Basel Accord gave officially birth to the risk weighted bank capital requirements. This regulation, with its much lower decreed risk weight of sovereign debt than of private debt, set all who applied it on a firm course to too much debt and too little growth. 

Just its denomination “risk weighted”, as if the real risks could be known, is of course just another sort of shameless populism. That the world fell for it, is clearly because the world wanted it so much to be true, that it never found in itself the sufficient will to question its basic fallacy; that it considered that which ex ante is perceived as risky to be more dangerous ex post to our bank systems than what is perceived as safe, something which obviously is not so, as all major bank crises in history evidence. 

As I so often have said, that faulty regulation imposed a de facto reverse mortgage on the economy, which extracted the value it already contained, as banks focused more on refinancing the safer past than the riskier future. By refusing those coming after us the risk-taking that brought us here, the intergenerational holy bond that Edmund Burke wrote about was violently violated.

@PerKurowski

Bank regulators violated the holy intergenerational social contract that Edmund Burke spoke about.

Sir, Philip Stephens writes: “Nostalgia has always had its place in politics. Respect for tradition is at the heart of Burkean conservatism. The deep irony about the now mythologised postwar decades, however, is that these were times when citizens looked unambiguously to the future.” “Nostalgia has stolen the future” July 27.

I am from 1950, and I do feel nostalgic whenever I think of all those savvy credit officers who were now substituted by equity minimization financial engineers.

When regulators, in order to make our banking system safe, ludicrously decided that what was perceived as risky was more dangerous to bank systems than what was perceived as safe, they distorted the allocation of bank credit in favor of the “safer” present so much that they de facto sacrificed that risk taking the “riskier” future needs. That is an egregious violation of that holy intergenerational social contract that Edmund Burke spoke about.

Those regulators are autocratic besserwisser populists who concoct their ideas, in a groupthink séance, in their Basel Committee mutual admiration club!

“Populists”? “We will safeguard your bank systems with our risk weighted capital requirements for banks” As if they knew what those risks were. Sir, can you think of something more populist than that?

@PerKurowski

Current bank regulations express much more than Brexit, a dangerous payday-loan mood.

Sir, Tim Harford refers to “the payday-loan mood it is displaying in its Brexit negotiations. No gain is too small, no price too great, as long as the bill comes later.” “Want to solve a problem? Just wait” May 26.

Current risk weighted capital requirements cause banks to give much more credit to fairly unproductive but “safe” sectors, like housing, and less credit to potentially much more productive but “risky” ends, like loans to entrepreneurs. I would hold that follows a payday loan mood put on steroids… one that in complete violation of that holy intergenerational social contract Edmund Burke spoke about, places a reverse mortgage on our current economy.

Sir, just reflect on that the regulators assigned a 0% risk weight to sovereigns. That can only be justified arguing that the sovereign can only print money to pay back debt expressed in its own currency. Indeed but that spurious argument blithely ignores that printing money to pay back its own debts, is precisely one of the worst misbehaviors of a sovereign, like when Venezuela’ government prints loads of money, among other to serve its own internal debt.

And Harford reminds us: “The world is full of risks. Can anyone guarantee that over the next 300 years both the UK trust fund and country will survive asteroid strikes, thermonuclear war or a deliberately engineered pandemic?”

Indeed, that’s true, but how come then when regulators imposed their risk weighted capital requirements on banks, we decided to naively believe them, instead of asking: Who are you to know what the risks in banking are? And if you do, why are you not then the bankers?

@PerKurowski

Bank regulators have clearly violated that holy social intergenerational contract Edmund Burke wrote about.

Sir, Marin Wolf writing that while “UK has messed up policy in five significant respects: growth; ageing; risk-sharing; housing; and redistribution.” argues that the focus on intergenerational equity is not helpful” “The focus on intergenerational inequity is a delusion” May 18.

In that I do not agree.

For the umpteenth time: The risk weighted capital requirements for banks, that which allow banks to leverage more and thereby earn higher expected risk adjusted returns on equity when financing what’s perceives as safe, like the present economy, houses and sovereigns; over what’s perceived as risky, like the riskier future and the entrepreneurs, is a direct violation of that very core of minimum intergenerational equity that should guide our actions.

And not only will our young pay dearly for it. Those young currently living in the basements of their parents' houses will one day shout out: “Now it's our turn to live upstairs, you move down to the basement!” And way too many of those elder who possess assets, like houses and shares will, when they really need, find it very hard to convert these into the main-street purchase capacity they hoped for.

I pray it will not come to that, but it is useful for everyone to look at Venezuela where their young are now all fleeing to find better opportunities abroad, while most of the elder are stuck in a society that is rotting. And from boom to bust can happen so fast.

@PerKurowski

The “midlife crisis” of Generation X or the Millennials, could be piece of cake when compared to what seems to await for them down the years.

Tim Harford, making reference to a new research paper from Angus Deaton, Nobel laureate in economics, argues that “people who would have their wellbeing most improved by a cash injection are the middle-aged, people between their forties and their sixties.” “A monetary remedy for the midlife crisis” March 31.

It is a fun argument for Harford to use when “I will have a word with my father and my children”.

But what would Harford say if the answer he got from his children was: “Daddy, in terms of where you find yourself in your lifecycle, you are the one living most over your means… so no cash for you… spend less… save more (so that you might leave some to us as your father left to you)… and for God’s sake get rid of those risk weighted capital requirements for banks that hurt us so much.”

That mentioned piece of regulation, by favoring banks to finance the present safer consumption over the “riskier” future production, has already placed a reverse mortgage on the current economy, which is jeopardizing everyone’s future.

And also, since it amounts to a gross violation of Edmund Burke’s holy intergenerational contract, I would suggest Harford and his generation begin to prepare a very good defense speech for when they will have to respond to their children why they allowed that to happen.

And Harford, as a retiree, or at least his generation of retirees, will also suffer because, as I have argued so many times, there is no better pension plan than having children who love you and are able to work in a reasonable healthy economy.

Sir, my grandchildren will at least know how much their grandfather, obsessively, fought against that crazy risk aversion. Will yours?

PS. If you dare to see how the elderly could so unexpectedly for them be suffering horrors, have a look at what is happening in Venezuela.

The worst problem with the dangerously growing debt is what it has not financed

Sir, Pascal Blanque and Amin Rajan write: “for central banks, global debt is like the sword of Damocles — an ever-present danger. It stands at about 330 per cent of annual economic output, up from 225 per cent in 2008… No one knows all the cracks into which excess liquidity has seeped — or what risks are being stored up”, “Beware the butterfly: global economies are on borrowed time” January 7.

Sir, if central bankers are only now waking up to this fact, then you must agree with that we are in much bigger problems that we thought.

Central bankers, lacking in character and not wanting to live up to their own responsibilities, dared not do anything but to push the 2007/08 crisis cart down the road, with their QEs and low interest rates. For someone who argued back in 2006 the benefits of a hard landing, that is bad enough.

But it’s so much worse than that. Blanque and Rajan argue that “Debt means consumption brought forward while low rates mean the survival of zombie borrowers and companies… High debt is not intrinsically bad so long as it is used to fund investments that deliver profits or create financial assets worth more than the debt. Data on this score are hard to come by.”

And there lies the fundamental problem. Because of risk weighted capital requirements for banks, bank credit has been used to finance “safer” present consumption; to inflate values of mostly existing assets; and way too little to finance “riskier” future production. It amounts to having placed a reverse mortgage on our past and present economy, in order to extract all of its value now, not caring one iota about tomorrow, and much less about that holy social intergenerational contract Edmund Burke spoke about.

It is clear the experts Blanque and Rajan have yet not understood what happened as they write: “The origins of the current worries predate the 2008 crisis which was caused when lending standards went from responsible to reckless: the siphoning of money into dodgy ventures such as subprime mortgages, covenant-light loans or sovereign lending based on creative accounting.”

The truth is that without truly reckless regulatory standards, those which allowed banks to leverage over 62.5 time to 1 with securities rated by human fallible rating agencies AAA; and, at least in Europe, allowing banks to lend to a 0% risk weighted sovereign like Greece against no capital at all, nothing of the above would have happened.

What to do? In my mind, in order to extricate the world of this problem, we need first to rid us completely of the credit distorting risk weighted capital requirements; and second, to be able to manage the transition to for instance a 10% capital requirements against all assets, including sovereigns, without freezing the whole credit machinery, perhaps bank creditors would have to accept, in partial payment of their credits, negotiable non redeemable common fully voting shares issued by the banks. If that helps to bring back undistorted bank vitality, it might be the best shares to have ever.

PS. Blanque and Rajan reference “S&P 500 corporates… stashing cash reserves outside the US.” What cash? Treasurers have not stacked away cash under corporate mattresses. Those surpluses are all already invested in assets, of all sorts, and which could suffer losses just like any other assets.

@PerKurowski

Imposing on banks risk aversion more suitable to older than younger, regulators violated Edmund Burke’s holy intergenerational social contract

Vanessa Houlder when writing about Richard Thaler’s ‘nudge’ theory and how our hatred of losses affects risk taking mentions: “Investing in a portfolio tilted towards equities makes sense for the young, although — given that share prices can drop dramatically — the proportion should be reduced as people near retirement, according to Thaler.” “Be lazy, the first rule of investing” December 23.

Sir, that refers precisely to something on which I have written to you hundred of letters over the years.

Regulators, with their risk-weighted capital requirements, by allowing banks to hold less capital against what is perceived as “safe”, like mortgages, than against what is perceived as “risky”, like loans to entrepreneurs, they allow banks to earn higher risk adjusted returns on what’s perceived safe than on what’s perceived risky.

With it regulators top up the natural risk aversion of bankers with their own one, and by there doom banks to primarily work in the interest of the older and against those of the young. That, phrased in Edmund Burke’s terms, is a shameful breach of the holy intergenerational social contract that should guide our lives. How our society has managed to turn a blind eye on this makes me, a grandfather, very disappointed and sad.

But all that risk aversion is also so totally useless. Major bank crisis never ever result from excessive exposures to what has ex ante been perceived as risky; but always because of unexpected events or excessive exposures to what was perceived, decreed or concocted as safe but then turned out to be risky, like AAA rated securities backed by mortgages awarded to the subprime sector and loans to sovereigns like Greece.

PS. It would be great if Vanessa Houlder could ask Richard Thaler why he thinks regulators want banks to hold more capital against what perceived as risky is made innocous than against what is perceived as safe is therefore intrinsically more dangerous? My own explanation is that they mistook the ex ante perceived risk of bank assets for being the ex post risks for banks.

@PerKurowski

If you allow banks to earn higher risk adjusted returns on equity on mortgage lending than when lending to entrepreneurs, bad things will sure ensue

Sir, Jonathan Eley writes: “in the UK…younger people especially are being priced out of the market while their parents and grandparents benefit from decades of above-inflation rises in home values. The ruling Conservatives, traditionally the party of home ownership, now finds itself shunned by millennial voters frustrated by spiralling housing costs” “Why Budget fix will not repair market” November 21.

And among the long list of factors that has distorted the market in favor of houses Eley includes: “Mortgage securitisation facilitated further growth, as did the Basel II reforms cutting the risk weights applied to real estate. This made mortgage lending less capital-intensive for banks.”

This Sir is one of the very few recognitions, by FT journalists, of the fact that risk weighting the capital requirements for banks distorts the allocation of bank credit.

Indeed, Basel I in 1988 assigned a risk weight of 50% to loans fully secured by mortgage on residential property that is rented or is (or is intended to be) occupied by the borrower, and Basel II reduced that to 35%. Both Basel I and II assigned a risk weight of 100% to loans to unrated SMEs or entrepreneurs.

But the real bottom line significance of “mortgage lending [being] less capital-intensive for banks”, is that banks when being allowed to leverage more with mortgages than with loans to SMEs and entrepreneurs, earn higher expected risk adjusted returns on equity with mortgages than with loans to SMEs and entrepreneurs, and will therefore finance houses much much more than SMEs and entrepreneurs, than what they would have done in the absence of this distortion.

As I have written to you in many occasion before, this “causes banks to finance the basements where the kids can live with their parents, but not the necessary job creation required for the kids to be able to become themselves parents in the future.”

And the day the young will look up from their IPhones, and understand what has happened, they could/should become very angry with those regulators that so brazenly violated that holy intergenerational social bond Edmund Burke wrote about.

I can almost hear many millennials some years down the road telling (yelling) their parents “You go down to the basement, it’s now our turn to live upstairs!”

Eley also quotes Greg Davies, a behavioural economist with: “People like houses as an investment because they are tangible. They feel they understand them far more than funds or shares or bonds.”

But the real measurement of the worth of any investment happens the moment you want to convert it into current purchase capacity. In this respect people should think about to whom they could sell their house in the future, at its current real prices.

PS. In June 2017 you published a letter by Chris Watling that refers exactly to this, “Blame Basel capital rules for the UK’s house price bonanza”.

What most surprises me is that regulators don’t even acknowledge they distort, much less discuss it… and that the Financial Times refuses to call the regulators out on this… especially since all that distortion is for no stability purpose at all, much the contrary.

It is clear that no matter its motto of “Without fear and without favor”, FT does not have what it takes to for instance ask Mark Carney of BoE and FSB, to explain the reasoning behind Basel II’s meager risk weight of only 20% to the so dangerous AAA rated and its whopping 150% to the so innocous below BB- rated.

@PerKurowski

The safest route for UK might be to take to the seas in a leaky boat, abandoning a safe haven that is becoming dangerously overpopulated.

Sir, Martin Wolf writes: “A significant generational divide has opened up. Those aged 22-39 experienced a 10 per cent fall in real earnings between 2007 and 2017. They were also particularly hard hit by the jump in average house prices from 3.6 times annual average earnings 20 years ago to 7.6 times today. Not surprisingly, the proportion of 25-34 year olds taking out a mortgage has fallen sharply, from 53 to 35 per cent.” “A bruising Brexit could shipwreck the British economy” November 17.

Sir, I would argue that has a lot to do with the fact that banks are allowed to leverage much more their equity when financing “safe” home purchases than when for instance financing job creation by means of loans to “risky” SMEs and entrepreneurs.

Because that means banks can earn much higher expected risk adjusted returns on their equity when financing home purchases than when instance financing job creation by means of loans to SMEs and entrepreneurs… and so they do finance much more home purchases than risky job creations.

But Martin Wolf does not think so. He thinks bankers should do what is right, no matter the incentives. I think that is a bit naïve of him.

The way I see it, one of these days all the young living in the basements will tell their parents. “We’ve been cheated. You move down and we move upstairs.”

And it will be hard to argue against that. My generation has surely not lived up to its part of that intergenerational holy social contract Edmund Burke wrote about. 

Wolf ends with “The UK has embarked on a risky voyage in a leaky boat. Beware a shipwreck”. No! I would instead hold that its bank regulators made it overstay in a supposedly safe harbor that is therefor rapidly and dangerously becoming overcrowded.

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

Sir, I have no idea if Martin Wolf has kids but, if he had, would his kids have grown stronger if he had rewarded them profusely for staying away from what they believe is risky? I don’t think so.

PS. If Brexit goes hand in hand with a Baselexit, Britain will at least to better than now.

@PerKurowski

Elizabeth Warren, as a member of United States Senate Committee on Banking, might not perform entirely her own duties

Sir, Barney Jopson reports that Senator Elizabeth Warren is requesting the replacement of Mary Jo White as Chair of the Security and Exchange Commission “Warren wants SEC head fired for ‘undermining’ administration” October 15.

I have no opinion on how Mary Jo White has been performing her duties at the SEC but, the United States Senate Committee on Banking, Housing, and Urban Affairs, of which Ms Warren is a standing member, is lacking carrying out in its own responsibilities.

I hold that since to this date I have not seen any effort on part of that committee to ascertain if, and if so how much, the risk weighted capital requirements distort the allocation of bank credit.

This is not a minor issue. For a starter it could ask bank regulators for a full explanation of the risk weights of 0% when financing the sovereign (the King), 20% the AAArisktocracy, 35% housing and 100% “We the People” like SMEs and entrepreneurs, those with the best chances of generating the future jobs our grandchildren need. That regulatory credit risk aversion, layered on top of whatever risk aversion the bankers’ themselves can harbor, sounds as anathema as can be to the whole notion of the Land of the Free and the Home of the Brave.

Besides, the discrimination in access to bank credit that those risk weights produce, violates directly the spirit of the Equal Credit Opportunity Act (Regulation B). In that respect the committee should also ask the Consumer Financial Protection Bureau, CFPB, what it is doing about this.

With regulations, to favor banks lending to the “safer” past and present, over lending to the “riskier” future, is a clear violation of that holy social inter-generational bond that Edmund Burke spoke about.

To top it up, those risk weighted capital requirements do not serve one iota for making the banking system safer. All major bank crises result either from unexpected events or from excessive exposures to something erroneously perceived as safe, never ever because of excessive exposures to something ex ante perceived as risky.

PS. Elizabeth Warren, in as much as she classifies herself as a progressive, could also be interested in how these regulations decree inequality.

@PerKurowski ©

Lawrence Summers wants to get the quality infrastructure jobs now, and leave the bill to future generations

Sir, Lawrence Summers writes “Infrastructure investment can create quality jobs [and] expand the economy’s capacity in the medium term and mitigate the huge maintenance burden we would otherwise pass on to the next generation” “Building the case for greater infrastructure investment” September 12. 

And since that is based on taking on more public debt that shamefully sounds like: “Dear lets go out tonight to enjoy that great restaurant. We can leave the bill to our grandchildren, as the interest rates they have to pay are so low.”

Summers backs up his proposal with some calculations that start with “The McKinsey Global Institute has estimated a 20 per cent rate of return on such investments.”

Well Professor Summers, and McKinsey, and so many other, because they do not know, or because they are pushing a statist agenda, completely ignore the fact that currently the sovereign, meaning the government represented by government bureaucrats, for the purpose of setting the capital requirements for banks, is risk weighted at 0%; while We the People, represented by SMEs and entrepreneurs have to carry a risk weight of 100%.

That subsidizes the borrowing costs of the government, by the taxing the possibilities of accessing bank credit of those who we need most to have access to bank credit.

Of course much infrastructure investment needs to be done, but, in order for there being an economy that could use such infrastructure, much more important is it to take down that odious regulatory wall.

Sir, again, banks are no longer financing our grandchildren’s future, they are only refinancing mine, yours, Professor Summers’s and all McKinsey’s safer past.

What a disgraceful way of giving the finger to that intergenerational social contract Edmund Burke wrote about.

@PerKurowski ©

The biggest operational risk the real economy currently faces, are bank regulators who do not understand they distort

Sir, Lorenzo Bini Smaghi discusses the difficulties of quantitative easing to be of any use in the context of “the excess of savings over investments, at the global level but again particularly in Europe.” “If easing is not Europe’s answer, an alternative is elusive” March 4.

Once again, for the umpteenth time, I remind you that much investment is not taking place only as a consequence of the distortion in the allocation of bank credit to the real economy produced by the risk weighted capital requirements for banks. These hinder the access of SMEs and entreprenuers to bank credit, only because regulators perceive these as “risky”… as if bankers had no idea about that risk.

I repeat: Those perceived as “risky” are by that fact alone, ex post, made safer. Those perceived as “safe” are by that fact alone, ex post, made riskier. .

“The only thing necessary for the triumph of evil is for good men to do nothing” Edmund Burke

“The only thing necessary for bad regulations to reign, is for specialized media to keep mum about it” Per Kurowski

@PerKurowski ©

Martin Wolf. An essential component of an Edmund Burke intergenerational holy bond must be the willingness to take risks

Sir, Martin Wolf appeals to Edmund Burke when stating, “the value of tried and tested institutions ought to guide any Conservative government. The BBC is a great legacy from past generations. It must be passed on even stronger into the future.” “A public broadcaster is the property of the people not the elite” October 30.

Absolutely, BBC is to be defended and those who out in the world have heard it shine light on some very dark moments should be its staunchest defenders.

But that said, I do not think Martin Wolf has really earned the right to appeal to Edmund Burke’s assistance. Burke in his “Reflections on the French Revolution” wrote: 

“Society is indeed a contract…. It is to be looked on with other reverence; because it is not a partnership in things subservient only to the gross animal existence of a temporary and perishable nature. It is a partnership in all science; a partnership in all art; a partnership in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born. Each contract of each particular state is but a clause in the great primæval contract of eternal society, linking the lower with the higher natures, connecting the visible and invisible world, according to a fixed compact sanctioned by the inviolable oath which holds all physical and all moral natures, each in their appointed place. 

This law is not subject to the will of those, who by an obligation above them, and infinitely superior, are bound to submit their will to that law. The municipal corporations of that universal kingdom are not morally at liberty at their pleasure, and on their speculations of a contingent improvement, wholly to separate and tear asunder the bands of their subordinate community, and to dissolve it into an unsocial, uncivil, unconnected chaos of elementary principles.”

And one of the main components of such an intergenerational holy bond must be, no doubt, the willingness to take risks. That willingness that an immoral Basel Committee has seen fit to restrict, by imposing their absurd credit-risk-only weighted capital requirements for banks… those on which Martin Wolf keeps mum.

@PerKurowski ©