To save the earth, start by saving it from phony saving-the-earth profiteers

Sir, Martin Sandbu writes about “how a conflict of interests over climate change — something that really is humanity’s common challenge — aligns with and reinforces a deeper culture war dividing centrist urban elites from system-critical populists… [So] we have missed the potentially much greater obstacle of political polarization in the age of populism” “The burden of tackling climate change must be shared”, November 5.

Hear hear! This is exactly the type of issues and challenges we must learn to tackle, if there’s going to be any hope for us to survive as the society we always dreamt of, or avoid turning into that society we always dread, something that in fact means even more than our survival on earth.

But, when Sandbu speaks about what “reinforces a deeper culture war dividing centrist urban elites from system-critical populists”, I disagree, because the real hard core divide in this case is between those expected to pay for to help save our planet, and those who expect to profit from those efforts.

But Sandbu also refers to a remedy to that, when he mentions, “the carbon ‘fee and dividend’ approach advocated by climate scientist James Hansen [which] would levy duties on fossil fuels and redistribute the revenue in equal per capita amounts to all residents”

That’s precisely in line with what I recommended in a letter published in FT on how Mexico City should go about in order to reduce its serious pollution problems.

If Emmanuel Macron, perhaps hand in hand with Canada’s government that is also thinking about higher carbon taxes, decides that all revenues from taxes on fuel, and similar, are to be shared out equally among all citizens, that would set an example to other nations, that would at least be worth some ten Paris agreements.

Sir, let me be cleat about it. If I am going to help to save the world, by paying higher carbon taxes, I want all of it translate into a clear market signal that saves the planet, and not into something which unduly enrich those promoting saving the world, or those profiteering on the process.

@PerKurowski

Aren’t all nations, one way or another, tarred with a similar brush of nationalism?

Sir, Harriet Agnew and David Keohane report that, on the centenary of the end of the First World War, Emmanuel Macron railed against nationalism as a “betrayal of patriotism”, in an implicit rebuke to his US counterpart. “Macron attacks nationalism in Armistice Day rebuke to Trump” November 12.

Macron said: “By saying ‘Our interests first. Who cares about the others?’ we erase what a nation holds dearest, what gives it life, what makes it great, and what is essential: its moral values.” Is that not beautiful? Of course it is!

My problem though is that precisely these days I have been writing that the ending of the First World War, and the Versailles treaty, should provide an opportunity to reflect on the armistice conditions that are imposed on sovereigns, when they have to capitulate because of excessive loads of public debts. This especially because it is usually not only the defeated sovereign’s fault. 

If we look behind most odious debts, we will find surely find odious credits. In the case of eurozone sovereigns, like Greece, odiously dumb regulations too. Assigning a zero risk, as the European Commission did to a nation that is much indebted in a currency like the euro, which is not really its domestic (printable) currency, made absolutely no sense. That meant for instance that German and French banks could lend to Greece against no capital at all, and so, naturally, these banks could not resist the temptation of offering Greece too much credit, and Greece could not resist the temptation of taking on too much debt.

But what happened? The recent armistice conditions imposed by EU authorities required Greece to take on debt, much of it in order to repay German and French banks, leaving it with about a €345 billion debt, more than €30.000 per each Greek, in a currency that as I mentioned is de facto not their own. 

Sir, so I ask is that not just another Carthaginian peace? Viewed this way, no matter how right what Macron preaches is, does he really have the right to throw the first stone on “moral values”? Aren’t all nations, one way or another, tarred with a similar brush of nationalism?

Sir, this is no minor issue. Since Italy would most probably not walk the plank like Greece, the future of the Euro, and of the European Union is at stake… and that is something that those who might rightly defend the Remain against the Brexit, should at least out of pure precaution consider.

@PerKurowski

A major difficulty for EU is that what caused the last crisis, and attempts against its economic dynamism, shall not be named

Sir, Judy Dempsey writes that Merkel’s “conservative bloc would not buy into an agreement that would require Germany to spend more to bail out badly run economies” “Macron and Merkel will struggle to present a united front” June 19.

Have Merkel’s “conservative bloc” been told that their bank regulators assigned a risk weight of 0% to Greece and so that therefore Greece got way too much money?

Have Merkel’s “conservative bloc” been told that their regulators require banks to hold more capital against loans to German unrated entrepreneurs, than against loans to any EU sovereign?

Sir, I am sure that if central bankers and regulators were hauled in front of some really independent authority, and asked to comprehensibly explain so much of the crazy things their risk weighted capital requirements for banks entail, that would help clear the air and lead to much more constructive discussions in the EU about its future.

Who knows, perhaps such real discussions that would at long last hold some EU technocrats accountable, could even tempt a reversal of Brexit.

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

@PerKurowski

Monsieur Macron, more than a finance minister/ministry, Europe needs bank regulators who know what they’re doing.

Sir, Reza Moghadam lays out a proposal for a European finance minister/ministry that, though it “stops short of Mr Macron’s vision of fiscal union, with Europe-wide taxes and spending… focuses on the essential: a collective action mechanism for managing and stabilising economies in crisis.” “Macron is right — the Eurozone needs a finance minister” September 29.

Moghadam suggests the job description for that post should answer some key questions, and among these: “How can the risk of crises, and so fiscal payouts, be minimised? What would be the role of the minister in a crisis?”

The prime answer to the first question should be:

Getting rid of current risk weighted capital requirements for banks. These only guarantee that banks will hold the least capital, when a crisis, as usual, arises because of something that was ex-ante perceived as very safe turns out ex-post to be very risky.

The prime answer to the second question should be:

Make sure any stimulus, like QEs or low interest rates, flows freely so that the market has a chance to use it as efficiently as possible. This also requires getting rid of current risk weighted capital requirements for banks. These, by allowing banks to earn higher risk adjusted returns on equity on what is perceived safe than on what is perceived risky, seriously distorts the allocation of bank credit to the real economy.

Sir, in other words, much of what Europe could need from a finance minister, could be achieved by just firing the current inept bunch of bank regulators.

Basel II’s standardized risk weights of 150% for the below BB- rated and of 20% for the AAA rated, should be more than enough evidence on how little current regulators understand of banks and of finance.

Monsieur Macron, do you know bank regulators have decreed inégalité?

PS. Perhaps Monsieur Macron could ask his wife what has a better chance of causing those big bank exposures that can result in a major bank crisis, the ultra-safe AAAs, or the ultra-risky below BB-? I am sure Mme Macron would give him a more correct answer than what Mario Draghi would do; and this even though Draghi was the previous chairman of the Financial Stability Board and is now the chairman of the Group of Governors and Heads of Supervision the oversight body of the Basel Committee of Banking Supervision.

Perhaps Monsieur Macron should also ask Mme Macron what she thinks of 0% risk weights of sovereigns. Does she really think government bureaucrats know better than the private sector how to use bank credit efficiently? Reza Moghadam, who was previously at the IMF, has not expressed any sort of concern with that… but then again he is now the vice-chairman for sovereigns and official institutions at Morgan Stanley.

@PerKurowski

All sovereign need to detox from what artificially favors their borrowings. The withdrawal symptoms will be horrendous

Sir, I refer to your “France’s detox from debt is Macron’s hardest task” July 10.

That is the task of most sovereigns in the world. If you start adding up what tax exemptions’, Basel’s 0% risk weights, and the purchase of sovereign debt through QEs’ really means in terms of subsidizing government borrowing, there is no doubt we are heading for all sovereigns having to, sooner or later, to detox from excessive debt. As the addiction to plenty and cheap debt is very much addictive to governments, I assure you the withdrawal symptoms will be horrendous. But, if they don’t withdraw from this addiction all be so much worse.

A world that in this way de-facto presupposes government bureaucrats can use bank credit for which they are not personally responsible better than the private sector is a world destined to failure.

What do current banks regulations mean? That banks can multiply many times more any net risk adjusted margin when lending to a sovereign than when lending to the private sector… and almost no one seems to find nothing wrong with that.

As the access to plentiful and cheap borrowings is very much addictive to governments, I assure you that the withdrawal symptoms will be horrendous. But, if they don’t withdraw from it we all will be so much worse.

Sir, your silence on this regulatory failure is mindboggling. Or you are statist beyond help, or dumb, or you just don’t have it in you to recognize a mistake.

@PerKurowski

Nations need unions that represent the unemployed and to get a small universal basic income going, before it's too late

Sir, Anne-Sylvaine Chassany, interviewing Laurent Berger writes: “The leader of France’s largest trade union has warned Emmanuel Macron not to rush labour market reforms as the country’s new president kick-starts negotiations over a bill seen as crucial to revamping the eurozone’s second-biggest economy.The warning is a reminder of the labour relations minefield awaiting the pro-business president” “Macron warned by union leader not to rush reform” May 24.

That evidences how much France and all other nations also need unions that represent the unemployed, in order to create some equilibrium among the forces that influence labor politics.

And of course, setting up a universal basic income system, starting it with a small amount, in France perhaps €150 per month, would also begin to open up the roads to that new society in which robots and automation seem to create structural unemployment.

As I have opined since some years we do need decent and worthy unemployments... before its too late.

http://myubi.blogspot.com/2017/01/my-universal-basic-income.html

@PerKurowski

President Emmanuel Macron, listen to me, this is what you should understand before you act.

Sir, Martin Wolf reduces France’s problems to “low employment; the low rate of economic growth; and the sheer scale of public spending” “The big challenges facing France” May 10.

For a starter Wolf recommends Macron to get down on his knees: “The first priority is to pray for a strong recovery” this since “The persistently high unemployment must be at least partly cyclical”

Nothing wrong with praying, but I would suggest Macron first tries to understand more the origin of these problems.

Low employment? It can surely have something to do with an incipient wave of structural unemployment caused by robots and automation, in which case Macron better starts looking for tools to create decent and worthy unemployments, immediately, before things get out of hand.

Wolf writes: “Mr Macron needs to legislate his labour market”, and for that “The most important priority with the former is to reduce protection for permanent workers: few will hire if they cannot hope to fire.” Absolutely, and so perhaps what is needed are some unions that represent the unemployed and those that work less than 50% in the gig economy… and to get a national debate on universal basic income going, taking care of course of not letting that debate fall in hands of threaten redistribution profiteers. 

Low rate of economic growth? With risk weighted capital requirements for banks that favor the refinancing of the safer past and present over the financing of the riskier future, what else can be expected? I would suggest Macron calls in his bank regulators and asks for instance the questions linked here, and, if he cannot get satisfactory answers then he might copycat Trump: “Your fired!”

The sheer scale of public spending? Back to the regulators again: If you risk weigh the Sovereign at 0%, and the SMEs and entrepreneurs at 100%, you are heading to fall off the cliff of excessive public debt… no way to stop that. What would be the interest rates on French sovereign debt if banks had to hold the same capital (equity) against these loans than what they are required to hold against loans o French SMEs or entrepreneurs?

PS. Wolf writes: “Fortune favours the bold. Emmanuel Macron took a huge gamble and won”. Just out of curiosity, what would have been his huge loss had he not won? As I see it his huge loss would result from not doing what France needs.

@PerKurowski

Is the “permissive consensus” that allowed dumb hubris-inflated elites to regulate banks over? Doesn’t look like it

Sir, Emmanuel Macron, a candidate for the French presidency writes “The permissive consensus that allowed Europe to be governed by the elite for the elite is over” “Europe holds its destiny in its own hands”.

Starting 1988 regulators introduced risk weighted capital requirements for banks, and in the process inexplicably decided on such outlandish risk weights as 0% for the Sovereign 20% for the AAA-risktocracy, 100% for We the People, and 150% for those poor bastards rated below BB-, those who of course already had their access to bank credit basically reduced to nothing.

With that the regulators introduced statism and a risk aversion that now have banks no longer financing the riskier future, only refinancing the safer past and present. And all that for nothing, since it is never what is perceived ex ante as risky that causes any bank crises. That dishonor belongs to unexpected events, to criminal behavior, or to something ex ante perceived as very safe turning out, ex post, as being very risky.

Macron writes: “The French people did not emancipate themselves from absolute monarchy in 1789 with the declaration that “the principle of any sovereignty lies primarily in the nation”. True emancipation arrived in 1792, when citizens across France rose up to defend the revolution against foreign kings.” Macron is probably not aware of that, thanks to experts, French banks can now hold much less capital when lending to many foreign sovereigns than when lending to French SMEs and entrepreneurs.

But those crazily failed bank regulators keep on regulating, as if nothing, and still captured by a monstrously large confirmation bias. For instance this week Mario Draghi, the former chair of the Financial Stability Board, the current chair of the Group of Governors and Head of Supervision in the Basel Committee for Banking Supervision, ranked in 2015 by Fortune as the as the world's second greatest leader; without the blinking of an eye gratefully received the (bit obscure) “Premio Camillo Cavour” 2016, for services to Italy and Europe.

Would Italy and Europe be in its current difficulties had their “safe” sovereigns and their “risky” SMEs and entrepreneurs have had the same risk-weight? Absolutely not!

PS. Sir, ponder on that perhaps your own permissiveness on these regulations, perhaps out of a wrong sense of solidarity or awe with experts, helped cause the 2007/08 crisis, and the slow economic growth thereafter; that which (much much more than Russians hackers) has led to Donald Trump becoming president. How do you feel about that?

@PerKurowski