Artistic inheritance does not cause excessive centralized powers, as too often natural resources do...though intellectual inheritance could

Sir, Janan Ganesh discussing the possible effect on Europe of its “intellectual and artistic inheritance” refers to the natural“resource curse” in terms of retarding development, as “The temptation is to coast on the proceeds from the natural assets.” Clive James and Europe’s culture curse” November 29,

Indeed, that could play a role but the by far worst part or the “resource curse”, is the fact that its revenues are way too often way too much centralized in way too few hands. 

Take my homeland Venezuela. Had its (geographical) liberator Simon Bolivar not accepted to impose in Venezuela in 1829 Spain’s mining ordinances, which deemed all natural resources under earth to be the property of the King/state, our destiny would have been quite different. As is, as someone from another oil cursed nation mentioned to me years ago, “we do not live in a nation, we live in somebody else’s business”, the redistribution profiteers’.

And this does not apply to the artistic inheritance’s culture curse. The Museum of Louvre might centralize a lot of cultural treasures, but it does not remotely benefit as much from it, as do the citizens of Paris.

Of course, when it comes to an “intellectual culture curse”, which could result from handing over too much influence to too few intellectuals, like to Ph.D.’s and opinion makers, that can contain all the inheritance in a silo, in a mutual admiration club, all bets are off, in Europe and everywhere.

https://theoilcurse.blogspot.com/2016/05/the-last-thing-venezuela-needs-is-to.html

@PerKurowski

Any new IMF managing director should at least know, as a minimum minimorum, that two current important financial policies are more than dumb.

Sir, I refer to John Taylor’s “Choice of new IMF head must not be dictated by the old EU order” August 12.

I have no problems whatsoever with all what Taylor argues and neither with IMF changing its bylaws to allow someone over 65 years to take up the post of managing director.

But I do have two very firm ideas about what the next managing director should know.

First, that the risk weighted capital requirements for banks, based on that what’s perceived as risky, like loans to entrepreneurs and SMEs, is more dangerous to the bank system than what’s perceived as safe, like residential mortgages, is more than dumb. These only guarantee a weakening of the real economy and especially large bank crises, caused by especially large exposures to something perceived, decreed or concocted as especially safe, which turns into being especially risky, while held against especially little capital.

Second, that to assign a 0% risk weight, as that which has been assigned by EU authorities to all eurozone sovereigns, and this even though these take on debt that de facto is not denominated in their own domestic printable currency, something which could bring down the Euro and the EU with it, is also more than dumb. 

Sir, I wonder if anyone of the G20 Eminent Persons Group, international worthies and the names Taylor mention understand and know this. And if they do, why are they silent on it?

@PerKurowski

Europe, if you spoil your kids too much they will not grow strong. That goes for banks too.

Sir, Patrick Jenkins analyzes several concerns expressed about European banks when policymakers gathered to mark the retirement of Danièle Nouy from ECB’s Single Supervisory Mechanism (SSM); who is to be succeeded by Andrea Enria as the Eurozone’s chief banking regulator. “As European banks regulator retires, six big challenges remain” December 11.

The former Grand-Chair of the Federal Reserve, Paul Volcker, in his recent book “Keeping at it”, co-written with Christine Harper, recounts the following when, in 1986, the G10 central banking group tried to establish an international consensus on bank regulations and capital requirements:

“The US practice had been to asses capital adequacy by using a simple “leverage ratio”-in other words, the bank’s total assets based compared with the margin of capital available to absorb any losses on those assets. (Historically, before, the 1931 banking collapse, a ten percent ratio was considered normal)

The Europeans, as a group, firmly insisted upon a “risk-based” approach, seemingly more sophisticated because it calculated assets based on how risky they seemed to be. They felt it was common sense that certain kind of assets –certainly including domestic government bonds but also home mortgages and other sovereign debt- shouldn’t require much if any capital. Commercial loans, by contrast, would have strict and high capital requirements, whatever the credit rating might be.”

Sir, even though the Basel Accord was signed in 1988 and further developed in 2004 with Basel II, and with which the European risk weighting was adopted, I am sure we can trace the differences between US and Europe banks to these original differences on capital requirements. The US has been much more strict on capital than Europe. In fact the problems with American banks during the 2008 crisis were mostly restricted to those investment banks, which supervised by the SEC, had been allowed in 2004 to adopt Basel II criteria.

In Europe meanwhile banks could do with much less capital, which meant that much more was left over for bankers’ bonuses. In essence, Europe’s banks were dangerously spoiled. The challenge these now faces is having to substitute their equity minimizing financial engineers with good old time loan officers; and convince the capital markets of that. Good luck!

@PerKurowski

Europe (and the rest of the world) needs to get rid of the distortions produced by QEs and risk weighted capital requirements for banks.

Sir, Karen Ward, discussing ECB’s asset purchase programme writes: “It’s very hard to get the population to worry about government borrowing when interest rates seem impervious to how much the government wants to borrow”… “to truly put the European economy on a long-term sustainable footing it may be time for the ECB to step back and let the market do its job”… “Bond vigilantes are an essential part of the micro economy and vital for a thriving macro economy” “Investors should resist urge to run for the hills if ECB calls time on asset purchases” June 12.

Absolutely! Right on the dot! But besides suspending the distorting asset purchase program, there is also much need for to eliminate the risk weighted capital requirements for banks, that which so much and so uselessly distorts the allocation of bank credit to the economy.

PS. “Mario Draghi, ECB’s president, is under pressure to provide guidance” Forget it! Draghi is one of those regulators who decided to assign a 0% risk weights to sovereigns like Greece, and thereby helped to cause the crisis. Therefore Draghi should be prohibited to provide any further guidance.

https://teawithft.blogspot.com/2018/06/to-salvage-european-union-its.html

@PerKurowski

Europe has been way to blasé about how the divisive forces of a common Euro within a not fully integrated Europe could gather strength.

Sir, I refer to Martin Wolf’s “Italy’s new rulers could shake the euro” May 23.

On the eve of the Euro, November 1998, in “Burning the Bridges in Europe” I wrote:

“The Euro has one characteristic that differentiates it from the Dollar. This characteristic makes me feel less optimistic as to its chances of success. The Dollar is backed by a solidly unified political entity, i.e. the United States of America. The Euro, on the other hand, seems to be aimed at creating unity and cohesion. It is not the result of these.

The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

One could have expected that the fundamental menace that the Euro poses to the EU should have been in the forefront of everyone’s mind, and that much more would have been done to mitigate the dangers. But that has not really happened as its authorities wasted their time in so many other relative minutiae.

But what I never saw or knew when I wrote that article, as I had really nothing to do with bank regulations, was that bomb that was implanted in the middle of Europe, and in much of the rest of the world, that which required banks to hold more capital when lending to the citizens than when lending to the sovereign. That had to cause that excessive public sector indebtedness, which has now set the Euro problematic on steroids.

Sir, looking at what lays in front, one cannot help to think about the possibility that Brexit ends up being for Britain a very timely blessing in disguise.

@PerKurowski

If Europe’s sovereign debt is to be securitized, who’s going to earn those origination and packaging profits?

Sir, with respect to the European Systemic Risk Board —recommendations of pooling, packaging and tranching sovereign bonds from all members of the single currency into synthetic securities you opine: “Having a safe asset proposal in the mix would make it less risky, for example, to introduce a sovereign debt restructuring mechanism or risk weights for banks’ government bond holdings.” “Eurozone ‘safe asset’ is crucial to banking union” May 22.

Once securities with mortgages to the subprime housing sector in the US got a high rating, that allowed the originators of very long, very high interest and very lousily awarded mortgages, to sell these of at very low discount rates, and thereby generate huge immediate profits for them and the packagers. Did this benefit in any way the subprime sector? No! On the contrary… it got much more mortgages that it could reasonably swallow.

In the same vein, let me ask, how are subprime rated nations like Greece to benefit by having its public debt packaged together with higher rated nations like Germany? If its debt is sold off in riskier tranches, then all remains the same. If its debt remains in the safer tranches is there then not a build up of a new crisis?

Sir, what Europe does not need is to try to hide away in some new securities, the regulators’ fatal use of risk weighted capital requirements for banks, that which favored way too much sovereign indebtedness. 

What Europe, and the western world need the most is to get rid of that regulation in order to allow banks to again become banks that earn their return on equity by giving loans with calculated risk taking, and not by reducing equity.

A Systemic Risk Board that does not understand the systemic risk bad and intrusive regulations pose is a joke of a Board. 

PS. Yesterday I visited the Bank of England’s Museum

@PerKurowski

If Remainers want Britain back in EU why do they not make the proposals that would make EU more attractive to other Europeans?

Sir, Tim Harford, with respect to the Brexit referendum writes: “It was always clear that asking an absurdly simple question about an absurdly complicated decision was unlikely to work out well.” “Picking a bread-maker is like choosing a Brexit”, May 19

Really? Was the real problem not more that the “experts” expected a simple answer that agreed with their take on an “absurdly complicated decision”? Sort of like what helped Trump to be elected. 

If Britain has problems with getting out of EU, it would seem that many EU nations have even more ingrained problems with staying in EU… having to live under the ever-growing reaches of an evermore distant European Commission.

This week the European Commission tweeted: “Today, municipalities will be able to apply for €15,000 EU financing to install free wireless internet hotspots in their public space. First-come first-served!” Would that not be a perfect opportunity for Remainers to come out in full force with a “See… that is one of the thousand of examples for why so many in Britain went for Brexit”?

With or without Brexit, Europe will remain, and Britain will be a part of it. Britain could be a leading voice proposing the reforms that would allow Britain to reenter EU. And I am sure they would find much sympathy with others equally fed up with having to live under the thumbs of besserwisser technocrats. 

The best of the Winter Olympics 2018 for me was seeing Sofia Goggia singing her Italian national anthem with such an enthusiasm. There was not one bit of Europe present in her voice… and that is an indication Europe is not going in a European direction.

PS. Just in case you are curious, the worst for me at the WO-2018 was to suffer with Egvenia Medvedeva when not winning gold.

@PerKurowski

Anyone jumping ship on the delusion that risk-weighted capital requirements make banks safer and economies better, has a better chance to survive

Sir, Wolfgang Münchau discusses many delusions held by both Brexiters and Remainers, and argues correctly: “To make the best of Brexit, the UK will need to embrace a more entrepreneurial and innovative economy” “An old-fashioned economy heads towards a downfall” November 20.

But when he writes: “For Brexit to succeed the UK will end up becoming more — dare I say it — European”, I disagree.

That because when Münchau holds that Britain “has an entrepreneurial culture to build on”, that is unfortunately no longer the case. No country with an active “entrepreneurial culture” would ever have allowed the de facto anti entrepreneurial risk-weighted capital requirements for banks.

Sir, if I had to choose between a Britain that did not hold back its risk takers, and one that was comfortably living off a larger European market then, if thinking about my grandchildren, I would without any doubt prefer the first one.

As I see it the European Union, governed by unelected risk adverse technocrats, who like old soviet central planners paint from their desks roads to the future, is doomed to fail… and that no matter how much “Universities… work more closely with industry”. In that Europe, the faster you jump ships the better.

If I were a British citizen I would instead be calling out to Europe proposing a different EU. Who knows what answer I would get from Poland, Italy, Spain, Portugal and others? Why for instance should they stay with those who most benefit from a Euro made weaker by the weaker?

PS. For those who do not know me in the context of any European Union and Euro debate, perhaps the following Op-Ed could help as an introduction. 

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

@PerKurowski

The correlation between assets that caused the financial crisis 2007-09 and the lowest bank capital requirements is 1

Sir, Martin Wolf writes, “Since 2013, eurozone output per head has been rising at much the same rate as in the US. The main explanation for this turnround, beyond the normal cyclical forces, has been the determination of the European Central Bank, under Mario Draghi, to do its job properly.” “Creative reform is vital for the eurozone” September 27.

Well the job is clearly not over. Until now what has been achieved is basically to kick the can down the road. I wonder what forthcoming generations will say about Wolf’s “properly” and Mario Draghi’s “whatever it takes”?

The correlation of assets that helped cause the financial crisis 2007-09 and those assets perceived, decreed (Greece) or concocted as safe, meaning those assets that generated the lowest capital requirements for banks is 1. Since Europe and much of the world insist in using the risk-weighted capital requirements for banks that distorts the allocation of bank credit to the real economy, a vital bank regulation reform is still pending.

That this reform has no been carried out is caused by regulators, like Mario Draghi, not wanting to accept, or let it be known, what stupid mistakes they made. And with a little help from their friends they threw the dead cat of the crisis being caused by excessive risk taking by the banks on the table.

Wolf refers to a proposal by Adam Lerrick of the American Enterprise Institute for “a scheme for mitigating the impact of asymmetric fiscal shocks” by means of transferring “yields on government bonds of vulnerable countries rise relative to the stronger ones.” That sounds reasonable, but I would suggest that should have to begin by eliminating the regulatory subsidies to sovereign debt, so that one is really clear about who is strong and who is weak.

@PerKurowski

So now European small businesses are being exploited like "subprime" buyers of houses were

Sir, Robert Smith writes: “‘It’s not quite 2006, but it does feel a bit like we’ve heard this script before’” “Europe looks to repackage bank debt: Return of securitisation coincides with concerns over slipping standards”

He sure has, or should have heard it! That because the incentive structure in the process of securitizations is as bad as they come.

If you take very good credits, let us say A+ rated, and you package it so it comes out an AAA rated security, you might have done a good job but it will not earn you much.

If on the other hand you manage to package a lot of substandard BB- loans into an AAA rated security, then you will make fabulous commissions when selling these into the market.

It was precisely that which originated the AAA rated securities backed with mortgages to the subprime sector in the USA, and which caused the 2007/08 crisis.

The worse and higher paying interest mortgages you cant put into these securities the better for the whole team was the rallying cry. In the end those buying their homes with these mortgages and those investing in these securities, they were all defrauded by a wrong set of incentives. 

So now the small businesses and entrepreneurs in Europe, those who are risk weighted by the regulators at 100%, will be packaged into securities for which “double-A credit ratings were most likely” and thereby seeing their risk weight magically reduced to 20%.

Will this in any way shape or form really benefit European SMEs and entrepreneurs? The answer is if so, certainly very few of them.

What Europe needs is to get rid of the risk weighted capital requirements for banks, those that have so profoundly distorted the allocation of bank credit to the real economy. Then your bankers will be forced to become bankers again; maximizing their returns on equity by normal lending, to all, and not by minimizing their capital requirements.

PS. Here’s some numbers on the prime subprime deal! If you convinced risky and broke Joe to take a $300.000 mortgage at 11 percent for 30 years and then, with more than a little help from the credit rating agencies, you could convince risk-adverse Fred that this mortgage, repackaged in a securitized version, and rated AAA, was so safe that a six percent return was quite adequate, then you could sell Fred the Joe mortgage for $510.000. This would allow you and your partners in the set-up, to pocket a tidy and instantaneous profit of $210.000

@PerKurowski

If bank regulators in Brussels imply for instance an AAA credit rating for Greece, should Esma not also fine them?

Sir, Nicholas Megaw and Chloe Cornish report that the European Securities and Markets Authority has fined Moody’s for “negligent breaches” of the credit rating agencies regulation “Brussels slaps €1.2m fine on Moody’s” June 2.

As Jim Brunsden and Guy Chazan reported on June 1, Brussels applies a zero risk weight to the European sovereigns. That of course can only be compatible, according to the standardized capital requirements of the Basel Committee, with the absolutely clearest AAA credit ratings.

AAA is clearly a nonsensical credit rating for many European sovereigns, like Greece, and so the question remains should Esma not fine also those European bank regulators in Brussels?

@PerKurowski

So now Brussels's technocrats want to issue AAA rated securities backed with European subprime sovereigns? When will they ever learn?

With “subprime sovereigns” I do not intent to classify any sovereign in a derogatory way. I use the term strictly with reference to the fact that for the sovereigns’ creditors being able to collect their credits, some sovereigns seem, are, safer than others.

Sir, Jim Brunsden a Guy Chazan write: “Brussels has called for sovereign debt from across the eurozone to be bundled into a financial instrument and sold to investors as part of a plan aimed at strengthening the single currency area… the move would require regulatory changes to make the securities attractive. One idea would be to grant the bonds the same “zero-risk weighting” that applies to government debt in the EU, which would exempt them [banks] from capital requirements.”... “We see this in the form of preferential regulatory treatment.” “Brussels seeks new asset class of eurozone sovereign debt” June 1.

Amazing! The European Commission has not woken up to the fact that “preferential regulatory treatment” distorts the allocation of bank credit to the real economy, which is one of the prime reasons Europe got into trouble and finds it so hard to grow out of it.

Had banks needed to hold as much capital when lending to sovereigns than when lending to for instance “risky” SMEs and entrepreneurs, Greece would never ever, no matter how much it might have cheated with information, have been able to accumulate such massive amount of sovereign debt.

Were banks required to hold as much capital when lending to sovereigns than when lending to for instance “risky” SMEs and entrepreneurs, then the latter would have found it easier to satisfy their credit needs, and European growth and employment would be higher and foremost much sturdier.

When will the hubris filled obviously statist technocrats in Brussels ever learn? Europe, get rid of them!

“No problem can be solved from the same level of consciousness that created it” Albert Einstein.

@PerKurowski

Trump might have done Europeans a huge favor by reminding them they have to fight for their own future themselves

Sir, today, May 29, is Memorial Day in the US. That is the day I walk down to the World War II Memorial in Washington, to try to thank those Americans who rescued my polish father from the concentration camp of Buchenwald more than 70 years ago. Had they not done that, I would not be, it is as simple as that.

But today I read Patrick McGee’s and George Parker’s “Europe can no longer rely on US partnership, warns Merkel” all the result of “a new transatlantic rift that has emerged after two days of international summits with President Donald Trump last week.” 

Is that true? No! Even when the partnership in World War II depended on very few, in my mind on Roosevelt and Churchill, any long-term partnership of this nature cannot really depend on what temporary leaders opine. If it did, it never existed.

There are of course general concerns. Like should I ask the Americans in the Mall to forgive Europeans for not showing the same interest in carrying their fair share of the defense load? Like, in these times of outsourcing, are the European and American manufacturing sectors able to respond somewhat similar than America did when it built up what Roosevelt called the Arsenal of Democracy, and that without it would have given the war a totally different outcome? Like, in these times of drones doing more and more of the fighting, are our soldiers capable to keep sufficiently of that fighting spirit that at the end of the day will be needed? And there is more… like the huge public debt loads and other minutia.

Sir, and if Chancellor Angela Merkel is sort of indirectly excluding the UK from the European defense, does that mean perhaps Britain should begin thinking about the need of promoting some English Language Empire as a substitute?

I do agree though 100% with Ms Merkel when she says: “We have to fight for our own future ourselves.” That is always the case, no matter what partnership or alliance you find yourself in. Merkel should reflect on the irony that Trump might have done her and all Europeans a great favor of reminding them of that simple fact of life.

@PerKurowski

Jean-Claude Juncker, while bank regulatory risk aversion remains, Europe will stall and fall, no matter what you do

Sir, Sarah Gordon writes: “There is no doubt that a boost to investment in Europe is still needed. Its recovery since the financial crisis has been the weakest in 30 years, and most of the region’s economies are still underperforming their potential. The Juncker plan was an ambitious and imaginative attempt. But as for many such grands projets, implementation has lagged behind conception” “Juncker’s European investment plan: rhetoric vs reality” March 29.

But in parallel to that, the regulators, with their risk weighted capital requirements for banks, distorted the allocation of credit to the real economy. 

By doubling down on risk perceptions they de facto decreed that those perceived as risky, like SMEs, were less worthy of bank credit than those perceived as safe, like sovereigns.

And Jean-Claude Juncker, not wanting to criticize technocrat colleagues preferred to launch this bureaucrats directed investment plan. 

Forget it! While current bank regulatory risk aversion remains, Europe has no way to go but to stall and fall.

Here my pending questions that are not answered by the regulators. 

@PerKurowski

Should Brexit be negotiated between some Brussels divorce lawyers blithely ignoring what the divorcees might want?

Sir, I refer to the so many Brexit withdrawal anxieties expressed, in this case to Martin Wolf’s “Brexiters must lose if Brexit is to succeed” March 29.

I ask: Could EU technocrats negotiate Brexit ignoring the will of EU citizens as to what Brexit should mean? In many ways it seems to me like some Brussels attorneys will be discussing the divorce papers without even consulting the divorcing parties.

I believe in EU, but I also believe EU is in serious troubles (not the least because of those bank regulations that doom its economies to stall and fall).

So, in the same vein that much is spoken about what Brexit implies for Britain, too little really has been discussed on what Brexit really means to EU.

Here Wolf correctly writes: “The departure of the UK is also a tragedy for Europe. The UK has long been the standard-bearer for liberal economics and democratic politics… the effect of a brutal divorce on the EU would also be large.” But Wolf minimizes that by holding that “Britain would be the bigger loser, [so] UK must make concessions to ensure a harmonious and co-operative relationship in future.

I firmly believe Britain has in much been the glue that has held EU together. Therefore, if Britain, before or while negotiating Brexit, I would reach out to all Europeans with a message like:

“Our people have decided to part with EU, not because we dislike EU citizens, or the idea of EU, but in much because of the same reasons so many of you are not satisfied with EU. What do you want to see at the end of these Brexit negotiations? While negotiating should we also not engage in some type of marriage counseling? Who knows perhaps we find something that could make us all live better and happier in or outside EU. Like perhaps forcing those technocrats in Brussels to use a CPAP so that they snore less. One fact though is that Britain cannot move to Australia, and so no matter what we do we will still be neighbors. Would really you and us want to see grumpy faces over the fence all day long?”

Sir, for reasons I have explained before I think that perhaps it is not wise for EU to have a Michel Barnier to negotiate Brexit on its behalf, but I am also weary of those on your side and who might unwittingly want Britain to lose substantially with Brexit, because of an existential need to argue “See I told you so!”

@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

Europe, if you do not remove current risk weighted capital requirements for banks, no stimulus will really help.

Sir, Reza Moghadam from Morgan Stanley writes: ECB should switch from buying sovereign bonds to funding the removal of troubled assets from European banks…[that] would do more to alleviate the constraints on economic recovery than sovereign bond purchases ever could. “How to redirect easy money and encourage banks to lend”, December 6.

Of course that would help, but only for a while. If you do not remove the risk weighted capital requirements for banks, those which distort the allocation of bank credit to the real economy, and which therefore impede any stimulus like QE or a European type Tarp to reach were it can do the most good, you’ll soon be back on the cliff, albeit higher up.

Sir, the lower the capital requirement, the higher the leverage of equity, the higher the expected risk adjusted return on bank equity be. Therefore you cannot be so naïve as to expect a banker like Moghadam to say one world that would imply higher capital requirements for anything. In fact, by allowing banks to earn the highest risk adjusted returns on what is perceived as safe, the Basel Committee has made the bankers’ wet dreams come true.

When will you invite someone, like me, who speaks out for the access to bank credit of the “risky” SMEs and entrepreneurs? Or are these beggars for opportunities, those who could help open new gateways to the future, just not glamorous enough for you?

@PerKurowski

What’s wrong with deregulating lousy regulations? Get rid of risk-weighted capital requirements for banks… but gently

Sir, Patrick Jenkins speculates on what Trump will do to bank regulations and regulators and how the latter would respond in America and in Europe. “Trump’s agenda on deregulation is as vital as his Nato policy” November 15.

I just know that with statist and distorting regulations, like the current risk weighted capital requirements, deregulation and getting rid of regulators, would be a good thing. But of course, that needs to be done with utter care, since you could otherwise easily make the cure worse than the disease.

The basic principle with respect to any changes in the capital requirements should be grandfathering, so that these only operate on the margin of the new, without shaking up the average of the old. Of course grandfathering should not be a tradable feature. If a European bank carries a low capital requirements mortgage on its book, and holds it that way until it runs out that is ok, but it should not be able to profit by selling low capital requirement’s mortgages to other more "needy" banks.

@PerKurowski

To make saving our pied-a-terre affordable, we need to keep the climate-change-fight profiteers at bay

Sir, I refer to Martin Wolf’s “Inconvenient truths and the risks of denial”, November 2.

I do not read scientific projections on global warming, it suffices me to see what harm is done to our delicate pied-a-terre to know its wrong and that it should stop. But I also know that could be a much costlier than needed process, if we are not able to keep the climate-change-fight profiteers at bay. And I also know that we would be much more effective in our efforts if we could engage other social causes in the quest, like that of decreasing inequality.

That is why I am all in favor of for instance very high carbon taxes, with all its revenues paid out to citizens by means of a Universal Basic Income. That would decrease carbon emissions, allow supplier of cleaner energy sources to compete more and, to top it up, help our economies by reviving demand.

Sir, all those incredible over 500 percent gas/petrol ad valorem taxes in Europe, would do much better placed in the pockets of European citizens, than managed by European bureaucrats, capturable by their own and other special interests.

@PerKurowski ©

FT: How much does the Basel Committee influence the property values in Europe?

Sir, I refer to FT Special Report on Property Europe October 18.

I wonder has anyone of the contributors to this report, or anyone else in FT for that matter, tried to figure out how much of the property values in Europe derives from the distortion produced by bank regulations?

Info: For the purpose of deciding the capital requirements of banks Basel II (and III) set a risk weight of 35% for when banks finance residential housing, and one of 100% for when banks finance the “risky” SMEs and entrepreneurs that are to help home buyers to find the jobs that will allow the house owners to pay their mortgages and the utilities.

Sure that has to mean something for the current and for the future value of properties in Europe. How much? I haven’t the faintest! Except that it’s a lot!

PS. In fact regulators make banks finance the “safe” basements where the young can live with their parents, not the new “risky” jobs they need Per Kurowski

@PerKurowski ©