Is it so impossible that something really better could come out from Brexit, for all? Is EU that strong or good?

“We have considerable scope to see things as we prefer to see them” writes Tim Harford, a sensitive liberal internationalist, and then goes on to comment on Brexit with “The EU would benefit from a deal, but the UK needs one desperately.” “Beware the ostriches pursuing a pact” April 1.

That is an argument, in different wordings that I read repeatedly in the Financial Times. It much reminds me of the anti-Trumpists; they have too much vested emotional interest in things turning out bad. They can’t wait for that impeachment that will allow them a definite “we told you so”… and what sufferings is produced on that route is of secondary order.

I of course am not at all pleased with the concept of Brexit (or a Trump presidency) but, as a Venezuelan, I have seen how a puritan opposition can only make things worse.

Do not allow technocratic thugs to take over Brexit negotiations. If there is one message a sensitive British liberal internationalist should at least continuously be asking EU’s sensitive liberal internationalists is: After Brexit, do you want to become a better EU, or is that really indifferent to you?

That Sir because, as I have told you before, I believe Britain will be able to manage any major sacrifices that might result from Brexit, much better than EU any minor sacrifices without Britain.

Harford writes: when “cringing [scared] behind the nearest piece of furniture, trouble lies ahead. Indeed that ostrich effect will simply allow technocratic thugs to take over Brexit negotiations… and Sir that is truly scary… where it not for them there would be no Brexit to begin with.

PS. “terrifying parts of Doctor Who”. Out in the real world it is important to be sure about what really should terrify you. For instance, bank regulators think of what is perceived as risky as something terrifying, ignoring that the really scary parts always turn up among what has been perceived as very safe. As a result they got their risk weighted capital requirements for banks all wrong… and they have still not been able to reconcile their fears… and we’re all paying for it. That is really terrifying, for real.

PS. Do Financial Times journalists need their editor’s permission to ask banks regulators these questions?

@PerKurowski

What a shame Lucy Kellaway missed teaching her finance expert colleagues in FT, to spot bullshit at 50 paces.

Sir, Lucy Kellaway no matter how she has educated her daughters in other aspects, something which I father of three might discuss, has all the right in the world to be very proud to have helped them “to spot bullshit at 50 paces” “How I help my children navigate their life journeys” March 13.

If she had taught the same to her finance expert colleagues in FT then they, upon seeing a risk weight of only 20% for what is so dangerous to the banking system as what is AAA rated, and one of 150% for the so innocuous below BB- rated, would have stated “What a BS!” and then the world could have looked quite less messier than now.

@PerKurowski

FT’s future history exam draft, leaves out questions that could question some who are not to be questioned now

Sir, Gideon Rachman tries to imagine the questions future historians will ask about today’s political events drafts a history exam for students graduating in 2066, “An exam paper from the future” September 6 

I can certainly imagine a couple of other interesting questions, the problem though is that including these, would question some who are currently active and would not like to be questioned, like perhaps the exam-drafter himself

For instance:

How come regulators, with risk weighted capital requirements, decided without any empirical analysis, that what is perceived as risky is riskier for the banking system than what is perceived as safe?

How come regulators, by allowing banks to leverage equity differently with different assets, did not understand they would be distorting the allocation of bank credit to the real economy?

How come leading financial newspapers, and its journalists, mostly ignored the thousand of letters sent to them by a reader and that were related to those two previous questions?

@PerKurowski ©

Tim Harford, FT, yes, let us be real blunt: criticism works, but only when it is acknowledged.

Sir, I refer to Tim Harford’s “Let’s be blunt: criticism works” September 13.

Let me cite from John Kenneth Galbraith’s “Money: Whence it came, where it went” 1975: “What people do not understand, they generally think important…[but] If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections.”

That describes the case where the walls have become too high for constructive criticism to even be acknowledged by the participants.

Take for instance the Financial Times. For a decade, in thousands of letters, I have informed its editor, its reporters and its columnists, of some serious weaknesses in the portfolio-invariant credit-risk weighted capital requirements for banks. Yet I have not been able to get any assistance in transmitting to the regulators some simple questions asking for explanations.

For instance this very straightforward question: Dear regulator. Since dangerous financial excesses do always result from building up too large exposures to assets that are ex ante perceived as safe but that ex post turn out to be risky, why must banks hold more capital against what is ex ante perceived as risky?

The regulators do not want to answer little insignificant me… but, if it was FT who formally asked for explanations that would of course carry much more weight.

And frankly is not asking for explanations “Without fear and without favour” that what journalism is all about? Why then do you not then stop pretending you know so much and dare ask for some explanations? Or is this just too much criticism for you to swallow?

I am not only asking FT for help. I just send out a message to all US congressmen and governors with a list of questions it behooves them to make to the Fed, FDIC, and OCC.

@PerKurowski

Capital requirements for banks, instead of on credit risks, should be based on the risk of loony regulators regulating.

Sir, I refer to Patrick Jenkins’ “Make advisers pay when deals go wrong” September 11. 

In it Jenkins writes: “for at least eight years, free markets have been far from genuinely free… inflated in part by the policy response to the financial crisis… market distortions… created by the tougher rules imposed on the investment banks in the aftermath of the financial crisis”. 

Evidently Jenkins does not want to contemplate the possibility that the existence of no free markets, as a consequence of distorting rules arising from Basel I and II caused the financial crisis.

And he refers to “lightly regulated banks”… Come on! Is it not high time for some intellectual honesty?

What is so light about allowing banks to leverage 60 times or more lending to sovereigns and AAArisktocracy and only 12 times lending to SMEs and entrepreneurs? What is so light about capital requirements that completely distort the allocation of credit to the real economy?

Jenkins opines: “Make advisers pay when deals go wrong” Absolutely! But what about making regulators pay when regulations go wrong? And what about making influential financial journalists pay when they completely ignored what was happening?

No Sir. Clearly the capital requirements for banks, instead of being based on credit risks, should be based on the risk of regulators being totally wrong… and it is the journalist’s responsibility to diminish that risk… so that we do not have to require banks to hold 100 percent in capital.

@PerKurowski

If John Kay truly believes in liberal education, he should help question the decisions of the job-specific trained.

Sir, John Kay writes: “the capacities to think critically, judge numbers, compose prose and observe carefully — the capacities that education can and should develop — will be as useful then as they are today” “The timeless benefits of a liberal education” August 26.

Indeed but that requires that the capacity of thinking critically gets a chance to be heard by those who certify having job-specific skills. And for that to happen those who write newspaper columns have a very special role in forwarding the observations.

Here just one example: Bank regulators, with supposedly many job specific skills, decided for instance that assets rated BB- present immensely more possibilities of generating unexpected losses than assets rated AAA. And as a consequence they require banks to hold much more capital against BB- assets than against AAA assets.

And there are freethinkers like me who holds that to be utter nonsense, because clearly the riskier an asset is perceived, by definition the less are its possibilities to generate unexpected losses. 

But, can I get help to forward this and many other similar observations on our current bank regulations? No - because journalists clearly believe much more in the regulators' job specific skills than in any liberal education and critical thinking. Is it not so Mr. Kay?

@PerKurowski

It is truly sad when financial journalists don’t care about asking the regulators… "What is the purpose of our banks?"

Sir, Gillian Tett, referring to swelling corporate cash, caused because of relatively low investments, writes that 56 percent of it is sitting in bank deposits accounts, among other because “nobody can think of anything better to do”, “The economy is infested with zombie corporate cash” August 16.

That should not be her or our main concern. What we really should worry about is what banks are doing with those deposits… like are they doing something productive, like lending to SMEs and entrepreneurs? That they don’t, only because regulators require them to hold much more of scarce bank capital when doing so. What regulators are de facto telling the banks is “lend the money to the governments, because that is what requires you to hold least capital”.

It is sad when regulators do not define the purpose of those they are to regulate, it is sadder when those who should ask regulators “why don’t you” don’t even care to ask.

How about asking the Basel Committee "Is lowering the borrowing costs for the governments the real purpose of our banks?"

@PerKurowski

FT, what about the moral responsibility of journalists of telling it like it is with Greece’s debt?

Sir, your FT reporters write: “Germany and France warned Greece not to expect taxpayers in other countries to pick up the tab for its policy decisions” “Berlin and Paris rebuff debt forgiveness call”, January 29.

The most important reason for such attitude is that Greece’s debt problem is primarily attributed to Greece and to banks. If Europe was really made aware of the role their bank regulators had causing this mess, European would be able to understand better why Europe at large need to share much more in the responsibilities of providing solutions.

In this respect I need to repeat, to all of your journalists, what I commented to you Sir and to Martin Wolf, just two days ago. 

Had it not been for the fact that European regulators allowed banks to hold little or even zero equity against loans to sovereigns, like Greece; which tempted banks with extraordinary expected risk-adjusted returns on equity when lending to sovereigns, like to Greece, then banks would never ever have lent so much money to Greece.

What about the moral responsibility of bank regulators of not distorting the allocation of bank credit? What about the moral responsibility of journalists of telling it like it is?

I am sure that if this truth really comes out Greece’s debt problem could be looked at in a much more understanding light… and perhaps would allow Greece, in a first stage, to restructure all its debts in terms appropriate to the risk-profile regulators held it to fit… something like that of Germany’s.

What would Greece’s debt profile look like if it received terms like 30 years at 1 percent?

Regulators gaming regulations massively, is so much worse than banks gaming regulations somewhat

Sir, Sam Fleming reports that “Global regulators are cracking down on banks that try to game capital rules for their trading businesses by proposing new standards for the way lenders assess risk… The new system will require banks to calculate risks according to a standardised approach in addition to their own in-house methodology” "Banks set for tougher trading rules", November 1.

There are rules which can be gamed, and then there are those which cannot. For instance, if Basel II had required banks to hold 8 percent of well defined capital against any asset, that would not have been possible to game. But, instead regulators went for the risk-weighing system which are so easy to game… even for the regulators.

In fact, it was the regulators who really gamed the whole system, with such lunacies as assigning risk weights of 20 percent, or even zero, which allowed banks to hold some assets, like AAA rated securities and loans to infallible sovereigns, against only 1.6, or even zero, capital, while assigning 100 percent risk weights, to “riskier” loans, which forced banks to hold 8 percent in capital, 500 percent more, on loans to medium and small businesses, entrepreneurs and start-ups.

And so if you ask me, much worse than banks gaming regulations, is when the regulators do so.

And let me ask. Do you think the banks, on their own, without this regulatory assistance would have been able to game themselves into 40 or even 50 to 1 leverages? No way Jose!

FT journalists don’t be so lame. Dare to ask bank regulators to explain risk-weighted capital requirements to you.

PS. Regulators are suffering from the Annie Oakley syndrome, and we because if that.