It’s hard to understand how central banks can favor so much safer biggies while making it harder for riskier smaller

Sir, Claire Jones reports “France’s central bank has bought bonds issued by LVMH, Bulgari’s parent company, helping lower the group’s borrowing costs. Under the terms of one of those bonds, LVMH can now pay an annual coupon of just 0.375 per cent to borrow until 2022. “Eurozone investment regains sparkle” October 5.

Unbelievable! How on earth can a central bank intervene and distort the allocation of credit to the real economy this way?

And to top it up, what is the capital requirement for a French bank when lending to LVMH or to Bulgari and what is it when lending to an unrated SME, that wishes to enter into the same market as these giants who can afford tens of millions of euros of investment?

Sir, is it only me that feels something is very wrong?

@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

Spreads between sovereign debts are also a function of different bank capital requirements.

Sir, you write: “The spread between German 10-year bond yields and those of France and Italy has widened, reflecting concerns over political instability.” “US bond yields receive a boost from fiscal policy” November 26

That might be so, but you should not exclude that it could also have to do with the possibilities of changes in credit ratings, as these would impact the risk weights that partly determine the capital requirements of banks.

Germany is rated AAA with a zero risk weight and is far away from a higher risk weight.

France rated AA, has also a zero risk weight, but is closer than Germany to the next level of risk weights, 20%

Italy is rated BBB-, with a 50% risk weight, and if it loses that rating, its next risk weight would be 100%... with great consequences for banks.

Sir, as you see, the spreads between sovereign debts are not only a reflection of markets, but also a reflection of regulatory distortions.

How anyone can think that subsidizing the borrowings of a sovereign, with lower capital requirements for banks, is helpful for the real economy is beyond my comprehension, unless of course one is a runaway statist. 

At least in Greece, 100% risk weighted, banks have now to hold the same amount of capital when lending to that sovereign, than when lending to a Greek SME. Had it been that way all the time, Greece would not have suffered its recent crisis.

@PerKurowski

Mario Draghi, explain to a German widget maker why you assign him a higher risk weight than to a French bureaucrat

Sir, Claire Jones’ quotes Adam Posen, a former member of the UK central bank’s Monetary Policy Committee with: “at the time after the financial crisis when lending to small businesses had fallen off a cliff. It was very compelling to hear from small businesses what credit rationing felt like in practice.” “Beer and bratwurst in Bavaria a missed opportunity for ECB” October 26, to ask one question.

Sir, how do you think Mario Draghi could explain to a German widget maker that his bank, when lending to him has to hold much more capital than if it lends to his government or to some other governments, like the French one?

I ask because in essence those risk weighted capital requirements, tilted in favor of the sovereign and against We the People, de facto implies that regulatory technocrats like Draghi, think bureaucrats are better able to decide what to do with bank credit than for instance German SMEs or entrepreneurs.

Come to think of it, Adam Posen was very lucky the “eight very small business owners” he recalls meeting then at the pub, had not the faintest idea about what was going on… they probably still do not.

PS: Again, here is an aide memoire on some of the monstrous mistakes of said regulations.

@PerKurowski ©

In Miami Florida USA, when stores display “Hablamos inglés”, that evidences the global importance of English

Sir, during my two short/long years as an Executive Director of the World Bank, I don’t recall a more enjoyable moment than listening to a colleague’s, the Executive Director for France, Pierre Duquesne's wonderful spirited defense of the budget allocation for translating English documents into French. And that is why I felt a streak of bad conscience when I caught myself discreetly smiling when reading Jeremy Paxman’s “Voilà — a winner in the battle of global tongues” April 8.

Of course English has won the battle. It is such an important language that even in Miami Florida USA, the stores display signs that read: “Hablamos inglès”, “We speak english”.

What has me a bit surprised though, is that I have not yet heard Mr Paxman suggesting an English Language Empire, as a Brentrance to Brexit.

That Empire would, Professor Higgins allowing, at least save itself most of the costs of translations.

@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?

France, Italy, listen, there is something more important than “liberalization of closed products and labor markets”

Sir, You correctly refer to “the need to take aim at exactly the right problem…the bureaucratic sclerosis that chokes of innovation and growth”, “The struggle for reform in France and Italy” December 13.

And thereafter you also rightly argue that “demand-side boosts and supply side reforms are complements not substitutes”, and lend your support to structural reforms like the “liberalization of closed products and labor markets” because that would help to overcome “stagnant productivity” which was “a chronic problem well before the global financial crisis”.

But the most fundamental structural reform needed in France and Italy, and at the least in all other Western world economies, is to get rid of the distorting credit-risk-weighted capital requirements for banks, and which block bank credit from reaching where it is most needed in terms of helping the real economy to grow… productively.

And Sir, since you steadfastly keep ignoring that, I guess all those countries would be much better off listening to little me, than to big and so important You.

France, risk weighted capital requirements for banks, guarantees you a weak and obese economy. Any growth... just froth

Sir, Lindsay Whipp and Claire Jones report “France business activity weakens” December 17.

This is to be expected. Risk weighted capital requirements for banks which allow these to earn much higher risk-adjusted returns on equity when lending to “infallible sovereigns” and the AAAristocracy, than when lending to the “risky” medium and small businesses, entrepreneurs and start-ups can only guarantee turning our western economies into weaklings.

Distorting the banks into refinancing the safe past and not financing the more risky future is no way to create a strong and healthy economy. Any sigh of growth you might see in the interim, is pure froth… or let´s say pure fat no muscles… in other words the economy turning dangerously obese.

Even though I am aware that FT does not want to report on this, for reasons of its own, I will be remembering you about it every time I see the need for it.

No Europe! Don’t listen to FT. Your only chance is to explore more productive bays, even risking more hitting hidden rocks.

Sir, you write “Steer Europe away from hidden rocks”. November 16… and there you hold: “The tide of cheap money that is lifting all boats will soon be on the ebb. Britain and Europe should navigate their economic challenges now, or risk being beached on the same shore.”

First the tide of cheap money has not and is NOT lifting all boats. “The Risky”, like medium and small businesses, entrepreneurs and start ups, those Britain and Europe most need to get into action, are immobilized for the lack of bank credit, only because bank regulators require banks to have more capital for exposures to them.

Second you are NOT risking being beached on the same shore, you are risking dying gasping for oxygen in the same dangerously overpopulated safe havens, those to which banks can have exposures to against minimum capital.

Britain and Europe, your only chance is to explore more productive bays, even though you risk more hit hidden rocks. Future is only built upon risk-taking, never ever on risk avoidance.

FT, your protégé Draghi, before any audacious gamble, should dismantle overly-cautious-nanny bank regulations

Sir, in your “Mario Draghi’s audacious gamble” September 7, you write: “The eurozone’s financial market is fragmenting. The wide divergence of rates between different countries is raising fears that the monetary policy mechanism may be broken.” 

That is correct, but again you do not mention how current bank regulation, with its capital requirements based on perceived risk, fragmented the markets, and is now responsible for the widening of interest gap between those countries officially perceived as absolutely safe and those as “risky”. 

For those regulations, your protégé Mario Draghi is very much responsible, and so before any “audacious gamble”, he would do much better dismantling those really dumb overly-cautious-nanny regulations.

How do the French national hypocrisy reserves measure up nowadays?

Sir Philip Stephen in “Lovestruck Sarkozy gamble on reaching a happy ending” January 18, gets into the theme of “throwing overboard this ‛deplorable tradition of hypocrisy’ was refreshing”.

Given that national reserves of hypocrisy frequently are of immense values to solve problems or at least keep a lid on them to prevent them from exploding, it would be interesting to hear Stephens opinion on how these reserves of France stand up when compared to those of other nations.

It is not that I believe that hypocrisies have to be included on the balance sheet of a nation, but a special footnote on it, among contingent assets and liabilities, could be helpful in furthering our understanding of it.