Martin Wolf prefers government bureaucrat’s spending money that is not theirs over bankers making loans to SMEs

SMEs and entrepreneurs have less access to bank credit because banks are required to hold more of that scarce bank capital when lending to them, than when for instance lending to the sovereign or to members of the AAArisktocracy. And that is so because SMEs and entreprenuers have been deemed as risky by regulators, even when by being perceived ex ante as risky, de facto makes these borrowers safer for the bank system.

But Martin Wolf has clearly evidenced over the years he is not a slightest concerned with that distortion in the allocation of bank credit to the real economy, something which among other permits the supposedly "infallible" sovereign to have more than the usual preferential access to bank credit.

Now Wolf argues again, for the umpteenth time, that: “It is more important to create a robust financial sector. Yet pressure from the Treasury today seems to be to relax constraints. That may well be far riskier for the UK economy in the long run than modest fiscal deficits.” “Osborne’s desire to cut spending makes little sense” March 4.

I cannot but conclude that Martin Wolf, between bankers making loans to SMEs and entrepreneurs, or government bureaucrats spending money that is not theirs, much prefers the latter. I don’t!

@PerKurowski ©

To promote “the march of the makers” nothing like capital requirements for banks based on “makers ratings”

Sir you write “What underpins the significance of British manufacturing is [that] it embodies the sort of open, innovative economy that Britain needs to be to prosper in the global age” “Britain never lost the knack for making things” September 5.

But when your bank regulators accepted the credit risk weighted capital requirements for bank, they implicitly accepted that much more important than financing the “innovative economy that Britain needs to be to prosper in the global age”, was for banks to avoid taking any credit risks.

If Osborne really wanted “the march of the makers” he would ask regulators to set their capital requirements for banks based on makers ratings, instead of credit ratings.

But Sir, your continuous silence on this issue, is clear evidence that FT has also signed up on the baby-boomers’ motto… après nous le deluge… and so please spare us any crocodile tears.

By the way, since you mention “Dyson as Britain’s most celebrated manufacturing success story” you might be interested in that I once suggested: “If I were a bank regulator I would at least give Dyson’s engineering group a call to see what they would think I should do”

http://subprimeregulations.blogspot.com/2014/09/more-than-voice-and-american-idol-we.html

@PerKurowski

What is wrong with you FT?

Sir in “Put Britain’s economy on a sustainable footing” of September 17, you write that George Osborne needs policies that boost investment and productivity.

Let me ask you, for the umpteenth time, do you really thing it is possible to achieve a sturdy sustainable economy by negating all medium and small businesses, entrepreneurs and start-ups, fair access to bank credit?

Because you must know by now, that is exactly what the credit-risk-weighted capital requirements for banks do.

You accuse Britain’s midsized businesses of “insufficient aspirations”. Frankly, you should be ashamed of yourself.

You ask the government to do more, for instance through its UK Trade and Investment Agency, arguing that while house buyers are granted billions of pounds of fiscal support, UKTI has suffered real-terms cut.

Just pick up the phone and call any of your many banker friends and ask how many times they are allowed to leverage their equity when financing house purchases, and how many times they can do that when financing any of UKTI’s typical clients. And then draw your conclusions, and beg Britain’s midsized businesses to forgive you.

Believing too much in “the power of peace” can be hazardous to the health of your nation.

Sir, I refer to Simon Kuper’s “The surprising power of peace”, March 29.

It is always better to be skeptical and pleasantly surprised by “the power of peace” than naïve and unpleasantly surprised by its weakness. Most Venezuelans, including most of those who strongly protested the previous ways of Venezuela, and thereby perhaps unwittingly helped to open the way for Hugo Chavez, stand today in utter disbelief watching how everything has degenerated. I cannot but reflect on how much better off we could have been if we had believed much much less in “the power of peace”.

And I say this also in reference to George Osborne and Wolfgang Schäuble now recommending a “balanced and proportionate” response to Russia. That sounds a bit like believing too much in “the power of peace”.

On responding to Russia and on Europe’s decline, Churchill and von Bismarck might have differed from Osborne and Schäuble.

Sir George Osborne and Wolfgang Schäuble write about responding to Russia in a “balanced and proportionate way”, “The eurozone cannot dictate Europe´s rules alone” March 28. Is that really enough? Might it not be so that history shows that Europe must respond to Russia in an unbalanced and disproportionate way?

And these two European gentlemen also write that “No one should assume that European decline is inevitable”. No… but it can happen! As long as regulators, with their risk weighted capital requirements allow banks to earn higher risk-adjusted returns on equity when lending to what is perceived as “safe” than when lending to what is perceived as “risky”, its decline is inevitable. In order to have a future Europe must risk continuing opening those risky doors behind which its luck might be hiding.

Sir, do you believe Winston Churchill and Otto von Bismarck would have cosigned George Osborne´ and Wolfgang Schäuble´s article?

Mr. Osborne will receive little help from banks with the real economy, thanks to current bank regulators

Sir, Janan Ganesh, in “Britain’s journey from austerity has hardly begun”, October 15, writes that “Cajoling Britain’s animal spirits while shoring up its discipline will test [Osborne’s] dexterity as a national figure”.

Indeed, and he will not find the banks being able to help him out much either, thanks to the regulators. This, because if there is anything that can kill animal spirits so much, are capital requirements for banks which are higher the higher the perception of risk. And, if it is something that can test bank discipline so much, is allowing these to have minimal capital, and be able to earn huge risk-adjusted returns on equity, only on account of something being perceived, ex ante, as “absolutely safe”. What an utterly silly reason… especially when knowing that all major bank crisis have resulted from excessive exposures to what, ex ante, was being perceived as “absolutely safe”

If “Osborne has now been proven wrong on austerity” that does not mean that Martin Wolf would be right

Sir, if “Osborne has now been proven wrong on austerity” as Martin Wolf opines, September 27 it does not mean that Martin Wolf would have been proven right with his lesser austerity.

I say this because Martin Wolf refers to monetary stimulus, and if given while capital requirements for banks based on ex ante perceived risk impedes the liquidity to go where it is most needed and could be most productive, then you will also have an “unnecessarily protracted slump”, perhaps even an everlasting one… until all blows up!

The austerity that is killing off the western world economies, is the risk-taking austerity imposed by bank regulators who seem to ignore that we pray “God make us daring!” in our churches.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.

FT, are you allergic to “The Risky”, or just sucking up to “The Infallible”?

Sir, in “Britain needs an activist chancellor” March 11, you so correctly state: “Mr. Osborne should shift more resources from inefficient subsidies to uses that can provide a greater stimulus to the economy… [and that] smaller companies are being squeezed by the low availability of bank credit”

And is there any more inefficient subsidy than helping those bank borrowers perceived as “absolutely safe” to get even better terms, at the cost of making access to bank credit more difficult and more expensive for those borrowers perceived as “risky”, like for all those smaller companies you refer to?

Sir, I cannot understand why you insist on keeping silence on this extremely serious issue that is distorting the common sense out of our markets. Is it that you are allergic to “The Risky” or just that you prefer sucking up to “The Infallible”?

There is a need for building up bank capital for all their lending, especially for that lending to “The Risky” which required too little capital. But, temporarily lowering the specific capital requirements for banks when lending to “The Risky”, would be very helpful for the economy, and at no cost to the public sector, since the dangers of excessive bank lending to what is perceived as risky are really minor.

Down with all corporate taxes, these only dilute the citizen’s tax representation.

Sir, I refer to Mr. George Osborne’s, Mr. Pierre Moscovici’s and Wolfgang Schäuble’s “We are determined that multinationals will not avoidtaxes” February 16, and which unfortunately does not seem to imply that the “smaller businesses paying up to 30 per cent” will now be able to pay the 5 per cent the authors indicate multinational pay. 

Yet all corporate taxes will, no doubt, at the end of the day, one way or another, be paid by a citizen somewhere. And therefore that citizen’s payment will occur without the governments being held accountable to that citizen, allowing instead that citizen’s tax-paying-representation powers to be exercised by the corporations. 

Also, since the final real bill for a corporation’s tax might hit someone earning or having absolutely nothing, these corporate taxes can de facto also be extremely regressive. 

I therefore hope the ensuing discussions and determination of this powerful trio, gets to be oriented toward lowering or better yet eliminating all corporate taxes. Of course, a zero corporate tax would imply that all investment income had to be taxed at the same level as all other income. 

Down with corporate taxes! The only ones who should have the right to cover for a government expenses are the citizens, and that right should not be diluted in any way. 

PS. This is not the moment, but if you have time, I would like to refer you to My Tax Paradise, because nothing is more powerful against sinful tax-havens than a virtuous tax heaven.

And what about a revival of ethics in the bank regulatory establishment?

Sir, ‘Day of shame’ sparks call for a revival of ethics, writes George Parker, February 7, with respect to many loud and outspoken demands from politicians to hold the financial sector to higher standards.  

But though Andrew Tyrie, the Tory chairman of the Commons treasury committee rightly said "that high-quality regulation was not just morally right but would attract business to the UK”, there is not one single of them urging the bank regulators to come clean on their outright immoral (and dumb) concoctions.

Because it is indeed immoral to impose on the banks capital requirements which favor bank lending to those who already find themselves favored by banks and markets, “The Infallible”, while odiously discriminating against bank lending to those already discriminated against by banks and markets, The Risky”.

Because the regulators with those regulations have in fact, without having been authorized thereto, castrated the banks, and, with it, blocked the will of a nation to take the risks it needs in order to move forward, so as not to stall and fall… and that my friends, might not only be immoral, but it might even be an outright act of high treason, even if unwittingly committed

Oh please, don’t come with that never ending BS of banks taking excessive risks by creating excessive exposures to what was perceived ex ante as “risky” and which therefore required the banks to hold any substantial amount of capital against it. Give me just one example of that, or shut up!

How on earth did we end up discussing bank lending ratios of 25 or 33 to 1?

Sir, Alistair Darling, the former UK chancellor of the exchequer, refers to the Vickers proposal of bank capital of 4 percent, a lending ratio of 25 to 1 and to George Osborne’s proposal o 3 percent, a lending ratio of 33 to 1. He also rightly “suspects” that a requirement to hold more capital is a far greater buffer against calamities than a ringfence. “In a crisis, it will take a firewall not a ringfence” February 5.

And I must ask, how on earth have we ended up discussing bank lending ratios of 25 or 33 to 1? Don’t we all realize these lending ratios are sheer lunacy? Even if a bank loans are solely to “the absolutely infallible”? What funny thing happened on the way here?

No! Banks need to hold more capital, I would say between 8 or 10 percent, and, if they don’t have that capital, then help them get it for Pete’s sake, by for instance introducing special tax-exemptions on dividends produced by any banks willing to hold a basic 8 or ten percent in capital against all its assets.

That would not only help to make our banks safer, it would also reduce the distortions produced by different capital requirements based on the perceived risk of the bank asset, and it could also lead to attract a new set of shareholders, like some widows and orphans, who would be willing to accept lower bank returns in exchange for a much lower risk.

Sir, the simple truth is that the real economy cannot afford paying off those speculative shareholders who could be attracted to banks allowed to leverage 25 to 1. It is as easy as that!

No way Jose! Don’t come with you being a macho man now FT

Sir, in your “Slow but certain progress on banks”, February 5, you write “Being timid is riskier than being bold”. Frankly for someone who has so stubbornly refused to admit my arguments that the introduction of capital requirements for banks based on perceived risks dangerously exasperated the timidity that has always existed in banks, and taken away much of that boldness in bank lending that the real economy needs in order to thrive, you have no right trying to sell yourself now as a sort of macho man. 

Again, what good does ringfencing our banks do if you persist in applying loony regulatory policies within the rings? The whole basis of current Basel bank regulations is precisely giving the banks incentives to go excessively for what is perceived as safe and to stay away, excessively from what is perceived as risky; like paying Columbus to explore his bathtub instead of go looking for India, and as if staying in your bathtub, all the time, does not also entail serious risks. 

You write “A reset requires changes in attitude as much as rules” Absolutely! The attitude reset which is most needed is that of the regulator’s, and so that they stop favoring with their regulations “The Infallible”, those already favored by bankers and markets, and stop discriminating with their regulations against “The Risky”, those already discriminated against by bankers and markets.

Mr. Sir Mervyn King and Mr. George Osborne, here is a much better proposal!

Sir I refer to Martin Wolf’s “We should not pin our hopes on Britain’s plan A-plus” June 16. 

Why should not those not creditworthy who want to borrow not be allowed to compete for access to bank credit on the same regulatory terms than those who are creditworthy but do not want to borrow? That is a question that Martin Wolf should try one day to answer, as currently the banks are required to hold more capital when lending to the risky than when lending to the not risky. 

This issue of discriminatory bank capital requirements is ignored over and over again, by those who feebly believe, even after all current evidence against such nonsense, that the best thing to do is to make sure that already risk adverse bankers avoid taking any ex ante deemed high risks. It is truly sad to see what a brave society can reduce itself to, when it allows its nannies to reign supremely. 

Instead of a temporary banking funding scheme such as is proposed by Mervyn King and or George Osborne I propose that regulators urgently calculate any individual bank´s capital to total assets ratio, and ask for it to apply a capital requirement that increases ever so slightly on any new asset it acquires… until reaching some basic goal. That way they would be able to put the banks on a stronger footing to lend, with much less distortion.

Do not allow regulators to hide behind “unintended consequences”.

Sir, where do you draw the line between unintended consequences and sheer stupidity? That is the question we should make after reading an article such as “The tough challenges to revive the global economy” written by George Osborne and Jun Azumi, the finance ministers of Britain and Japan, February 23.

Privileging bank lending to what is officially perceived as not risky, by means of extraordinarily low capital requirements, just had to create excessive and dangerous bank exposures to triple-A rated securities and infallible sovereigns. That I repeated over and over again, even while being an Executive Director of the World Bank 2002 -2004. So that should not be allowed to fall into the category of unintended consequences. 

It behooves us to hold regulators very accountable for how they regulate, most especially if they regulate on a global scale. In this respect we must see to that those regulators are not allowed to hide behind “unintended consequences”… or Black Swans for that matter.