In the Eurozone’s sovereign debt mine there is a choir of canaries going silent but, seemingly, that shall not be heard.

Sir, Gideon Rachman concludes, “Almost all of the modern threats — from a resurgent Russia to climate change and trade wars — are much easier for Britain to deal with, by using the collective strength of the EU.” “Brexit is an idea left over from a bygone era” June 25, 2019.

That is correct, but only if we exclude mentioning the problems within Europe. I refer specially to the sovereign debt bombs that are ticking within the Eurozone, the agents of “the EU’s most federalising project — the euro.”

Yes, that Germany “is stubbornly resisting demands from Brussels and Paris for deeper economic union” does surely not help but the real problem is that the biggest problem with the Euro, is not really acknowledged. 

When Greece turned into a dead coalmine canary, how much discussion were there about the fact that EU authorities had assigned Greece, as to all other Eurozone sovereigns, for purposes of bank capital requirements, a 0% risk weight? And that 0% risk weight was decreed even though all Eurozone sovereigns contract debt denominated in a currency that de facto is not their own domestic printable one.

Basically no discussion at all even though that 0% risk weight guarantees European banks are going to lend way too to the Eurozone’s sovereigns. Greece was small and ended being forced by ECB to walk the plank. But if Italy’s debt bomb explodes would it accept doing so? I doubt it.

Sir, to be a Remainer without requesting from EU a clear plan on how to defuse that still ticking debt bomb that could take the Euro down and perhaps the EU with it, seems not to be a very respectful position either.

@PerKurowski

The one most worthy and in need of a “teachable moment” is the European Union itself.

Gideon Rachman“fears that Britain is heading towards what counsellors call a “teachable moment”, otherwise known as a traumatic experience that forces people (or nations) into a fundamental reassessment.” “Britain is poised to learn a hard Brexit lesson” September 25

To that purpose Rachman mentions, “Greece experienced not triumph but humiliation – as its government was forced to accept the bailout that it had just rejected.”

Indeed, but the one who would best have been helped by a “teachable moment”, that would be the EU itself; which could have happened if only Greek citizens had sued EC, for allowing banks to lend to the Greek sovereign against zero capital of their own, which of course doomed the Greeks to their tragedy.

Does Britain or any EU nation really want to end up like Greece? I believe not. For that not to happen all Europeans need to call out their authorities on much more, instead of silently swallowing EU’s marketing efforts; thankful for being able to freely visit each other; something that when you get down to it does not really require a European Union for it, as neither does free trading, as neither does being able to work or reside in any EU nation for that matter.

How long will techno/bureaucrats, in EU or anywhere be able to extortionate more power for themselves, or increase the value of their redistribution franchises, by offering the citizens goodies these could obtain by other simpler means?

For instance the day an unconditional Universal Basic Income is adopted, that day we will be able to rebalance much more power in favor of citizens and lessen that of those all who engage in the crony statism that is killing us slowly. 

Does a teachable Brexit moment preclude something very good coming out from it? I don’t think so; I have too much respect for the Brits. Perhaps they can even help to save EU.

@PerKurowski

Political correctness is just another type of authoritarianism that can also bring on revolts.

Sir, Gideon Rachman writes, “In 1989, liberal and nationalist causes were allied in the struggle for democracy in eastern Europe. Now the two ideologies are opposed. The battle between liberalism and nationalism is being waged internationally. It is also unfolding on the streets of small towns in Germany.” “Protests in Germany echo beyond borders” September 4.

No! I do not think this is a battle between liberalism and nationalism, although that might be what polarization profiteers want us to believe. That because there are a lot of “nationalists” that are true liberals, but only wish that some outlier expressions would be somewhat more considerate to their national traditions and interests.

For instance, with respect to migration, is it wrong, for a German, a Swede or any other national, to make a difference between those migrants who believe that “When in Rome do as Romans do”, and those believing “When in Rome I do as I bloody want to do”?

I would say no, but have the moral besserwissers allowed Europeans thinking so? No!

Rachman holds: “Germany has long nurtured as a bastion of liberal values.” Again that is what those defining in the public debate what the liberal values are, wants us to believe. Some of the out of this world liberal values, do not have it in them to ever become bastions… I hope.

Sir, sincerely, I feel sorry for all those minorities who I will not name, but who have been led and egged on by political correctness profiteers into overplaying their cards. When the tide turns, many nationalists will be there for them… again within reason.

PS. Political correctness could, in the best of cases, be a type of Neo-Victorianism... but, unfortunately, it seems more to have become the Neo-Inquisition of our days.

 @PerKurowski

For Britain’s and EU’s sake, Brexit negotiations should not be left exclusively in hands of Leavers and Brusselites.

Sir, most of the opinions on Brexit I have read in FT over the last year, seem to me have more to do with Remainers wanting it to turn out so bad so they can gorge on the “we told you so”, than with making the best out of something difficult.

In the same vein, on EU’s side, it seems to me that the Brusselites want to negotiate more in order to satisfy their by Brexit vote hurt egos, than with making the best out of something difficult.

Janan Ganesh writes in “The real saboteurs of Brexit are its own amateur leaders” November 14. So, if Leavers do not have what’s needed to negotiate Brexit well, as, that does not exculpate the Remainers from helping out in any which way they can… (or move out of Britain)

Gideon Rachman writes in namely: “Imposing a humiliating settlement on Britain might even seem economically advantageous. But the long term political and strategic consequences of a bitter Brexit are much harder to calculate.” “Britain is at the mercy of Brussels” November 14. And so, in a similar vein, the Brusselites need to be continuously reminded of that they could also be hold accountable for a bad Brexit.

If I were a British national and a Remainer, the first thing I would do is to launch a campaign messaging the following:

“Europeans since Britain will remain close to you… and since you could be next, it behooves you to keep an eye on your Brusselites so that Brexit goes well for all of us. The last thing we need in Europe at this moment is a neo-Versailles treaty.”

PS. As a Polish citizen, I would argue: “Brusselites, remember that many of us in EU have more in common with Britain than with some of our other Europeans”

@PerKurowski

Imposed political correctness is a form of subliminal authoritarianism that can also breed revolt

Sir, Gideon Rachman writes: “What is it that links the erosion of support for democracy in countries as diverse as Russia, the Philippines, South Africa and even the US? It is that for many voters democracy is a means to an end, not an end in itself. If a democratic system fails to deliver jobs, as in South Africa, or security, as in the Philippines, or is associated with a stagnation in living standards, as in the US, then some voters will be attracted to the authoritarian alternative”, “The stamp of authority gains in appeal” February 21.

That is true, but Rachman also follows up with: “A drift towards authoritarianism will become more likely, in the context of rising inequality, when the political and economic system seems “rigged” in favour of insiders.” And that is not necessarily the absolute truth… it is mostly the correct current convenient political truth.

As I see it much, not all, of what is going on, is a rebellion against the authoritarism of political correctness. There are too many instances when ordinary people are not allowed to express ordinary human concerns, without risking being referred to in derogatory terms… and that hurts and  accumulates resentments that can explode.

@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 ©

FT, “Without fear and without favour”, stand up to a bank regulation “strongman” like Mario Draghi.

Sir, Gideon Rachman writes of “a global trend: the return of the ‘strongman’ leader in international politics” “Trump, Putin and the lure of the strongman” May 17.

Yes it is a worrying trend, but perhaps the Financial Times should also look at the existence of typical “strongman” in the current financial system, for instance Mario Draghi.

As I recall you have only expressed admiration for Draghi’s macho man’s “Whatever it takes” growls, without questioning much whether he has the right to do the “whatever”.

Of course, Draghi has also been able to “trade on feelings of insecurity, fear and frustration” but one should be able to expect a media that prides itself with the “Without fear and without favour” motto, to stand up a bit more against a "strongman".

And especially when there are all reasons to suspect that Draghi, the former chair of the Financial Stability Board and the current chair of the Group of Governors and Heads of Supervision of the Basel Committee, has little idea about what he is doing, at least when it comes to bank regulations.

Rachman writes of a “mutual admiration society”. Clearly only such a society would have been able to generate risk weights of 150% for the below BB- rated assets and only 20% for what is rated AAA. In any other society, someone would have posed the question I make over and over again, namely: Is not what is ex ante perceived as safe not riskier ex post for the banking system, than what is ex ante perceived as risky?

FT stop admiring so much strongman Draghi, and start to ask him and his colleagues the many questions that are pending. Like: Why do they base the requirements for that capital that should be there in case of unexpected losses, on the most already cleared for bank risk, the expected credit losses?

This aide memoire might give you a clue for many additional questions.

@PerKurowski ©

Could EU survive if it wanted to decide on an official common language different to English?

Sir, Gideon Rachman writes: “any Brits who feel nostalgic for the Anglosphere, and a little resentful about Mr Obama’s ‘back of the queue’ comments, might reflect how much they still benefit from the cultural power of the US. The traditional Anglo-sphere may be in disrepair. But a different sort of Anglosphere has emerged in Brussels, with English now the common language of the EU institutions”, “Obama and the end of the Anglosphere” April 26. Here some varied comments.

It is surprising to hear an Englishman hold that the importance of English is a result of “the cultural power of the US”. Will Rachman get clobbered or is this a generally held view?

With respect to English let me ask, when does a language become so important that it does not belong to anyone more? Scary eh?

So, if Brexit happens, should EU have the right to keep English? And if the answer to that is no, or EU having been rejected does not want it, what language would win? A German-French War? Could EU survive that?

And in regard to Obama’s “back of the queue’, and though I am not a Brit, I was surprised no one asked him: “Are you telling us it is easier for the US to negotiate with Germans and French than with Englishmen?”

Finally Sir, let me repeat two related questions that I made in a recent letter

America is home for Americans. Is not Brexit just a symptom of Europe not aspiring to be home of Europeans?

How many at FT wish one day for Englishmen to call Europe home, as Americans call America home?

PS. Or could one of you even be dreaming of calling Asia home? L

​PS. A New English Language Empire

@PerKurowski ©

Every Brexit needs its Brentrance.

Sir, Janan Ganesh writes: “Britons are being invited to exchange the lived reality of EU membership for a nebulous exit, envisaged by its most popular advocate as a way of gaining leverage over Brussels for a deeper revision of membership terms.” “Boris mania exposes an overexcited political class” February 23

And Gideon Rachman writes: “Mr Johnson’s decision to campaign for Brexit might put him on the right side of history, but only in the first and narrowest sense of foreseeing the direction of events... A modern Churchill, which is what Boris clearly aspires to be, would immediately understand that Britain’s decision about whether to stay in the EU has to be seen as part of a wider global picture.” “Johnson has failed the Churchill test".

This is so much reminds me of the problem in my homeland Venezuela. There too many are pointing towards an escape door, without indicating at all to what entrance that door leads.

If Britain wants to leave EU, something that indeed sounds a bit adventurous to say the least, then it should at least begin to think about the morning after.

And this reminds me that way back, in the last century, in 1999, I wrote an Op-Ed titled “A New English Language Empire” It might provide for a timely read

@PerKurowski ©

Holier than thou extreme political correctness causes incorrectness, and that is only human

Sir Gideon Rachman quotes Der Spiegel with “Germany these days is a place where people feel entirely uninhibited about expressing their hatred and xenophobia.” “The end of the Merkel era is within sight” October 27.

I do no know about Germany but, when I visited Sweden earlier this year, what I felt was a lot of inhibitions to express even the slightest indication of not being fully comfortable with many foreigners in their small cities, many of them in public places begging.

Clearly not being allowed to vent normal human reactions builds up pressures that, sooner or later, will make humans explode.

@PerKurowski ©

Sovereign rights should refer to the nation rights of citizens, and not to the nation rights of government bureaucrats.

Sir Gideon Rachman, in his very clear-eyed and straight talking “Germany’s conditional surrender”, July 14, mentions: “Much of the comment about the loss of Greek sovereignty, in the outline deal just agreed”

“Greek sovereignty”? As I see it “Inalienable sovereign rights" have lately just become a convenient wording for what government bureaucrats consider to be their rights… or statist ideologues consider to be the rights of ever more powerful governments.

The day sovereign rights refers more to the nation rights of the citizens, than to the nation rights of governments, that’s when sovereignty has a chance to get on a real track.

Meanwhile bank regulations that assign a risk weight of zero to government debt, and 100 percent or more to private sector debt, has absolutely nothing to do with any justifiable sovereign rights… much the contrary it has only to do with government bureaucrats' clientelism.

@PerKurowski

FT Greece’s tragedy was more the result of malfunctioning bank regulations than a malfunctioning Euro.

Sir, Gideon Rachman writes: “both Greece and the rest of the eurozone should treat the Greek vote as an opportunity to rethink the malfunctioning euro project” “Europe should welcome Greece’s vote” July 7.

“Malfunctioning euro project?” Between June 2004 when Basel II was approved, and until end of November 2009 when Greece got down-rated to the BBB area, banks needed to hold only 1.6 percent in capital when lending to the government of Greece (8% standard requirement x 20% risk weight). That meant that banks could leverage their equity, and the explicit and implicit support they received from taxpayers 62.5 times to 1.

With regulators in the Basel Committee capable of creating idiotic regulations like that, the Greek tragedy just had to happen.

Where was the IMF when its opinion on this was sorely needed? I refuse to believe all professionals of the IMF think that the credit-risk-weighted capital requirements for banks do not dangerously distort the allocation of credit.

Not even the sturdiest Euro project can survive such kind of foolishness.

The best way to reduce the current animosity between Greece and for instance Germany is to tell it as it really was. The banks were given irresistible incentives to give Greece loans that by nature are irresistible to most politicians and government bureaucrats. Correct for that, punish the regulators, and then Greece (and Europe) has a chance to regain its footing.

Austerity is when you have resources and decide not to spend it. Spending financed with bank loans or other taxpayers’ money is not really the lack of austerity, it sounds much more like profligacy.

PS. And please do not tell me that this is only because I have a blind faith in the Euro.

@PerKurowski

Europe, you want the truth? It was not the euro but bank regulators who did Greece in.

Sir, Gideon Rachman writes: “the link between the EU and prosperity will have been ruptured… it is not just that the EU has failed to deliver on its promises of prosperity and unity. By locking Greece and other EU countries into a failed economic experiment — the euro — it is now actively destroying wealth, stability and European solidarity”. “Europe’s dream is dying in Greece” June 30.

With my Op-Ed of November 1998 “Burning the Bridges in Europe” I can evidence having warned as clearly and as much as anyone about the euro… and so I could be writing here “I told you so”.

But no, I assure you that the real failed economic experiment that has created the current crisis was not the euro; it is the current bank regulations.

Basel II regulations of June 2004, because of how Greece was rated A+ to A- between November 2004 and January 2009, allowed banks to lend to Greece leveraging their equity more than 60 to 1. The capital (equity) requirement was a meager 1.6 percent (the basic 8% times a 20% risk-weight).

And so of course the Greek government was doomed to take on too much public debt. What Greek politician/bureaucrat would have been able to resists the offers of loans; and what banks would resist the temptation to offer loans to Greece, in order to earn fabulous expected risk-adjusted returns on their equity?

And let us be sincere, any bank lending to a Greek government of those of lately, has de facto waived his right to be repaid… even if he was tricked into doing so by its own regulator.

What would then have happened if there had been no Euro, and Greece had borrowed Dollars, Pounds or Deutsche Marks? The ensuing haircuts would be direct, or indirect by means of Drachma devaluations. Yes the crisis resolutions could perhaps been less traumatic but the crisis would still have happened.

Get any European country to use its own currency, but keep current distortions of bank credit in place, and they are still all doomed! If somebody needs to apologize to Europe, well that is the Basel Committee for Banking Supervision.

@PerKurowski

PS. Shortly after posting this, I found out to my amazement that even though no Eurozone nation can print euros on its own, for the risk weighted bank capital requirements, all their sovereign debts, independent of credit ratings, were assigned a 0% risk weight. Holy Moly, what if US had done the same with its 50 states?

PS. And then EU, even though their bank regulators were very much guilty of the Greek-neo-tragedy, showed no solidarity.

 

European citizens, beware of the Basel Committee’s bank regulators bearing gifts to your government bureaucrats

The hard left in Greece should shut up. Unless absolute fools, it was communist bank regulators who took Greece down.

Sir, Gideon Rachman, as one of the possible games Greeks are playing writes: “Syriza is a coalition party and the hard left of the party is likely to split off if Mr Tsipras is seen to accept austerity in return for a new agreement with Greece’s creditors”, “Four games the Greeks may be playing” June 16.

Bank regulators have decided that banks need to hold absolute minimum capital when lending to governments (or sovereigns as these like to be called) when compared to what they are required to hold when lending to for instance SMEs. With that they allow banks to earn much higher risk adjusted returns on equity when lending to governments than when lending to the other deemed risky.

And with that regulators set up the trap that guaranteed that governments would, sooner or later, become over-indebted… and one of the first one to fall hard in that trap was Greece.

Since those capital requirements also imply that regulators believe that government bureaucrats can use bank credit more efficiently than for instance the SMEs, this has to mean that the regulators are either absolutely foolish statist technocrats… or hardline communists.

And so, if I was Mr Tsipras, I would be very careful about furthering relations with the hard left… who knows what other tragedies might come out of it.

Sir, whether current bank regulators are fools or communists, Greece, and the Western World at large, need to get rid of them... urgently.

@PerKurowski

More than the decline of individual countries, we are experiencing the decline of the world in general.

Sir, any country that signs up on the idea of allowing banks to hold less equity when lending to what is perceived as safe, than when ending to what is perceived as risky, has ordained a risk aversion that will cause it to decline. It will not longer finance sufficiently the more risky future, but will try to trot along for a while, by refinancing the safer past. Most of the world is currently implementing this type of Basel Committee regulations, China included.

And so any discussion on the decline of any country, like Gideon Rachman’s “Britain’s risky obsession with America’s wane” April 7, needs to be held against the perspective of a general decline.

For a starter no country with this type of regulations can aspire to reach world leadership based on its own efforts. Any increased leadership it could reach would only be based on someone else losing it faster.

Rachman refers to some having complained about Britain’s abandonment of “kith and kin” in the Commonwealth. Be that as it may it is much worse; like most of the world, it is abandoning its children, by refusing to take the risks needed for them to move forward, hiding in the very short-term safety of safe havens… soon to be dangerously overpopulated.

But again, of what importance can such minutia be to FT?

@PerKurowski

In order to avoid political extremism, Europe needs to rid itself of bank regulation extremists.

Sir, I refer to Gideon Rachman’s “Growth will not save Europe from extremists” March 24. But there will not be any sustainable sturdy growth in Europe, while the regulation of its banks is in the hands of extremist. Only extremist could, for purposes of bank equity requirements, assign a risk weight of zero percent to central government debt and that of 100 percent to an unrated SME or entrepreneur.

Rachman writes “France and the rest of the member states… need mainstream politicians that can paint a convincing and optimistic picture of the future”. Indeed, and that message should go somewhat along the following lines:

“Europeans, we were horribly sabotaged by regulators who completely distorted the allocation of bank credit. Because of them we lost 25 years but, once we get rid of them, we will be able to resume the creation of the jobs our future generations require and deserve.”

@PerKurowski

More than about the euro, Europeans needs to worry about their own future.

Sir, on the eve of the euro I published an OpEd in which I expressed doubts about its long term viability quite similar to those expressed by Gideon Rachman in “A Greek deal cannot fix the euro’s flaws”, February 24.

The title of my OpEd was though “Burning the bridges in Europe” by which I implied that once launched, the euro was not that easy to roll back, especially since there was not a word about how to proceed in such a case.

Of course, as Rachman argues, there are big differences between the north and the south Europe, but let us also be aware there are a lot of similarities too.

For instance, all small business and entrepreneurs, on account of incredibly being perceived by regulators as risky for the banks’ stability, are being just as discriminated from having fair access in Germany than they are in Greece.

And in that respect, more than worried about the euro, I believe Europeans should be worried about their own tomorrow, and this not only because of Putin.

With banks instructed to stay away from financing the future because that is deemed riskier than refinancing the past, no one has a future, whether he is German or Greek.

What is this nonsense of a free market consensus when all banks are intervened by regulators?

Sir, Gideon Rachman refers to a weakening in the belief in free markets, “shaken by the financial crisis in 2008 and the subsequent Great Recession, as one of the causes of why “The west has lost intellectual self-confidence”, January 6.

What intellectual nonsense is this? What free-market consensus? The banks, since the inception of the Basel Accord with its Basel I in the early 90’s, and really exploding with Basel II in 2004, have been told, by means of risk-weighted capital requirements, that they can earn their highest risk-adjusted returns on equity, by sticking to the safe.

But unfortunately, medium and long-term bank stability can only result from banks allocating credit efficiently to the real economy, not from banks playing it safe.

Effectively the Basel Committee and the Financial Stability Board told their supervised children: “Stay home and play with you laptops and do not go out and take risks, and we will give you goodies”. And the IMF and the World Bank, with their silence, approved of that.

Sir, is not a child told to stay home and not to venture out, a child doomed to lose all his self-confidence, included that of in his own intellect?

Our current bank regulations are not the result of an intellectual process, but only a primitive reaction to the intuition of “safe” is safe “risky” is risky”, not able to differentiate between ex ante and ex post perceptions. 

And I pray the West still has sufficient intellectual self-confidence left, so as to throw these bank regulators out... otherwise next generations are doomed. 

PS. To top it up regulators showed an ideological based pro-sovereign-governments bias and declared those to be infallible.

Mario Draghi’s ‘whatever it takes’ does not contain what it takes to save Europe’s economy

Sir I refer to Gideon Rachman’s “‘Whatever it takes’ may not be enough to save the euro” April 8. I do not opine about the euro or even Europe, but since I am sure that Mario Draghi’s “whatever it takes” does not include getting rid of the risk-based capital requirements for banks that so distorts the allocation of credit, I know it will at least not save the European economy.

Unfortunately, Mr. Draghi, like so many other, seems unable to admit to this monstrous regulatory mistake that he, as a chairman of the Financial Stability Board, have endorsed for many years… and that’s what it would take to stand a fighting chance.

As is European banks are to drown in increasingly dangerous excessive exposures to "infallible sovereigns", the housing sector and the AAAristocracy, while the job creating medium and small businesses, entrepreneurs and start-ups, are like old soldiers fading away because of the lack of bank credit.

Sir, the dumb and sissy bank regulators of the Basel Committee, pose a bigger threat to Europe than let us say about 10 Russian Putins put together.

Gideon Rachman, on our current front of bank regulations in Basel, neither Sarajevo nor Munich mentalities will do.

Sir I refer to Gideon Rachman’s “Time to think more about Sarajevo, less about Munich” January 7.

Right now our banking systems are heading towards a meltdown, caused by excessive and dangerous exposures to what is perceived as safe assets and which therefore allow banks to hold less capital… and, consequentially, our real economy is not capable of helping us out, as its more “risky” participants, are not provided with the bank credits they need for some of them to turn into the saviors of tomorrow.

Rachman quotes Margaret MacMillan in “The War the Ended Peace” lamenting that “none of the key players in 1914 were great an imaginative leaders who had the courage to stand out against the pressures building for war”; and writes that “In 1914 national leaders were so keen to appear strong and to protect their ‘credibility’, that they were unable to step back from the brink of conflict.”

In contrast, in 1938, I guess the problem was that leaders held that everything was fine and dandy.

So Rachman what shall we do? Trust the Sarajevo regulators who arrogantly hold they can fight any bank risks which come up, or trust the Munich regulators who tell us that Basel III has repaired Basel II.

As I see it, neither one will do.