Risk taking is the oxygen of all development. God make us daring

Sir, I refer to Arvind Subramanian’s “Developing economies must not succumb to export pessimism” October 16.

In October 2007 at the High-level Dialogue on Financing for Developing at the United Nations, New York I presented a document titled “Are the Basel Bank Regulations Good for Development?”

Let me quote just two paragraphs from it:

“Credits deemed to have a low default or collection risk will intrinsically always have the advantage of being better perceived and therefore being charged lower interest rates, precisely because they are lower risk. But, the minimum capital requirements of the Basel regulations, by additionally rewarding "low risk" with the cost saving benefits resulting from lower capital requirements, are unduly leveraging the attractiveness of "low risk" when compared to "higher risk" financing.

It is very sad when a developed nation decides making risk-adverseness the primary goal of their banking system and places itself voluntarily on a downward slope, since risk taking is an integral part of its economic vitality, but it is a real tragedy when developing countries copycats that and falls into the trap of calling it quits.”

Risk taking is the oxygen of all development. God make us daring!

The risk weighted bank capital requirements represent a monstrous “intellectual dereliction of duty” and so is the continued silence on it by “Western economists, academics and policy advisors”

@PerKurowski

If China abandons the risk weighted bank capital requirements, and the West does not, the West is lost.

Sir, Martin Wolf with respect to China quotes premier Li Keqiang stating: “We will reform and refine monetary and credit supply mechanisms, and employ . . . a combination of quantitative and pricing approaches . . . to guide financial institutions in increasing credit supply and bringing down the cost of borrowing”… [and that he] stressed the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”. “The Chinese economy is stabilising” April 3.

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. He wrote, “Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.”

And that hits the nail. Risk taking is the oxygen of any development.

The current risk adverse risk weighted capital requirements for banks that assigns a risk weight of 0% to the Sovereign, 20% to any AAA rated corporation, 35% to residential mortgages and 100% to the unrated citizens, like those entrepreneurs on whom a nation’s strength depends on, is the perfect recipe for a secular stagnation.

God make us daring!

@PerKurowski

It is the run of banks to what is perceived, decreed or concocted as safe that is scary

Sir, you opine: “If there was ever a moment for bankers to take on too much risk, thereby planting the seeds of a nasty downturn, it is now”, “The unsettling return of bullish investment banks” June 18.

Given current regulation a more exact phrasing of “to take on much risk” would be “to build up risky exposures to assets that are perceived (houses), decreed (sovereigns) or concocted (AAA rated securities) as safe against the least capital possible” 

When you write: “there are other indications of a cyclical top. Assets remain expensive worldwide, and in the US business confidence is at a peak, unemployment is very low and tax cuts have delivered a big fiscal stimulus”… you are describing a world in which the regulators with their risk weighted capital requirements, more than warning the banks are spelling out a go ahead. Their countercyclical capital requirements when leaving in place the distortions of risk weighing are a joke. 

Bank crisis never result from exposures to what is ex ante perceived as risky but only from exposures to something perceived as safe. By allowing those risky sized exposures to build up against especially little capital, the regulators have set bank crises on steroids.

The regulator’s tiny countercyclical capital requirements are, when leaving in place the distortions of risk weighing, just a joke. 

If only banks went for much more of the truly “risky”, like loans to entrepreneurs or SMEs. Those exposures would of course also be hurt in a crisis but, meanwhile, they could at least help our economies to move forward in a more dynamic way. Risk-taking is the oxygen of development. God make us daring!

@PerKurowski

If the west insists on autocratic regulatory intervention of its banks, then it is not much different from China

Sir, Martin Wolf writes: “The west let its financial system run aground in a huge financial crisis. It has persistently under-invested in its future. The west needs rejuvenation. It cannot rejuvenate by copying the drift towards autocracy of far too much of today’s world. It must not abandon its core values, but make them live, once again. It must create more inclusive and dynamic economies” “The challenge of Xi’s Leninist autocracy”

Indeed, but what that west in which we used to sing psalms like “God make us daring” has done, is to allow autocratic regulators, with their risk weighted capital requirements for banks, to put the natural risk aversion of our bankers on steroids.

If we do not allow our banks to compete freely without this type of autocratic intervention we are not that different from China.

Sir, frankly, does the west really need to allow its banks to earn higher risk adjusted returns on equity when lending to sovereigns, or to AAA rated, or on house mortgages, than when lending to its SMEs and entrepreneurs? I would have to say “NO!”

@PerKurowski

Canada needs a Universal Basic Income, 1st class robots and the smartest artificial intelligence, and to be daring

Sir, as a Venezuelan I am so lucky and so grateful for having two of my daughters and my two granddaughters living in Canada; and so of course I gave special attention to Tyler Brûlé’s “My plan to make Canada great again” September 31.

Except perhaps for that of “some form of national service with both defence and civilian functions”, and which because of my Swedish connections rang a bell with me, his other proposals left me quite indifferent.

I would instead suggest the following three things.

1. To prepare itself for the possibility of structural unemployment that could cause a breakdown of social order. This will probably require the introduction of a modest Universal Basic Income, a social dividend, and not paid by taking on more debt.

2. To gather all possible brain power in order to guarantee that future Canadians live surrounded and served by 1st class robots and the smartest artificial intelligence possible. Thinking of mine being dependent on anything lesser is just too horrible.

3. To immediately get rid of the risk weighted capital requirements for banks. These have banks staying away from financing the “riskier” future, like SMEs, and just keeping to refinancing the “safer” past, or basements in which to live. Risk taking is the oxygen of any development. God, make Canada daring!

PS. On Bombardier the following was my pro-Nafta tweet: “The fundamental question: Would Boeing build better airplanes in the future with or without competition from Bombardier? Keep the pressure!”

@PerKurowski

The risk-aversion in risk-weighted capital requirements for banks’ dooms our economies to a slow but certain decline

Janan Ganesh writes: “There is such a thing as bad stability. Gradual decline is its most insidious form… It is the toll paid in decades, not moments, that promises the worst”, “Britain faces a stable path of relative decline”, September 5.

Sir, what can I say? Except for… that does not apply exclusively to Britain.

I have sent you literally thousands of letters reminding you of that risk-taking is the oxygen of any development… and that we in the Western world progressed, among other, because we knew that in our churches we had to implore “God make us daring!”

As well as literally thousand of letters explaining how current risk weighted capital requirements stops banks from financing the riskier future, keeping these to only refinancing the safer present.

Just as an example, in Martin Wolf’s Economist Forum, on October 9, 2009, I published an article titled “Please free us from imprudent risk-aversion and give us some prudent risk-taking” It ended with:

“Dear baby-boomers, there is a world out there that needs a whole lot of risk-taking in order to stand a chance of a better future; a world which does not want to lay down and die in tranquility, just yet.”

Sir, when will you, without fear and without favor, dare to recognize this?

@PerKurowski

If I’d given Trump’s speech in Warsaw about the Western civilization, I would have given it a totally different spin.

Sir, Martin Wolf writes: “Development is a moral cause” “A clash of civilisations or community?” July 12.

Absolutely! And so it is immoral to promote risk aversion when knowing, as we should know, that risk-taking is the oxygen of development. If I were Trump the following would be my speech with relation to Western civilization:

“The fundamental question of our time is whether the west has the will to survive. Do we have the confidence in our values to defend them at any cost?” Do we have the willpower to stop regulators who tell our banks not to finance our young’s future, as that’s too risky, and instead earn their returns on equity by refinancing their parents’ past and present as that’s safer? Where did we lose that which made us sang in our churches “God make us willing”? And when did we give up on the citizen, risk weighting them 100%, so as to place all our trusts in governments, risk weighing our sovereigns 0%?”

Sir, Martin Wolf once told me I had an obsession against the risk weighted bank capital requirements of the Basel Committee. I confess. I do. But he himself now displays having fallen victim to that obsession a la mode that is to be against Donald Trump, as if getting rid of Trump would normalize our world.

It is so much an obsession that he like many argues that Trump’s abandonment of the wishy-washy, photo-ops, green profiteering lobbied Paris agreements, will de facto be what causes the extinction of our planet, as we know it. Its crazy!

Wolf explains “plutopopulism”, the possible source of a “clash of civilisations”, as the natural consequence of high inequality. There I agree! But the recent high inequality that is registered, for instance in the USA, is the direct consequence of QEs and alike kicking the crisis can down the road, while maintaining regulatory distortions that favor the Sovereign, the AAA-risktocracy and the ownership of houses. And on that Wolf keeps mum!

And clashes of civilization, worse than global, domestic ones, will be the result if we do not prepare in time to hinder that breakdown of social cohesion that will result from a growing structural unemployment. Sir, we need, urgently, worthy and decent unemployments. How? A Universal Basic Income seems to be a logical start.

At the end of last decade I shared much the concerns of Martin Wolf, seemingly not any longer. Why? When Wolf writes: “the west contains far too small a proportion of humanity to lay any moral claim to global management”, I am saddened. Our morality is not to be dictated by majorities.

I am born in Venezuela, educated in Sweden, worked in Venezuela, live in Washington and have Canadian grandchildren. I feel globalized and sure I cannot be defined either as a reactionary or as a chauvinist by my way or life. But, to hold as Wolf does, that “Terrorism is just a nuisance” that “could poison relations with 1.6bn Muslims worldwide”, makes it absolutely clear to me that, for better or for worse, I will never be as globalized as Martin Wolf. When and why did he so completely jump off the Western Judean-Christian civilization?

Yes, “Nazism was an existential threat”, within the Western Judean-Christian civilization. Thank God it was defeated, with the Western Judean-Christian civilization’s forces and convictions. 

@PerKurowski

No Ms. Tett! It was bank regulators clear lack of testosterone that caused the 2007 crisis and the current slow growth

Sir, Gillian Tett seems to argue that the 2008 bank crisis resulted from excessive testosterone. “Traders on a hot streak risk a double fault”

Not so Ms. Tett! I do not if he really said it but Mark Twain has been attributed opining that bankers lend you the umbrella when the sun shines and want it back as soon as it looks it could rain.

And never ever has there been a bank crisis caused by excessive exposures to something perceived as risky when placed on banks’ balance sheets.

But that did not stop scared lack of testosterone bank nannies to also require banks to hold more equity when lending to the risky than when lending to the “safe”.

So what happened? As banks earned much higher risk adjusted returns on the safe they could not resist the AAA rated securities backed with mortgages to the subprime sector, or sovereigns like Greece. And so a typical bank crisis, that of excessive exposures to what was ex-ante perceived as safe but that ex post turned out very risky ensued. In this case made specifically worse, by means of the lower equity banks had been authorized to maintain. For example in the case of the AAA rated securities Basel II, because of the standardized risk weights, banks were required to only hold 1.6% in capital, meaning an authorized leverage of 62.5 to 1. 

And since banks now find it harder to earn higher risk adjusted ROEs on more capital, they have abandoned lending to risky SMEs and entrepreneurs, those who open up roads on the margins of the economy, and so of course slower economic growth results.

The lack of testosterone is not a fundamental value of the Western civilization. On the contrary in churches we sometimes sang, or at least used to sing, “God make us daring!”

@PerKurowski

God, help my descendants live out of reach of high priests of complacency, like Basel Committee’s bank regulators

Sir, Martin Wolf writes: “China can help give Mr Trump what he wants. The US president wants greenfield industrial investments in parts of his country damaged by deindustrialisation. This can never be reversed. But Mr Xi can surely find Chinese businesses happy to invest in the US. Mr Trump likes such announcements. Mr Xi should help him.” “An odd couple doomed to co-operation” March 22.

What? Is the future wellbeing of America now beholden to China? Would Wolf really like this opinion of his to be quoted during a Trump rally?

If I were to give a recommendation of how to promote any type of greenfield investments in America, I would start with, of course, by telling America to get rid of those disastrous risk weighted capital requirements for banks that orders complacency with what we have, and de facto blocks bank lending to whatever smells as risky unknown future.

That regulatory risk aversion, which so odiously discriminates access to bank credit in favor of “the safe”, like the sovereign, the AAArisktocracy and residential housing; and so disfavoring the lending to risky SMEs and entrepreneurs… has no place in any country that wants to build future… much less in one that prides itself of being the Home of the Brave.

But there is much more to it.

On March 10, in “British business is starting to look more Italian” Martin Wolf drowned us in growth projections statistics that most probably are not based on an acceleration of any of those profound economic changes the world is going through. Sir, I wrote you a letter commenting on that.

On March 14, Wolf discussed the horrors of bilateralism and the blessings of multilateralism, trade agreements and globalization, reminding us of oldies like the Marshall Plan, “The folly of bilateralism in global trade”.

Today it is China and America, with Wolf referencing the “reform and opening up” proposed in 1978 by Mao Zedong’s successor, Deng Xiaoping.

Sir, about a month ago I had the chance to visit a wonderful small regional museum in Sweden, the Blekinge Museum. It lies very close to my recently deceased mother’s family house, in which I spent a lot of time in my youth. It was a shocking and a humbling experience. It was not a museum of very old times gone by; it was a museum of so much of my (1950), (and Wolfs) times gone by.

Images of heavy horses pulling carriages full of hay, Olivetti accounting machines, telephone exchanges with hundred of cables, old bicycles, wrinkled by rough seas rowing boats, and hundred similar items that I have lived with, but that mostly no longer exists, and are much less used, shouted out… “Per, what on earth do you know about tomorrow… what does anyone know?”

Coming out of the museum, more than ever, I felt like praying “God make us daring”; or at least God make my children, grandchildren and their descendants daring, so that they are not among the so many to be left behind… doomed (by automation and robots) to end up like the heavy horses of my time. God let them live free of that complacency Tyler Cowen writes about in “The Complacent Class”… faraway from the high priests of complacency.

And as for me, and as for Martin Wolf, as economists, as citizens, as parents and grandparents, if we only look back, and do not do our utmost to imagine what lies around the corners of tomorrow then, like old soldiers (and heavy horses) we might perhaps better fade away.

Does all what we older have lived not mean anything for the young? Of course it should signify a lot… but much more in terms of wisdom, than in terms of knowledge.

@PerKurowski

Gillian Tett, a functional bank system is a much more powerful instrument of change than a violin, even if Joe’s

Sir, Gillian Tett writes beautifully about “Joe’s violin… an instrument soaked in 20th-century immigrant memories was launching a new 21st-century immigrant dream, forged with struggle, risk and hope”, “An instrument of change” February 24.

But 20th-century immigrants, when needing the opportunity of bank credit, though they of course had to confront that risk aversion described by Mark Twain with “bankers lend you the umbrella when the sun is out and want it back when it looks like it could rain”, they did not have to face risk weighted capital requirements for banks.

So Ms. Tett should reflect on the possibility that had a Joseph Feingold’s livelihood depended on receiving the chance imbedded in a bank credit, in the 21st century, he might have needed to part with the violin bartering it for something more useful, and would never have had the chance to donate it.

Our future is to be “forged with struggle, risk and hope”. Yes indeed Ms Tett, “God make us daring” and save us from loony technocrats.

@PerKurowski

Little is as imprudent as the risk-adverse risk weighted capital requirements for banks.

Sir, Amar Bhidé writes: “Sweden’s Handelsbanken is an exemplar of prudence… The target loan loss ratio is zero; low loan losses, in turn, allow the bank to offer competitively priced loans and personalised service to creditworthy customers.” “Easy money is a dangerous cure for a debt hangover” August 17.

That is NOT exemplary prudence. “A target loan loss ratio of zero”… might allow “to offer competitively priced to creditworthy customers” but it will clearly not offer sufficient opportunities of credit to the not so creditworthy, which includes too many risky SMEs and entrepreneurs, those that could help provide the proteins the economy needs to move forward, in order not to stall and fall.

The truth is that in the medium and the long term, the creditworthy are more benefited by the banks taking more risks on the not creditworthy, than by just getting low priced loans.

However Bhidé also qualified it with: “prudent case-by-case lending also undermines the stimulative effect of the loose money unleashed by central bankers [because] Experienced financiers will not lend more to less worthy borrowers simply because of low or negative interest rate policies.”

Yes, indeed, but much more undermining of the stimulative effect of loose money is caused by the risk weighted capital requirements for banks… those which require Handelsbanken to hold more equity when lending to someone perceived risky, than when lending to someone perceived safe. Those that result in Handelsbanken earning higher expected risk adjusted returns on equity when lending to someone perceived, decreed or concocted as safe, than when lending to someone perceived as risky. Those that cause “small and medium-sized businesses have been left behind”.

Bhidé opines: “What the Fed and other central bankers can — and should — be held responsible for is prudent lending by banks”

Absolutely, I totally agree! But “prudent lending” means guaranteeing the economy sufficient risk taking by the banks; and knowing that, contrary to what current regulators believe, major bank crises are never caused by excessive exposures to something perceived risky, these are always caused by excessive exposures to something perceived as safe when placed on their balance sheets.

Sir, Handelsbanken is a Swedish bank, somehow it seems to have completely forgotten that in Swedish churches we all sang “God make us daring!”

PS. Bhidé writes that central bankers “base their assessment of risks, and of what would have happened without their intervention, on models whose mathematical sophistication hides a primitive representation of finance and the economy.” 

That is correct. In October 2004, as an Executive Director of the World Bank, I formally warned: “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.” Sir, how many spoke out that clear at that time?

@PerKurowski ©

Pray the Paul Romer/World Bank union realizes the dangers of regulatory risk-aversion and the benefits of risk-taking

Sir, I refer to the appointment of Paul Romer, one of the pioneers of “endogenous growth theory”, as the new chief economist of the World Bank, “The World Bank recruits a true freethinker” July 24.

Hopefully the Paul Romer/World Bank link could help both sides realize that risk-taking is the oxygen of any development, and so that then they could both push against the silly risk-aversion of bank regulators, that which only causes safe-havens to become dangerously populated, and risky-bays dangerously unexplored.

From what I have read the vital willingness to take risks is not included in Romer’s vision of endogenous growth; and I myself have failed miserably in convincing the World Bank, the world’s premier development bank, to stand up against bank regulators, the Basel Committee and the Financial Stability Board, as well as the IMF… though God knows how I tried… even as an Executive Director of the World Bank 2002-04.

“A ship in harbor is safe, but that is not what ships are for.” John A Shedd, 1850-1926

God make us daring!

PS. I dare you all to have a look at some of the mind-blowing mistakes of current bank regulations.

@PerKurowski ©

#1 Macro-prudential rule is never take for granted those in charge, like bank regulators, know what they are doing

Sir, Richard Milne quotes Stefan Ingves with “sailing a small boat on the ocean: it’s good if you know how to sail.”, “Riksbank head warns on tools to tackle crises”, September 14.

But let us not forget that Stefan Ingves is the current chairman of the Basel Committee, and as such, we could presume he agrees entirely with the current risk-weighted capital requirements for banks. In essence that regulation implies the following:

The better things are going for some assets, and so the safer these look (like house mortgages), the less capital are banks required to hold against these, and so the more incentives do banks have to lend, and thereby make these assets look even better yet… that is until the overcrowding of those safe havens become so dangerous that the whole banking system fails.

The worse things are going for some assets, and so the riskier they look (like loans to SMEs), the more capital must banks hold against these, and so the more incentives will banks have to reduce lending, and thereby make these assets look even worse yet… that is until riskier but perhaps more productive bays are left so unexplored that the whole economy fails.

Sir, the first and most important macro-prudential rule is that of never taking for granted that those in charge of sailing the boats know how to sail. And as I have argued for years, current bank regulators, which include Mr. Ingves, have no idea about what happens out there on the real oceans… their experience might be restricted to having played with toy boats in bathtubs.

The second most important macro-prudential rule with respect to banks, and boats, is that instead of by all means trying to stop these from going under, assist these to fail expeditiously, whenever they seems to be insufficiently seaworthy.

If it were up to me, and knowing these are to cover against unexpected losses I would set the capital requirements for banks based of cyber attack or being struck by asteroids, so as not have to spell out these as based on risks of bankers not knowing how to manage perceived risks, and worse, on risks of regulators trying to manage risks.

PS. “Gud gör oss djärva” “God make us daring” is a Swedish psalm. It would do us much good if bank regulators tried to understand its message....perhaps Riskbank would be a more appropriate name than Riksbank for a nation that has prospered thanks to risk-taking and much reasoned audacity.

PS. Axel Oxenstierna, 1648: “An nescis, mi fili, quantilla prudentia mundus regatur?”, “Do you not know, my son, with how little wisdom the world is governed?”, “¿No sabes, hijo mio, con que poca sabiduría el mundo esta gobernado?”, “Vet du inte, min son, med hur litet förstånd världen styrs?” 

@PerKurowski

The problem with the Nordic model is that bank regulators have tampered with it

I refer to Richard Milne’s “Nordic model starts to creak under pressure” November 21.

Sir, suppose you were a development minister of a country like Sweden that has thrived on entrepreneurship, much of it financed by banks.

And then your bank regulator, Stefan Ingves, tells you that, in order to make the Swedish banks safer, he and his colleagues in the Basel Committee, is now going to allow banks to earn much higher risk-adjusted returns on equity when lending to those perceived as “absolutely safe”, than when lending to those perceived as “risky”.

What would you do? What should you do?

You should of course shout: “No! Over my dead body! Favoring in such a way what seems ex ante to be very safe, means that medium and small businesses, entrepreneurs and start-ups, “the risky”, will no longer have fair access to bank credit… and that is too dangerous… even for the banks.”

Unfortunately, those responsible for the economic development of most countries have not yet understood the consequences of the credit risk weighted capital (meaning equity) requirements for banks.

And so before Sweden remembers that risk-taking is the spark that ignites all development and keeps the economy moving forward, it will be stalling and falling.

And that goes of course for all countries that find themselves under the thumb of senseless bank regulators.

God make us daring!

FT, what Sweden most needs is to throw out its current bank regulatory Pharisees.

Sir, you write “Tactic of ‘lean against the wind’ has failed Sweden” October 30.

Sincerely, it reads like you are trying to convince yourself about feeling some schadenfreuden, with  weak arguments… and even sounding a bit besserwisser reminding us of the importance of looking at real more than at nominal interest rates.

And you even dare to speak of some have “been handed a clear defeat” when you must know that the real economy, the real jury, is still deliberating all around the world, without reaching any kind of clear consensus on what is to be done.

But it is when you argue: “The trade-off between safer debt levels and lost growth was not worth it” that, for the umpteenth time, I need to ask you… is the trade-off between (the illusion of) safer banks and lost growth really worth it?

Sweden is a small country blessed with immense entrepreneurial spirit, so much that even socialists regimes have been wise enough to nurture it. And, in this respect, it is one of those most hurt by that silly risk aversion that has been introduced in its banking system, by means of Basel Committees’ risk-weighted capital/equity requirements… which precisely discriminates against the fair access to bank credit of SMEs and entrepreneurs.

In Swedish churches, psalms pray for “God make us daring”, while some un-elected bureaucrats dedicate themselves to castrate and de-testosterone its banks.

And that is why Sweden also needs, urgently, a psalm that prays for its current bank regulatory Pharisees to be thrown out!

On risk-weights for banks when financing houses vs. jobs, regulators do not answer, though stiff upper lips starts to wobble.

Sir, Stefan Ingves and Per Jansson, of Sveriges Riksbank, respond quite strongly against some criticism made by Wolfgang Münchau of the monetary policy in Sweden, “Monetary policy has had positive results in Sweden” July 24. 

In their letter they mention that Sweden has been doing relatively fine in terms of reducing unemployment but that household debt and house prices have increased and “create risks of financial instability with serious macroeconomic consequences”.

Although my mother is from Sweden and lives there, I know little about its monetary policy but, since Stefan Ingves is the current chairman of the Basel Committee, and Münchau now has him on the line, would it not be great to ask him the following?

Mr. Ingves the risk-weights for defining the capital requirements for banks for house mortgages is 15% (I have heard some rumors about an increase to 25%) and the risk-weight for lending to an SME is 100%. Does it really make sense allowing banks to leverage 667% more times when financing houses than when financing the creation of the next generations of jobs… meaning banks can obtain a 667% higher risk adjusted return on their equity when financing houses than when financing the creation of the next generations of jobs? Do you not think this distorts the allocation of bank credit in the economy? 

Since jobs seem more important than houses, and SME’s have never caused a bank crisis, which house financing has certainly done, why not the other way round?

Sir, when I have asked bank regulators from many countries a similar question their usually stiff upper lips have begun to wobble… but I have not been able to extract an answer from them. Perhaps Wolfgang Münchau could have more luck.

PS. Remind them of a Swedish psalm... "God make us daring!"

Europe needs energy, indeed, but more than electricity human energy, that which is propelled by risk taking.

Sir, Leif Johansson, the chairman of Ericsson and Astra Seneca, when urged by the FT to pick out one issue that needs to be addressed to make Europe more competitive, suggests: “energy; both security of supply but also energy competitiveness especially versus the US”, March 31.

I would agree but, instead of energy represented by electricity, which is what Johansson refers to, I would argue for the need of more human energy… that which is driven by the willingness to take risks.

That human energy is currently being killed by regulations which allow, in Europe more than anywhere else, banks to earn higher risk adjusted returns when lending to the “infallible sovereigns” and the AAAristocracy, than when lending to the “risky” medium and small businesses entrepreneurs and start ups.

Leif Johansson should remember that in the churches of Sweden psalms were often sung imploring “Gud gör oss djärva”, “God make us daring”.

Right now banks in Europe are not financing the risky future, they are just refinancing the safer past… and that Europe, is no way to go.

Janet Yellen: Basel II-III risk-weighted capital requirements do not make banks finance the future, only refinance the past

Sir, Robin Harding congratulating Janet Yellen for her appointment to chair the Fed gives her some “unsolicited advice” in “A memo to the world’s most powerful economist”, October 12.

And so would I like to do. But, as Harding says, since Yellen must now be extremely busy receiving millions of unsolicited advices, I have given long thoughts to how I could condense, in a single tweet short phrase, all of my arguments against that horrible and stupid bank regulation mistake which unfortunately survived Basel II and made it into Basel III.

The title of this is what I came up with. Anyone with better ideas… please!

God make us daring!

PS. On this October 12, may I remind you that risk-weighting, is precisely the kind of regulations that stops an America from being discovered.

Tony Barber. No! Hercules would want to have nothing to do, with most of the “eurozone´s crisis-fighters”

Sir, Tony Barber holds that “Fixing the eurozone is a labour worthy of Hercules” October 10, and that, “If he were alive today, Hercules would have much sympathy with the eurozone´s crisis-fighters”. I very much doubt it!

First Hercules would now that fixing the eurozone will be the labour not of big time hero stars like him, but of millions of citizens, “The Risky” toiling away in medium and small businesses, and as risk-taking entrepreneurs.

Second, he would have little sympathy with the eurozone´s crisis fighters because in essence these include precisely those who believed themselves to be Hercules and decided they could, with risk-weighted capital requirements, manage the risks for all of the banks in the eurozone… and caused its crisis.

Mario Draghi, for example, as Chairman for many years of the Financial Stability Board, the only herculean lifting he helped doing, was lifting the bank leverages to the sky, for instance by finding it perfectly normal that banks from all over Europe, including little Cyprus, could lend to the Greek government holding only 1.6 percent in capital, in other words leveraging their bank equity 62.5 times to 1.

Instead Hercules would suggest allowing the capital requirements for banks, on exposures to “The Risky”, to be the same, or even slightly less, than on exposures to “The Infallible”.

And this because he would understand that regulators should not react to the same ex ante perceived risks that the banks have already reacted to, with interest rates, size of exposures and other terms.

And this because he would understand that, you cannot afford bank regulations which hinder the risk-taking necessary to win any war. Europe will not survive if European banks, for senseless regulatory reasons, end up holding only sovereign debts, even if all that is German debt.

And what do I mean with “Or even slightly less capital”? Yes because “The Risky” never ever poses any real systemic threat to banks, only the false members of “The Infallible” do that.

Europeans… go and pray in your churches, “God make us daring!” and then throw out those impostors who want you to believe them Hercules.

Much of our nations’ “desire and dreams” were killed in the laboratories of bank regulators

Sir, Luke Johnson quotes Professor Edmund Burke, from his book “Mass Flourishing” believing “that the ‘glorious history of desire and dreams’ has run out of steam”, “The small start-ups are as vital as the starts” August 28.

Of course it has. How could it not, with bank regulators who allow banks to finance the “absolutely infallible”, the AAAristocracy, against much less capital than when lending to the small risky start-ups… and which means that the banks will earn a much higher risk adjusted return on equity when lending to the former, than when to the latter.

As I had the opportunity to do in a letter yesterday I would also suggest Luke Johnson to compare today’s banking with how, in Mary Poppins, Mr. Banks and his colleagues describe their Fidelity Fiduciary Bank

If you invest your tuppence, wisely in the bank, safe and sound

Soon that tuppence, safely invested in the bank, will compound

And you'll achieve that sense of conquest, as your affluence expands

In the hands of the directors, who invest as propriety demands

You see, my friend. You'll be part of railways through Africa.

Dams across the Nile. Fleets of ocean greyhounds.

Majestic, self-amortizing canals. Plantations of ripening tea

All from tuppence, prudently, fruitfully, frugally invested.

We used to pray for in our churches “God make us daring!” Clearly our bank regulators never attended mass.