They inject loads of liquidity, keep interests ultra-low and distort bank credit… and then they call the system results, systemic risks

Sir, Colby Smith reports “the booming $1.3tn market for leveraged loans — or those extended to highly indebted companies that are then packaged up and sold to investors as bonds — has faced a tide of criticism from central bankers and financial watchdogs. Former US Fed chair Janet Yellen warned of the “systemic risk” rising from the loans.” “Systemic risk fears intensify over leveraged loan boom” October 30.

Smith quotes Douglas Peebles, the chief investment officer for fixed income at AllianceBernstein with “Investors are deathly afraid of rising interest rates so the floating rate component paired with the fact that these loans have seniority over unsecured bonds set up an easy elevator pitch to buyers that may not be fully aware of the risks”

Why are investors deathly afraid of rising interest rates? Clearly because the rates being so low for so long, paired with huge liquidity injections has built up a mountain of fix rate bonds that few dare touch; except those who by means of lower capital requirements are given strong incentives to go there, like banks and insurance companies.

In this respect “the booming $1.3tn market for leveraged loans” is not a systemic risk but a system result. That regulation that increases the exposure of banks and insurance companies to long term fixed rate bonds, and thereby increases the interest rate risk, that is a real systemic risk. The problem though is that central bankers and regulators will never want to understand they are the greatest generators of systemic risks… as Upton Sinclair said “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

@PerKurowski

Banks now invest based on the risk-adjusted yields of assets adjusted for allowed leverages; that distorts the allocation of credit to the real economy.

Sir, Lawrence Summers, when writing about the challenges Jay Powell will face as Fed chairman mentions “Even with very low interest rates, the normal level of private saving consistently and substantially exceeds the normal level of private investment in the US” “Powell’s challenge at the Fed” February 5.

Not too long ago, markets, banks included, invested based on the risk adjusted yields they perceived the assets were offering. Some more sophisticated investors also looked to maximize the risk adjusted yield of their whole portfolio.

But, then in 1988 with Basel I, and especially in 2004 with Basel II, the regulators introduced risk based capital requirements for banks. As a consequence, banks now invest based on the risk-adjusted yields adjusted for the leverage allowed that they perceive the assets offer. As banks are allowed to leverage more with safe assets, which helps to increase their expected return on equity, they now invest more than usual, and at lower rates than usual, in “safe” assets like loans to sovereigns, AAA rated and mortgages. And of course, banks also invest less than usual, and at even higher rates than usual, in loans to the “risky” like entrepreneurs and SMEs.

That has helped to push the “risk free” down, and also explains much of the lowering of the neutral rate. Since the regulators now de facto block the channel of banks to the “risky” part of the economy, there is a lot of private investment that simply is not taking place any longer.

It is sad and worrisome that neither the leaving Fed chairman, Janet Yellen, nor the arriving one, Jay Powell (nor Professor Summers for that matter) can apparently give a clear direct and coherent answer to the very straight forward questions of: “Why do regulators want banks to hold more capital against what’s been made innocous by being perceived as risky, than against what’s dangerous because it’s perceived as safe? Does that not set us up for slow growth and too-big-to-manage crises?

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

@PerKurowski

Ms. Janet Yellen, like other recent bank regulators who have just faded away, will leave the Fed without answering THE QUESTION

Sir, you write: “The Federal Reserve can take some blame for failing to see risks building up in the years preceding the global financial crisis. But perhaps more than any other major policymaking institution in the world, the Fed has acquitted itself well in the decade since”, “The unfortunate exit of an exemplary Fed chair”, November 29.

As you might suspect, I profoundly disagree. The Federal Reserve has yet not understood (or has been willing to acknowledge it) the fact that the “risks building up in the years preceding the global financial crisis” were a direct consequence of the distortions introduced by bank regulations, primarily Basel II, 2004.

If you allow banks to leverage almost limitless when lending to sovereigns, (like European banks lending to Greece); when financing residential housing; and over 60 times to one just because a human fallible rating agency has issued an AAA rating, that crisis, just had to happen.

And since capital requirements for banks have remained higher for what is perceived as risky than for what is perceived, decreed or concocted as safe, that odious distortion wasted most of the stimulus quantitative easing and low interest could have provided.

Over the last decade, how many SMEs and entrepreneurs have not gained access to that life changing opportunity of a bank credit, only because of these odiously discriminating regulations? Who can believe that America would have been able to develop as it did, if these regulations had been in place since the time of the pilgrims?

And now Janet Yellen, like other regulators have done in the recent past, will leave the Fed without answering us why banks should hold the most of capital against what is perceived as risky, when it is when something perceived very safe turns out very risky, that one would really like banks to have the most of it.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

Sir, thanks for all the help you have given me over the last decade, forwarding that question without fear and without favour.

@PerKurowski

Leonardo da Vinci, smiling, must be harboring great gratitude to the Fed and ECB for helping his Salvator Mundi to become so highly valued.

Sir, I refer to Josh Spero’s and Lauren Leatherby’s “Record price sparks hunt for Da Vinci painting buyer” November 17.

Surely Leonardo da Vinci wherever he find himself must be smiling and extending his deepest gratitude to Fed’s Janet Yellen and ECB’s Mario Draghi for their QEs and ultra low interest rates. That has allowed him see his Salvator Mundi valued at US$ 450 million much earlier than he could have expected.

And Janet Yellen and Mario Draghi and their colleagues must surely be smiling too. Since Dmitry Rybolovlev bought that painting in 2011 for $127.5m, its current price hints at being successful at reaching an inflation rate target they never dared dream of.

The art curious still do not know who the buyer is, but be sure the redistribution profiteers are also looking after these US$ 450 million to find out how that money escaped their franchise.

Since the latter will surely soon again be talking about inequality I take the opportunity to advance my usual question of: How do you morph such a valuable piece of art into street purchasing power again; that can be used for food and medicines, without the assistance of another extremely wealthy?

@PerKurowski

President Trump, Yellen could deserve a second term at the Fed’s helm, as long as she passes the following test.

Sir, you hold that based on “the three most important counts — views on monetary policy, attitude to financial regulation and Fed independence”, Janet Yellen is a better choice than Kevin Warsh, Gary Cohn and Jerome Powell to serve as Federal Reserve chair. “Yellen deserves a second term at the Fed’s helm” October 5.

You might be right, but if it was me who counseled President Trump in these matters, I would suggest he puts the candidates up to the following initial screening test:

Fact: Banks are allowed to leverage more with assets considered safe, like loans to sovereigns, the AAArisktocracy and mortgages, than with assets considered risky, like loans to SMEs and entrepreneurs.

So ask the candidates:

Does that mean “the safe” have even more and easier access to bank credit than usual; and “the risky” have even less and on more expensive terms access to bank credit than usual?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

Do you think that might dangerously distort the allocation of bank credit to the real economy?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

In terms of what can pose the greatest risk to the bank system, would you agree with Basel II’s risk weights of 20% for what is rated AAA to AA and 150% for what is rated below BB-?

If the answer is yes, disqualify the candidate.

If the answer is no, then ask: 

Do you agree with a 0% risk weighting of sovereigns?

If the answer is yes, the candidate should be classified as an incurable statist, not independent at all, and accordingly dismissed.

If the answer is no, President Trump could proceed applying any other criteria he wishes.

The way the world looks, being a lucky person seems a quite valid one.

PS. How many of those currently in the Board of Governors of the Federal Reserve System, would pass this test?

@PerKurowski

Crony capitalism, which is really crony statism, includes many crony relations with central banks and bank regulators

Sir, Mohamed El-Erian writes about Jackson Hole meetings 2017: “The symposium left open questions for markets that, given very profitable adaptive expectations, are conditioned to rely on central banks to boost asset prices, repress financial volatility and influence asset class correlations in a way that rewards investors and traders more.” “Yellen and Draghi had good reason for Jackson Hole reticence” August 29.

So instead of relying on the real economy, Mohamed El-Erian, and I presume all his colleagues operating in the financial markets, rely more on what central banks do.

That is so sad, especially since the risk weighted capital requirements for banks, hinders all central bank stimuli to flow where it should. We now have buyback of shares, dividends financed with low interest rate loans, house prices going up, but SMEs and entrepreneurs not getting their credit needs satisfied because the regulators feel these are "Oh so risky!"

El-Erian reports: “Janet Yellen, chair of the US Federal Reserve, and Mario Draghi, president of the European Central Bank — [told] politicians about the importance of financial regulation”

That only happens because politicians have not dared to ask regulators questions like:

Who authorized you to distort the allocation of bank credit in favor of those perceived, decreed and concocted, as “safe”, like sovereigns and AAArisktocracy, and away from the “risky”, like SMEs and entrepreneurs?

Where did you find evidence that those perceived as risky ever caused major bank crisis? As history tells us, these were always, no exceptions, caused by unexpected events, like those ex ante perceived as very safe turning up, ex post, as very risky. 

PS. Do bankers love these crony relations? You bet! Being able to earn the highest expected risk adjusted returns on equity on what is perceived as very safe, must be a wet dream come true for most of them. And besides, by requiring so little capital, and therefore having to serve much less any shareholders’ aspirations, there is much more room for their outlandish bonuses

@PerKurowski

Janet Yellen, Mario Draghi, ask IBM’s Watson what algorithms he would feed robobankers, to make these useful and safe

Sir, Sam Fleming reporting from Jackson Hole writes “Janet Yellen, the Federal Reserve chair said regulatory reforms pushed through after the great financial crisis had made the system “substantially safer” and were not weighing on growth or lending. … If the lessons of the last crisis were remembered “we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly”, “Yellen warns opponents of tighter financial rules to remember lessons of crisis” August 26.

As I see it Yellen has not yet learned at all that past and future financial crisis have not, nor will ever, result from excessive exposures to what was or is perceived as risky, these will always result from unexpected events, like when that was perceived, decreed or concocted as very safe, turned out ex post to be very risky.

Since regulators do not to want listen to anything else but their own mutual admiration net-works’ risk biases, I wish they would contract IBM’s neutral Watson to ask it the following:

Watson, while considering the purpose of banks as well as the real dangers to our financial systems, what algorithms would you suggest feeding robobankers with?

THEN Yellen, Draghi and colleagues should compare that algorithm with what they are feeding the human bankers with; the portfolio invariant risk weighted capital requirements that assumes that bankers do not see or clear for risks by means of size of exposure and risk premiums charged.

Then these regulators would understand that with their over-the-board incentives for banks to invest or lend to what is safe, like AAA rated securities and sovereigns, like Greece, they are in fact creating those conditions that dooms banks to suffer huge crises, sooner or later, over and over.

Then these regulators would understand that their regulations induce banks to stay away way too much from lending to what is perceived risky, like SMEs and entrepreneurs, something which clearly must weigh heavy against the prospects of our real economy to growth.

Janet Yellen, Mario Draghi, please ask Watson! Perhaps you could find him on LinkedIn 😆

@PerKurowski

Free our economies from risk weighted bank capital requirements; foremost from the 0% risk-weighting of sovereigns

Sir, you write about the “US Federal Reserve and the European Central Bank, facing the relatively pleasant task of withdrawing stimulus after years of good economic growth.” “The Fed ponders the fractious politics of debt” August 25.

Sir, may I ask you, do you really think the economic growth we have seen could be qualified as good considering the immense stimulus given through QEs and low interests? If the growth had really been consistent with the amount of stimulus given we wouldn’t have these qualms about reducing central banks’ “swollen balance sheets”, would we?

And then you favour Janet Yellen and Mario Draghi with, “ECB and the Fed are fortunate in being headed by two competent policymakers”. I do not agree with your assessment. Both of them, when it comes to regulating banks, which is something they do, are simply clueless.

First: Basel II, for the purpose of capital requirements for banks, assigned a risk weight of 20% to what is rated AAA and one of 150% to what is rated below BB-. That clearly assumes that the ex ante perceptions about risks are not cleared for in any way, and that these would therefore be indicative of the ex post risks. That is plain stupid and those unable to understand that are not qualified to regulate our banks.

Second: Sovereign debts have been zero risk weighted while unrated citizens have been assigned a risk weight of 100%. That is unauthorized regulatory back door statism that subsidizes governments’ access to credit, and which is paid for by taxing, for instance SMEs and entrepreneurs, with in relative terms much less and much more expensive access to bank credit.

Third: Those who cannot understand that the risk-weighted capital requirements hinders the efficient allocation of credit to the real economy; and therefore its distortions wastes much if not all of any stimulus, should not have anything to do with QEs.

Fourth: Those who to the “swollen balance sheet built up by quantitative easing”, refuse to add the sovereign debt and the reserves held in central banks that are a direct function of preferential risk weighting, do not understand the magnitude of the difficulties we are facing.

Sir, day by day our banks, thanks to regulators, are dangerously overpopulating more and more whatever perceived, decreed or concocted safe havens there are. Equally dangerous for our real economies, they keep on underexploring the risky bays that could contain the real factors that could help us to a better future, or at least not a much worse one.

Sir, your steadfast silence on these regulatory failures seems to evidence complicity.

@PerKurowski

It is in our best interest to keep Yellen, Draghi and other failed regulators out of tackling financial instability

Sir, I refer to Sam Fleming’s and Claire Jones “Yellen to tackle financial stability at Jackson Hole” August 24. Is the title a Freudian slip? Does “tackle” not refer to a problem, such as financial instability?

I argue that since Yellen, as part of that bank regulatory brotherhood that with risk weighted capital requirements for banks helped to cause financial instability, is simply not capable enough to help out achieving financial stability.

The idea of requiring banks to hold less capital (equity) against what is perceived, decreed or concocted as safe, like sovereigns, the AAArisktocracy and residential houses, than against what is perceived as risky, like SMEs and entrepreneurs, is absolutely cuckoo.

That means that when banks try to maximize their risk adjusted return on equity they can multiply (leverage) many times more the perceived net risk adjusted margins received from “the safe” than those from “the risky”. As a result clearly, sooner or later, the safe are going to get too much bank credit (causing financial instability) and the risky have, immediately, less access to it (causing a weakening of the real economy). 

Anyone who can as regulators did in Basel II, assign a 20% risk weight to what is AAA rated and to which therefore dangerously excessive exposures could be created, and 150% to what is made so innocuous to our banking systems by being rated below BB-, always reminds me of those in Monsters, Inc. who run scared of the children. I wish they stopped finding energy in the screams of SMEs and start using instead the laughters of these.

The report also includes a picture of some activists holding a “We need a people’s Fed”. Yes, we sure do! Assigning 0% risk weight to the sovereign and 100% to any unrated citizen is pure statist ideology driven discrimination in favor of government bureaucrats and against the people. But perhaps the activists depicted are not into that kind of arguments. 

Draghi and Yellen might discuss problems associated to ECB’s and Fed’s large exposures to sovereign that their QEs have caused. If they were honest about the size of the problem, they should in the same breath include all sovereign debts and excess reserves held by banks only because of a 0% risk weight. Sir, if that’s not financial instability in the making what is?

PS. Those in Monsters Inc. all finally figured it out. Our bank regulators in the Basel Committee and the Financial Stability Board have yet to do so, even 10 years after that crisis produced mostly by AAA rated securities backed by mortgages to the US subprime sector. and loans to sovereigns like Greece 😩

 

@PerKurowski

President Trump, remember Einstein’s “No problem can be solved from the same level of consciousness that created it”

Sir, Martin Wolf, in these moments of so much radical uncertainty, recommends Donald Trump to follow one don’t-rock-the-boat strategy. “Janet Yellen, and the Fed’s inflation target, should both stay” June 19. I wish I could be such an optimist to believe that would do.

If I were Trump I would like the Fed to think about how it could help to create sustainable jobs, not some kicking-the-can-down-the-road financed jobs; and about what to do with the unemployed, if they fail to reach the previous goal.

The current risk adverse bank regulations risk banks building up too large exposures to what’s perceived as safe against too little capital; and hinders the efficient allocation of credit to the real economy. So that just must go… completely!

Why should not Janet Yellen be able to do this? Well as Einstein once said: “No problem can be solved from the same level of consciousness that created it”

http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

And the structural unemployment that threatens social cohesion must be forcefully attacked before social cohesion breaks down. After, it is quite too late, as we all can see has been happening in Venezuela.

What to do? A Universal Basic Income is one useful tool of many to handle that problem with; and the revenue neutral carbon tax, the carbon dividend, seems a good source to start feeding a UBI scheme that foremost must be financed with real money… that is of course unless you really want to go down the same road as Zimbabwe or Venezuela 

@PerKurowski

When and how did the Fed, as a regulator, obtain permission to distort the allocation of bank credit in the US?

Sir, Wolfgang Münchau writes that the letter from Patrick McHenry, the vice-chairman of the US House of Representatives to Janet Yellen, the chair of the Federal “questioned the right of the chair of the Federal Reserve to negotiate financial stability rules “among global bureaucrats in foreign lands without . . . the authority to do so.” “Central bank independence is losing its lustre” February 20.

That is a perfectly valid questions that the Fed, if everything was as it should be, should be able to answer with ease in a very straightforward way.

On February 15, Janet Yellen during an interpellation by the House Financial Services Committee answered with that nothing in the international negotiations is binding on US regulatory agencies, unless it goes through a due rule making process. Does that mean like the US signing up, even promoting agreements like Basel I and Basel II, is just for show and bears little meaning?

But, McHenry’ letter or question during the interpellation would have been so much firmer and direct to the point if he had asked: 

Where did the Federal Reserve obtain the right to, with risk weighted capital requirements for banks, so fundamentally distort the allocation of bank credit to the real economy in America?

Followed up with: Where did the Federal Reserve obtain the right to come up with risk weights such as: Sovereign 0%, AAA-risktocracy 20%, residential houses 35%, We the People, like unrated SMEs and entrepreneurs 100%, and below BB-rated 150%?

Followed up with: Who authorized you to impose risk aversion in the Home of the Brave?

Followed up with: Sovereign 0%, We the People 100%: Who authorized you to impose such statism on the Land of the Free? 

That said, the US Congress should also not be allowed to claim too much ignorance about the Basel Committee for Banking Supervision and its regulations, since quite a lot of it has been publicly discussed. Therefore a letter to the House of Representatives could also ask: How come, in the 848 pages of the Dodd-Frank Act, the Basel Committee is not mentioned once?

@PerKurowski

On FT’s Patrick Jenkins’ discussion of Donald Trump’s “seven “core principles” for (de) regulating US finance

Sir, I refer to Patrick Jenkins’ discussion of Donald Trump’s “seven “core principles” for (de) regulating US finance this month”; as “decoded by a sceptic”, “Trump’s battle with red tape will hurt consumers and world” February 14.

1. “A swipe at the Consumer Financial Protection Bureau, the new body that has returned $12bn to more than 25m Americans ill-treated by financial groups.”

That comes to an average of $480 per person, which leaves open the questions of: At what cost? Should Americans because of CFPB’s feel safer and, if they do so, are they really safer? What has happened to good and useful old “Caveat emptor”?

2. “Mr Gary Cohn blamed regulatory capital requirements for a shortage of credit to the economy: “Banks do not lend money to companies . . . because they’re forced to hoard capital,” he said. Nonsense, given that equity capital is free to be used for lending.” What? Has Patrick Jenkins not yet understood how for instance requiring banks to hold more capital against “risky” SMEs than against the sovereign and the “safe” AAA-risktocracy, distorts the allocation of bank credit?

3. “There has in any case been pretty strong credit growth, about 6 per cent a year since 2012.”

Credit for what? Yes: for corporation repurchasing their shares; for more loans to “safe” sovereign; for increased automobile financing portfolios; for residential mortgages… but what about the financing of the riskier future our kids and grandchildren need to be financed?

4. “It may also be a pop at the Financial Stability Oversight Council, the only US federal body that assesses risk across banks and non-banks… disbanding FSOC, would… be dangerous”

No! All those involved with bank regulations that do not understand the fundamental reality that what is perceived as very safe, is much more dangerous to the bank system than what is perceived as very risky, should be disbanded… the faster the better.

5. “Enable American companies to be competitive with foreign groups in domestic and foreign markets. A natural adjunct of the president’s all-encompassing call for national greatness… is likely to translate into… deregulation.”

What? If banks have needed to hold the same amount of capital against loans to Greece or AAA rated securities that they needed to hold against loans to SMEs and entrepreneurs we might have had other type of crisis, but not the 2007/08 one, nor would we be suffering such lazy economic responses to all the huge stimuli doled out?

6. “be in no doubt: this president will deregulate”

If that means to take away what distorts the allocation of bank credit to the real economy then welcome, not a moment too soon. To just modify the regulations is not to deregulate, but only to neo-misregulate.

7. “Restore public accountability within Federal financial regulatory agencies”

That would be not a second too late. Not only the Federal financial regulatory agencies, but also most of the world’s bank regulators, refuse to answer some simple questions such as: Why do you assign a low 20% risk weight to the so dangerous for the banking system AAA rated, and a whopping 150% to the so innocuous below BB- rated?

@PerKurowski

Because of distortive bank regulations, current tax cuts will deliver much less growth than what could be expected.

Sir, I refer to George Magnus’ “New regime’s growth pledge poses challenge for the US central bank” December 14.

In it, like many other commentators, Magnus draws comparisons between current Trump/Steven Mnuchin economic plans, with the lowering of taxes, and the Reagan years. He find several differences, though again like most or perhaps all commentators, he ignores the fact that during Reagan years, there was no such thing as risk weighted capital requirements for banks that distorted the allocation of credit.

That regulation stops us from getting the most bang out for any stimulus, be it tax cuts, QEs, fiscal deficits, low interest rates, etc.

If adjusted for it, the Committee for a Responsible Federal Budget’s already worrying estimates would even seem too optimistic.

What is truly harrowing though, is that those distortions are not even discussed, as if these did not exist, as if these should not be named.

For instance I have been unable for more than a decade to get straight answers from the regulators to some very basic questions, zero contestability; and Sir, FT’s Establishment has also refused to ignore these questions, notwithstanding my soon 2.500 letters to you on “subprime bank regulations”

@PerKurowski

What? “Historic gamble for Yellen as Fed makes quarter-point rise” Has the world gone bananas?

Sir, “a quarter-point increase in the target range for the federal funds rate to 0.25-0.5 percent”… and that is what you title a “Historic gamble for Yellen”? Unbelievable, it sounds like a something taken out of a Bird & Fortune sketch, or a Lilliput vs Blefuscu war.

Sam Fleming writes that the “Move comes amid lacklustre global growth”. Of course, as I have explained to FT in more than 2.000 letters, there is no way to achieve anything different than lackluster global growth, if you allow banks to earn much higher ROEs on assets perceived as safe than on assets perceived as risky. Risk-taking is the oxygen of any forward movement of the economy.

As is banks are mostly refinancing the safer past and safer houses, and staying away from financing the riskier future and job creation.

@PerKurowski ©

A pro-regulation mindset blinds leftwing economists from understanding how anti-egalitarian bank regulations are.

Sir, Gillian Tett writes “Rightwing economists tend to blame government regulation for lower growth” and since she does clearly not think so, I guess she identifies with the left, “A puzzle Yellen cannot solve with a rate rise” December 4.

I blame regulations for lower growth and especially the credit-risk weighted capital requirements for banks that distort the allocation of bank credit to the real economy.

Favoring bank lending to what is perceived as safe de facto discriminates against the fair access to credit of those perceived as risky. And so inasmuch as it fosters inequality, and inasmuch as the left professes to hate inequality, leftwing economist should also oppose that regulation.

In “Money: Whence it came where it went” 1975: John Kenneth Galbraith, wrote “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own.”

The problem with leftwing economist is that their mind set is so pro-regulation they cannot fathom regulators doing any wrong, and also so against the bankers, that they blind themselves to that credit-risk weighing is as anti-egalitarian as regulations come.

@PerKurowski ©

Fed’s Janet Yellen, as a leading equal opportunity killer, has no moral right to speak about inequality.

Sir, I refer to Robin Harding’s “Yellen risks backlash after remarks on inequality”, October 18.

There we read of “the high value Americans have traditionally placed on equality of opportunity”… that “Ms Yellen’s speech was about equality of opportunity”… about “the rise in inequality using recent Fed research and then laid out four “building blocks” for economic opportunity in the US: [among these] business ownership” … and that “owning a business [was an] important routes to economic mobility.

For over a decade I have argued that forcing those who are perceived as “risky”, and who therefore already have to pay higher interests and have lesser access to bank credit, to have to pay even higher interests and get even less access to bank credit, only because regulators think banks need to hold more capital when lending to them than when lending to the “absolutely safe”, is an odious discrimination and a great driver of inequality… a real killer of the equal opportunities the poor deserve in order to progress.

And of course, let us not even think of what the Fed’s QE’s have done in terms of un-leveling the playing fields. The fact is that had it not been for how the financial crisis management favored foremost those who had the most, Thomas Piketty’s "Capital in the Twenty-First Century”, would have remained a manuscript.

Sir, to hear someone who so favors regulatory risk-aversion, daring to speak about American values, in the “home of the brave”, in the land built up on the risk-taking of their daring immigrants… is just sad.

PS. To me it is amazing how bank regulators in America can so blitehly ignore the Equal Credit Opportunity Act (Regulation B)

Janet Yellen, “normality” in the US, has it any longer anything to do with the “home of the brave”?

Sir, you hold that “Yellen charts a smooth course to normality” September 19.

Well, if normality is to have anything to do with “the home of the brave” that must mean of course getting rid of those senselessly distorting credit-risk weighted capital requirements for banks.

But, since we have not heard Yellen mentioning anything about that, I guess “normality” here means the new risk-adverse normality of the US… that which has Americans suing soccer teams for being hurt while playing or that which forces me out of the pool every hour so that they can take water quality tests… that which allows banks to earn much much higher risk adjusted returns on equity when lending to its AAAristocracy or its “infallible” government, than when lending to a so "risky” American entrepreneur.

What a pity, the world was indeed much benefitted by having the US being “the home of the brave”… let us at least hope they keep up “the land of the free” part... cross your fingers.

Would Janet Yellen be able to hear my question, if I was able to make it?

Sir, Robin Harding quotes Janet Yellen: “There are still too many people who want jobs but cannot find them, too many working part time but would prefer full-time work, and too many who are not searching for a job but would be if the labour market were stronger” “Yellen sticks to script as impatience rises”, September 18.

If I had a voice in the Federal Open MarkeT Committee, which I have not, I would have loved to have asked Janet Yellen: 

“And how many of those so affected, can we estimate to be the result of us requiring our banks to hold much much more capital, meaning equity, when they lend to medium and small businesses entrepreneurs and start ups, than what we require them to have when they lend to the Federal government or to the AAAristocracy?”

I wonder whether Janet Yellen would have even heard my question.

The squeeze between the leverage ratio, and the risk-weighted capital requirements for banks, intensifies the regulatory distortions.

Sir, Adam Posen opines that the Fed should “Keep rates low until the hidden jobless return to work” August 20.

I have not any strong opinions on where rates should be but, when Posen writes “After the global financial crisis, no one can dispute that central banks have to take financial stability into account when making policy”, then I must speak out again.

As I see it, it was precisely when trying to consider financial stability, and to that effect coming up with the risk-weighted capital requirements for banks, that regulators distorted the credit allocation of banks. And that made banks invest too much in safe assets, like for instance AAA rated securities, sovereigns like Greece, and real estate in Spain, causing a crisis; and way too little in lending to medium and small businesses, entrepreneurs and start-ups, causing joblessness.

And so for me more important than anything on the interest rate front, is eliminating the distortions that are impeding job creators to have fair access to bank credit.

And the saddest part of it all is that none of the regulators, in US and in Europe, seem to understand that while they are prudently imposing a minimum floor of capital by means of a leverage ratio, the constraints imposed by the risk-weighted minimal capital roof, become more severe and the distortions intensify… something which really kills the creation of jobs.

Are not living wills for banks’ just a nonsensical show to show off that something is being done?

Sir, Gina Chon and Tom Braithwaite report that Fed and FDIC demand better unwinding plans and are split over possible penalties “US rejects bank’s living wills” August 6.

And FT defines on its site those living wills as “Detailed plans that would enable banks to stipulate in advance how they would raise funds in a crisis and how their operations could be dismantled after a collapse”.

Frankly is not the whole concept of living wills for banks’ designed by the bankers themselves after a collapse just a show to show that the regulators are doing something?

I mean if I was a regulator, and wanted to go down that route, I would at least have a third party to look into what could be done in the case a bank passed away, and now and again confront the managers of the bank with those plans, in order to hear their opinions.

For instance there is a world of difference between a living will where the dead are going to be the own executors of the will, and one in which the dead will be dead and others will take care of the embalming.

And talking about that is it not the Fed or the FDIC that should state what contingent plan they really want… one where the bank is placed on artificial survival mode, and for how long, or one where it is sold in one piece, by pieces or even cremated?

To me it would seem that the Fed and FDIC need to give much clearer instructions about what they want those bankers currently working under the premise the bank will live on forever to do… as I can very much understand them being utterly confused.