If you finance “safe” consumption more than “risky” production, growth will come to a standstill.

John Dizard writes: “What if global income growth, or even national income growth, cannot cover the cost of servicing capital? Then the capital market machinery would have to shift into generating losses rather than returns.” “Bondholders face greater likelihood of haircuts as system goes into reverse” January 26.

Absolutely! When regulators decided that banks could hold less capital against the “safer” present than against the “riskier future”; meaning they could leverage more with the safer present than with the riskier future; meaning they would be able to earn higher expected risk adjusted returns on equity when financing the safer present than the riskier future, they ordained that to happen.

Basel II assigned a risk weight of 35% to residential mortgages, which on an 8% base capital signified a capital requirement of 2.8%, which signified an allowed leverage of 35.7 times.

Basel II assigned a risk weight of 100% to unrated entrepreneurs, which on an 8% base capital signified a capital requirement of 2.8%, which signified an allowed leverage of 12.5 times.

That allows banks to earn higher risk adjusted returns on equity financing residential mortgages than giving loans to entrepreneurs.

The consequence? Many will sit in their houses without the jobs needed to service the mortgages or pay the utilities.

@PerKurowski

What has most made houses unaffordable for many is having made these artificially affordable for many.

Sir, John Dizard quotes and comments Robert Dietz, chief economist at the National Association of Home Builders with: “Affordability is at a 10-year low.” It is not just the tariff-driven double-digit rise in the cost of wood. “We have suffered labour shortages for the past [few]years. Now the builders say that [land approved for building] is low.” “Bad news for housebuilding recovery as America loses its free lunch from world”, October 13.

That might bear some influence bit let us be very clear, what has most made houses unaffordable for many has been all that preferential financing to make house purchases affordable to many, which turned homes into investment assets and increased the prices of houses and the wealth of those who own houses.

For example, should banks have to hold the same capital against “safe” residential mortgages that they need to hold against loans to “risky” entrepreneurs house prices would be much lower...(PS. But there surely would be more jobs to help allow the purchase of houses at its lower prices)

Sir, a monstrous real estate crisis is being fabricated by regulators who can’t come to grips with the simple fact of life that if you blow too much credit into a market, you will create a bubble that, sooner or later, will explode L

@PerKurowski

The prime element of a Universal Basic Income is its unconditionality, and that’s why redistribution profiteers hate it the most

Sir, John Dizard titles“Sorry, but the world is not yet ready for universal basic income” October 11, but then he writes an article exposing exactly why we need a Universal Basic Income. Clearly he has not understood the real implications of UBI’s most important principle that of its unconditionality; never to be paid out because you are something different, like in jail.

I came to Universal Basic Income by means of my long fight for having all Venezuela’s net oil revenues shared out equally among all Venezuelans. That would have saved my homeland from its current tragedy. Instead those revenues fell into the hands of odious, besserwisser, corrupt redistribution profiteers… who paid it out generously to themselves and their friends… and with especially bad cheese to the rest of Venezuela.

“UBI…cannot be done within the bounds of the existing social contract in advanced countries.” Absolutely, as long as we allow redistribution profiteers to define those bounds.

Those redistribution profiteers who, circling their wagons in order to defend the value of their franchises, convinced Dizard of that “big tax rises and reductions in other benefits would be needed, even for a modest basic income”. Their most usual tool is using very high figures for that basic income. There is absolutely nothing that would stop advanced countries from beginning by paying out some US$ 200 per month to all its citizens. That would help oil the economy much more than a tax cut.

We urgently need something to help create decent and worthy unemployments in time, before all social order breaks down… and redistribution populists like Hugo Chavez and pals take over. 

@PerKurowski

Easing it for some bureaucrats, like with munis, does mean, de facto, making it harder for other, like entrepreneurs and SMEs

Sir, John Dizard writes “a bipartisan bank regulation reform bill that has passed a crucial Senate committee would require the entire federal regulatory apparatus to loosen the restrictions on counting munis as part of the high-quality liquid assets pool, and reduce the capital charges on holding muni positions.” “Vix horror show will not deter future suckers” February 19.

Sir, that would lead to more demand for munis, so that local bureaucrats can decide what to do with even more funds derived from debts our grandchildren will have to pay; which will naturally lead to less bank credit for those entrepreneurs and SMEs that could help our grandchildren to access jobs and revenues streams that could assist them in repaying these munis... and having a life. Great bipartisan job Senators! 

@PerKurowski

How much will the fewer younger be willing to give up in order to help the larger number of older?

Sir, John Dizard argues that It is hard to have a tax cut-driven jobs boom for the ‘real Americans’ if there are fewer of them around” “Financial world’s promises impossible to meet within an ageing demographic” October 22.

Indeed, demographics will make all so much serious, but let us not assume things are going so as to be a rose garden without that factor.

The kicking the 2007-08 crisis can forward with QEs; the ultra low interest rates that makes it easier to take on debt and in some ways introduces economic laziness; getting equity out of homes like with reverse mortgages in order to spend; risk weight of 35% on financing residential houses and of 100% when lending to the riskier SMEs and entrepreneurs who have the best chances of building future and create jobs; a mindless 0% risk weight for so many sovereigns only based on that these can print money to repay… is driving the world towards a crisis not only because of the lack of young workers, but also because of excessive unpayable debts.

There will come a day when all those young living in the basements of their parents’ houses will say “Hey ma-and-pa, you go downstairs, now it is our turn to live upstairs”… and that is perhaps even the best case scenario. Things can get to be truly ugly (ättestupa)… except perhaps if we are able to put billion of robots to productive uses (like they are trying in Japan) and tax them and share out those revenues with a universal basic income.

I have always argued that the best pension plan that exists is having children and grandchildren that love you, and who are able to work in a workable economy. Thank God I got the first… but I am beginning to seriously doubt achieving the second. 

@PerKurowski

“Don’t worry we have a great pool of ‘names’ to be born that will help pay Harvey’s insurance claims” Will they?

Sir, John Dizard writes: “NFIP, the federal flood insurance programme, has been risked and priced so unrealistically that it … encouraged construction in flood-prone locations…[and] already has incurred a cumulative debt to the Treasury of more than $26bn, despite its failure to cover many homes and businesses.” And now it will be facing Harvey’s claims. “Flood Harvey inundates the insurance market” September 4.

If those approving NFIP writing insurances were Lloyd’s of London “names”, they would be liable until their very last cent. But no US congressman that approved NFIP in 1968 faced even remotely the same consequences. In fact it would seem they, without any consultation, designated their children and grandchildren as responsible “names”. Will these names be able to pay?

Also, how many homes have been built and destroyed by the fact these had access to NFIP?

Should this be allowed to happen without any sort of consequence? As a minimum minimorum I believe there should be a site for the greatest failed legislations that spells out the names of those responsible for it. The threat of ending up there might help stop a lot of irresponsible acts of legislation.

We do society a favour when our fallen in wars are honored in cemeteries like Arlington. We might do society an even larger favour by duly shaming those who help push our nations earlier into cemeteries; like those responsible for the risk weighted capital requirements for banks… that which has introduced a regulatory risk aversion that will condemn our economies to weaken and our banks to afixtiate in overpopulated safe havens.

@PerKurowski

The only real game changer for Venezuela would be sharing out all its net oil revenues equally to all Venezuelans

Sir, I refer to John Dizard’s “Russian oil group looks to Venezuela’s opposition in search for fresh collateral” July 29.

If Venezuelan oil revenues had been shared out equally to all Venezuelans, the current Venezuela tragedy would not be happening. It is as easy as that. To centralize those revenues in the hand of the government is an invitation to, sooner or later, have these to be managed by well-intentioned fools, outright bandits, or a poisonous combination of both, like now.

One sole change in the article 12 of Venezuela’s constitution, in order to declare the Venezuelan citizens to be the owners of all oil reserves, instead of the government, would be one of the biggest game changers ever.

In such a case could Venezuela’s creditors go after the oil belonging to about 32 million Venezuelans and not one government? How would a judge decide if he knew that creditors were trying to go after each Venezuelan’s US$30-40 per month, that which could help stop millions of human beings from starving or dying from the lack of medicine?

http://theoilcurse.blogspot.com

@PerKurowski

Should/will the holders of Venezuela’s “Hunger Bonds” have priority over the hungry?

Sir, John Dizard, in reference to the current financial difficulties of the state of Illinois points out that Judge Joan Lefkow of the Federal District Court in Chicago made the point of “Bondholders do not have priority over welfare recipients”. That according to a muni portfolio manager would signify that the judge “is starting the process of reprioritizing the primacy of debt service under state law and the state constitution.” “Illinois’ journey to junk credit is sending shockwaves through the muni industry” June 17.

Let me apply that to Venezuela. Would that judge order that those many Venezuelans, including children, who die because of lack of food and medicines would have the same pari-passu rights as the holders of what Ricardo Hausmann has named “Hunger Bonds”?

It really does not sound so farfetched, or unjust, considering that the holders of those “Hunger Bonds” must be, as reflected in the risk premiums, perfectly aware of the tragedies in Venezuela resulting from widespread corruption and violations of human rights, including the current violent repression of those demonstrating against the government.

Sir, many have argued that the world urgently needs a Sovereign Debt Restructuring Mechanism, SDRM. I agree but for more than a decade I have held that must start by defining clearly what credits are clearly bona-fide, doubtful or plain odious.

Dizard writes: “One of the key questions to ask about distressed sovereign credits is whether the paper is owned by locals. Even during Nigeria’s troubles in the 1970s and 1980s, the central bank continued to pay its promissory notes, even as its bank loans went into default. Nigerian officials owned some of the notes.”

Clearly in a case like Venezuela the Venezuelans should have a right to know exactly who were the financiers of their malign regime, and of how they came into holding these credits.

The “need” for holding Venezuelan paper so as to conform to some Emerging Market portfolios might have entrapped some investment funds. In such cases no much shame falls on them but of course they should voluntary submit their investments to a debt to food and medicines conversion program, and the product donated to the poor.

Personally I am trying to motivate a constitutional reform in Venezuela that would assign the property of its natural resources directly to the citizens. I wonder what judges would then authorize the embargo of a tanker that carried oil to be exchanged for food and medicines for the hungry owners of the oil.

I do that not for the purpose of getting away from onerous financial commitments but for the much more important mission of not having future Venezuelan governments to have a chance to do, ever again, what this XXI Century Socialistic revolution has done to my homeland.

Whether this would make it “more difficult and expensive to sell bonds if the state wants to fund pension obligations or fix its highways” is of little or no concern to me. In fact, the more I look around in the world and read of unfunded pension obligations that might be satisfied with debt to be paid by future generations… those limitations sounds like great news.

@PerKurowski

Europe, America, G20, don’t walk away from Basel Committee risk weighted bank capital regulations…you’d better run!

Sir, John Dizard writes about a “meeting of the Basel Committee on Banking Supervision on November 28 and 29… is scheduled to agree a “standardised approach for credit risk” and impose limits on the use of internal models. The idea is that banks in the G20 countries, a group of the world’s most powerful economies, will not engage in regulatory arbitrage, or international game playing that results in a lowering of credit standards.” “Basel’s background noise for the next crisis”, FTfm, November 7.

Of course, the Basel Committee should prohibit banks from using their own models to define their own capital requirements; allowing it, is like letting children use their own nutrition models to pick between chocolate cake, ice cream, broccoli or spinach.

But, to impose a regulators’ defined “standardised approach for credit risk”, is just as loony; it suffices to have a look at what the standardized risk weights included in previous Basel Committee regulations.

One example: Basel II, 2004, set the risk weight for an asset rated AAA to AA at 20% while that of an asset rated below BB- was set at 150%. Anyone believing that what is rated as highly speculative, almost bankrupt, below BB-, is more dangerous to the bank system than what is rated AAA to AA, must be smoking some weird stuff.

Sir, unfortunately Dizard, as most of you in FT, shows little understanding for the whole issue when he questions: “under the current version of the Basel “standardised approach”, unsecured lending to a non-public, below investment-grade corporate borrower requires the same bank capital commitment as project financing secured by assets, liens on equity and cash lockbox arrangements. Based on the past low loss rates for project lending, that is between two and three times as much capital as the risk should require.”

If that is so, should not the difference in risk reflect itself sufficiently in the interest rate and the size of exposures? Why should that same perceived risk also have to be reflected in the capital? Does Dizard (or you Sir) not know that any risk, even if perfectly perceived, leads to the wrong decision if excessively considered?

Sir, ask Dizard: “Why should a bank when lending to a below investment-grade corporate borrower have to hold more capital than when lending to “safe” projects? Will not the “risky” corporate anyhow get less credit and pay higher risk premiums than the “safe” project? 

Sir, again, for the umpteenth time, bank capital should not be required to cover for expected risks; it should be there to cover for the unexpected.

Sir, again, for the umpteenth time, the risk weighted capital requirements for banks have introduced absolutely insane distortions in the allocation of credit to the real economy. If Europe, America, G20, or the whole world do not run away from the regulators’ senseless doubling down on ex ante perceived risk, their economies are doomed to stall and fall.

@PerKurowski

Should bonds that finance violations of human rights have to be repaid?

Sir, I find it hard to comprehend the big raucous one can often hear about financing what endangers the environment, or companies that employ children; and then reading “Venezuela’s hospitals do not have medicine, the stores do not have food or toilet paper, but there is an almost surreal confidence that bondholders will do quite well out of the coming restructuring, even with the damage done by governmental incompetence and corruption” “Chaos reigns as Caracas makes every effort to please foreign bondholders” John Dizard, September 3.

Sir, what if the International Court of Justice decided, as it should, those bonds should not be paid, on account they were financing the violation of human rights?

I have been for many years, soon many decades, been voicing support for the need of a Sovereign Debts Restructuring Mechanism, but that SDRM must begin by defining very clearly what is to be considered as odious credits and odious borrowings. If not, We the People, will get screwed.

Is Venezuela violating human rights? There’s food and medicine scarcity, and people are dying because of it, but petrol (gas) is being given away at US$ 1cent per liter (US$ 4cents per gallon). So you tell me!

@PerKurowski ©

John Dizard has provided us with a very important wakeup call on energy storage batteries

Sir, I think that everyone that wants to fight climate change, but feels that is best done by keeping the climate change profiteers at bay, need to be very grateful for John Dizard’s “Lack of economic rationale is a feature of battery-storage hype” April 4.

I myself am guilty of having preached, to friends and family, the benefits of new energy storage batteries without really checking up on their real costs. I will immediately go silent on this without further checking up.

@PerKurowski ©

Whether there are thousands of small banks, or just a few TBTF, if regulations are bad and distort, it’s all the same shit.

Sir, I refer to John Dizard’s “Banks are destined to accept break-ups in exchange for lighter regulation” February 27.

It should not be a question of heavy vs lighter regulations. Many of us would like to see banks accepting break-ups as a result of better regulations. Because frankly, it is silly to break-up banks, if they are anyhow going to be joined together in a lousy regulatory matrimony.

2001, in an Op-Ed, I warned: “Today, when the world seems to be asking much for bank mergers or consolidations, I wonder if we on the contrary should be imposing on banks special reserves depending on their size. The bigger the bank is, the worse the fall, and the greater our need to avoid being hurt.” 

But, just as important, in the same Op-Ed, I also warned about the risk of regulations, in the following terms:

“The regulatory risk: Before there were many countries and many ways of how to regulate banks. Today, with Basel proudly issuing rules that should apply worldwide, the effects of any mistake could be truly explosive.

“Excessive similarity: Encouraging banks to adopt common rules and standards, is to ignore the differences between economies, so some countries end up with inadequate banking systems not tailored to their needs. Certainly, regulations whose main objective appears to be only to preserve bank capital, conflict directly with other banking functions, such as promoting economic growth, and democratize access to capital.”

And Sir, as you well know, I opine that when the regulators decided to introduce credit risk weighted capital requirements for banks, which distorted the allocation of bank credit to the real economy, then they blew it for all of us. And our economies are still suffering, because these regulators just don’t want to admit they blew it, and for what reasons.

For instance when John Dizard mentions “securitisation fakery”, he should not forget that the main driver of such fakery was the fact that there was going to be very different capital requirements depending on how that securitization got rated… and that distortionary incentive is still well alive and kicking more than ever.

So at the end of the day, if all AAA rated securities backed with lousy mortgages to the subprime sector were held by one or by a thousand banks, it’s all he same shit. 

Stefan Ingves the current chair of the Basel Committee, but also the chair of the Swedish Riksbank, recently had this to say of Swedish banks: “Banks have changed the way they calculate risk weights, the risk-weighted capital adequacy therefore look good. But in the end they do not have much more capital than before the financial crisis.”

Sir, can we really take our current regulators to the bank?

PS. For all practical purposes it would seem I have been as much censored by the Government of the Financial Times than as I have been by the Government of Venezuela. J

@PerKurowski ©

When financing art, should Old Masters be credit rated based on their value volatility?

Sir, I refer to John Dizard’s discussion of “the business of lending against art collateral”, “Art world may be struggling but lenders are still happy to rely on an Old Master” February 6.

Dizard writes about a “an avalanche of loan applications from Europe” but “the banks that made lending facilities available in the past are not doing so any more” because the banks “are under tremendous regulatory pressure. Every European bank is scrambling for sufficient capital.”

It is a very interesting article. But, sincerely, should FT not be much more concerned with all the financing of SMEs and entrepreneurs that is not happening in Europe for precisely the same reasons… namely that capital scarce banks are allowed to hold much less capital against assets ex ante perceived or deemed as safe?

That said… might there be room for credit rating of art? That could allow banks to hold less capital against some Old Master that possesses less value volatility. Or would that only incentivize the production of more AAA rated Leonardo Da Vinci fakes?

@PerKurowski ©

There are social leftwing reformers and statist leftwing reformers. In banking currently only the latter exist.

Sir, John Dizard, referring to Senator Bernie Sanders and Senator Elizabeth Warren writes “The US financial industry should listen to leftwing reformers” December 7.

Frankly, if by leftwing he refers to someone defending the small and poor, then I do not know of any real leftwing reformer. John Kenneth Galbraith in his “Money: Whence it came where it went” 1975 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. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

And current credit risk weighted capital requirements, to which I have heard none from the supposedly left raise objections, hinders precisely “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.”

And, it is only going to get worse. That “Fed’s total loss-absorbing capacity… will require an estimated additional $120bn in equity and debt” Dizard refers to, that one is also based on credit risk weighted assets.

But of course, if it is leftwing reformer as in being statists, then they must be plentiful of them, as very few have raised objections to that in 1988, with the Basel Accord, the risk weight of sovereign (government) was set at zero percent, while the risk weight for the private sector was defined as 100 percent.

No Sir, whether leftwing or rightwing, I would not like to have anyone who fails to state in very clear terms what he believes to be the purpose of the banks, and I agree with that purpose, to have anything to do with regulating banks.

@PerKurowski ©

Bank regulations, which are just a more subtle form of capital controls, are neither on CFA exams.

Sir, John Dizard writes Investment managers will “wind up shocked, sputtering something about what happened to them could not have been expected because it was a seven, eight or nine sigma event… [since] Capital controls are not on the CFA exam, or accounted for by standard, or even the most sophisticated, probabilistic risk management models.” “A [capital control] plan till you get punched in the mouth” April 6.

Well neither are bank regulations, just another more subtle form of capital controls, part of a CFA exam, which is why subprime mortgage CDS, Cypriot bank deposits, investment-grade EM corporate debt, real estate in Spain and other similar turn out to be shockers.

Had it been on CFA’s curriculum, then anyone could have understood that, allowing banks to leverage up especially much with what was perceived as “safe”, would have to end in tears.

PS. In October 2004, in a letter published by FT I wrote and warned about how “our bank supervisors in Basel are unwittingly controlling the capital flows in the world.”

@PerKurowski

Our economies are drowning for lack of oxygen in overpopulated safe havens.

Sir, I refer to John Dizard’s “Central banks enlist ageing populations in the competitive devaluation game”, March 28.

Dizard discusses Bank of Japan’s paper “Demographic Changes and Macroeconomic Performance — Japanese Experiences”; IMF’s “Is Japan’s Population Aging Deflationary?” and a paper by BIS titled “Can Demography Affect Inflation and Monetary Policy?”

One aspect not discussed in connection to this demographic change, is that since increased risk-aversion goes with the investment objectives of an aging population, the demand for safe havens relative to risky bays should be increasing.

Add to that the sad fact that bank regulators decided, on their own, that it was more important for our banks to avoid risks instead of to allocate bank credit to efficiently to the real needs of the economy, that of course also adds immensely to the demand for safe havens.

And it is only getting worse. Now by means of added Basel III liquidity requirements for banks, and Solvency II regulations for the insurance sector, which all-predicates risk-aversion, the demand for what’s “safe” must grow even more.

And, since any safe haven can become extremely dangerous if overly populated, it should be clear that an amazing scarcity of financial safety is lurching around the corner. Poor widows and orphans financially they will be more widowed and orphaned than ever.

But also poor the coming young generations, those who will be denied that societal risk-taking that could help them to have a good future with plenty of jobs.

@PerKurowski

FT, do you not realize the urgency we have to get rid of the current bunch of dangerous and failed regulators?

Sir, John Dizard opines that “the advent of negative yields for the best European government or corporate issuers… is the breakdown of the policy world’s response to the global financial crisis”; and he quotes a European bank’s credit strategy saying: “We have searched through the records and asked the ECB how they think their [asset purchase strategy] will work, and there is no evidence they know the answer” “Investor should embrace the inherent contradictions of quantitative easing” March 14.

Indeed that is truly scary stuff, but it is what I have been writing to you for over a decade. Mario Draghi and colleagues, simply have not the faintest idea of what they are doing.

The negative interest is just one tip of the iceberg. The real intellectual breakdown came in 1988 with the Basel Accord, Basel I; followed up in 2004 with Basel II. At that moment, regulators, with their risk-weighted equity requirements, ordered bankers to perceive safe assets as safer yet and risky assets as riskier yet.

The banks, consequentially, started to compete with pension funds, widows and orphans in chasing too much what was perceived as safe and evading too much what was perceived as risky. Sir, please, what do you think caused problems with AAA rated securities, Iceland’s banks, real estate in Spain, or lending to Greece, that they were perceived as risky? Of course not!

Now we have run out of safe assets, but regulators still pay banks with low equity requirements to go for these, and now, by means of Solvency II, they want even to impose that same stupidity on insurance companies.

What will happen? That the real “risky”, like SMEs, will still not have access to bank credit because, as Jeremy Stein of Harvard has argued, banks are too busy “getting high quality stuff by swapping, or ‘transforming’ it, with low quality paper”… to keep the regulators happy and pass stress tests that will allow them to pay dividends and repurchase stock. How crazy can it be?

Do you not realize the urgency Europe and the whole world has to get rid of the current bunch of dangerous and failed regulators?

PS. Dizard write "Regulators and politicians are insisting that risks be taken without taking risks". That in a nutshell is the message I have sent FT in more than a thousand letters, but that it has preferred to ignore.

@PerKurowski

High noon to end Basel Committee's populist risk-weighted capital requirements for banks.

Sir, John Dizard quotes Christopher Whalen, senior managing director at Kroll Bond Rating Agency saying:“FSOC is the leading boring example of boring but cumulative changes in the regulatory system that are forcing us into deflation. Nobody seems to be paying any attention, but this is having a chilling effect on credit.”, "High noon for Dodd-Frank reform", May 26.

But also, because of the risk-weighted capital requirements, with respect to bank credit to "the risky", like to medium and small businesses, entrepreneurs and start ups, it has been more than chilly, for much too long; resulting in that bank credit to "the safe" sovereigns, AAAristocracy or the housing sector, has been too hot. And in consequence, with respect to the whole Basel regulatory paradigm, it is way high-noon for a reform.

On FT's first page we find an article that proclaims "France's FN leads surge of populists" which implicitly assumes somebody knows what is not populism nowadays. We would like to know that. I say this because as I see it the whole concept of risk-weighting, as if trusting you could order some risk-weighing that leads to more safety an greater stability, is as populist as populist comes.

You want your kids to be safe? Order them to stay in bed, all the time...and then see what really great dangers that entails!

Regulators, accept gallantly you messed it all up with the risk-weighted capital requirements for banks. And amend these... please!

Sir I refer to John Dizard’s “Brussels spends too little time on reforms that could help SMEs” April 19.

Decades ago someone, I do not remember who, commented on how a board would take much less time deciding on a several million dollar technically difficult investment, than on the amount to be spent on serving coffee during their meetings.

So when John Dizard writes that “so much time gets spent on minor issues, such as high speed trading, and so little on incremental reforms that could actually ease the credit crunch for SMEs” we might have to revise that theory. The lengthiest discussions would not seem to relate to issues that board members most know about, but on issues that collectively they least know about, and where no one has the guts to display ignorance.

The risk-weighted capital requirements for banks, of Basel II and Basel III discriminate directly against the access to bank credit, in risk adjusted competitive terms, of the SMEs. It is as easy as that. The regulators should dare to admit that and make amends for it… fast. The future of the western world, the Judeo-Christian civilization, much depends on it.

It is not voluntarily that European banks are abandoning the private sector in order to take refuge in the government.

Sir, I refer to John Dizard’s “Risk of a European break-up has not marginally disappeared”, December 7.

In it Dizard writes about “the collapse of private sector lending, which in the euro area as a whole has declined for more than a year and a half. That money had to go somewhere… ‘risk-free’ government paper has been a perfect place for the banking system to stuff the cash they are not lending to companies”. Dizzard makes it sound like this was a voluntary normal market based rational decision by the banks. It was not!

It is only the result of extremely distorting bank regulations which require banks to have a lot more of that capital they are currently so lacking of, when lending to the “risky” private sector, than when lending to the “infallible sovereign”.

Dizzard argues the European banking system is being “renationalized” but the sad reality is that banks are de facto being turned into statist government agents… and unfortunately we all know what happens to economies when their financing goes down that line.