Compared to regulators’ manipulation of bank credit, Libor manipulation is as peanuts as peanuts come

Sir, I refer to Katie Martin’s “Scrapping of Libor benchmark leaves $500bn of bond contracts in limbo”, October 11.

I repeat what I’ve written you many times before.

I’ve been on both sides of Libor, as a lender and as a borrower. I have never thought it a precise instrument, but good enough, sometimes you lose, sometimes you win, especially when any implied manipulation is done by speculators who are indifferent to whether Libor is too high or too low. What matters to them is their position in Libor futures, at any time. 

In the long run, for all other Libor dependent, its manipulation ends up in a big wash.

The big hullaballoo around it, and forced search for substitutes, are just a big distraction from the real dangerous manipulations. 

Current credit-risk weighted capital requirements for banks pushes credit towards dangerous excessive exposures to the safer present, and away from what is required by the riskier future. Sir, for both borrowers and lenders, that is an extremely costly manipulation. As less capital allows for larger bonuses, only bankers win.

PS. Here is the current summary of why I know the risk weighted capital requirements for banks, is utter dangerous nonsense.

@PerKurowski

When are regulators grilling Citi to be grilled on their own responsibilities for causing the 2007-08 crisis?

Sir, Katie Martin reports: “Regulators to grill Citi over role in sterling flash crash” December 10.

That’s OK. Grill Citi! But when are regulators going to be grilled on the crisis they caused by allowing banks to leverage over 60 times to 1 their equity when investing in AAA to AA rated securities; or almost limitless when lending to sovereigns like Greece?

And when are they going to be grilled on how their nonsensical risk aversion impedes satisfying the credit needs of the real economy?

I say. Grill Regulators Too!

I suggest that grilling could begin with the following questions that regulators have steadfastly refused to answer me… because I am no one to have the right to ask them questions (and FT has refused to help me)

@PerKurowski

Three questions that could help determine whether ECB’s Mario Draghi is for real, or just another Chauncey Gardiner.

Sir, Katie Martin, in Short View March 11 writes: Mario Draghi says that he still has ammunition left in his battle against deflation. But the question is whether he’s using it to shoot himself in the foot”.

Perhaps we should clarify that it is not really his ammo, and that the foot Draghi shoots, is our real economy.

And so now Draghi wants to “dose of cheap-as-chips cash for banks to lend to the real economy… “and even rewards banks for lending to the real world”

Why are the banks not doing that already? The simple answer is because of the restrictions that, in a severely bank capital constrained world, regulators, like Mario Draghi, have imposed with the risk weighted capital requirements for banks.

And so now Draghi wants to counter-distort one of his own distortions?

No, if Mario Draghi was working for me, he would be long gone, because he I believe he is inept and he has clearly failed.

John Kenneth Galbraith in “Money: Whence it came, where it went” wrote: “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”. Well I am not pretending any knowledge, and I have sure asked for many explanations.

Again, why do we not ask Mario Draghi some easy questions? If he cannot give us answers we understand, then I hold he is, in the best of cases, just another misplaced figure like Chauncey Gardiner in Jerzy Kosinski’s “Being there”.

And that would make of most of you out there, sad characters that herald Draghi as visionary and quote him, without the faintest idea about what he's really saying.

Question 1. Mr. Draghi why do you believe the capital banks should be required to hold, against unexpected losses, should be based on the perceptions of expected credit losses that banks already clear for with the interest rates (risk-premiums) and the size of the exposure?

Question 2. Why do you think that allowing banks to leverage differently different assets, which clearly affects the risk-adjusted returns on equity each asset group provides, does not distort the allocation of bank credit to the real economy?

Question 3. What is the purpose of banks? I mean when stress-testing banks, why are you only interested in what’s on their balance sheets, and not in what might be lacking, like loans to “risky” SMEs and entreprenuers?

Mr Draghi, we are all ears!

@PerKurowski ©