Has Thatcherism run its course, or has Thatcherism been run off its course?

Sir, Martin Wolf asks “once we accept that Thatcherism has run its course, what follows?” “Sunak takes an axe to Thatcher’s low-tax ideology” FT, March 8.

Sir, to keep it brief, let me just ask three questions:

What would Margaret Thatcher have said about risk weighted bank capital requirements that de facto imply Britain’s bureaucrats/politicians know better what to do with credit for which repayment they’re not personally responsible for, than e.g. Britain’s small businesses and entrepreneurs?

What would Margaret Thatcher have said about risk weighted bank capital requirements that de facto imply the financing of residential mortgages is more important to Britain’s economy than the financing of its small businesses and entrepreneurs?

What would Margaret Thatcher have said about risk weighted bank capital requirements that de facto imply that what’s correctly perceived as risky, is more dangerous to Britain’s bank systems than what’s perceived as safe?

Sir, can you dare your Mr. Wolf to answer those questions?

PS. My 2019 letter to the Financial Stability Board

@PerKurowski

The crisis of modern liberalism is caused more by authoritarian besserwisser distortions than by market forces.

Sir, Wolfgang Münchau writes: Margaret Thatcher’s successful brand of entrepreneurial capitalism in the UK in the 1980s… Through the sale of council houses, she turned tenants into property owners.”, “The crisis of modern liberalism is down to market forces” December 25.

True, but later immense injections of liquidity, ultralow interest rates, and extreme preferential risk weighted capital requirements for banks when financing the purchase of houses, has helped turn houses from being just homes into being investment assets. That of course has left all those who do not own these investment assets, even further behind.

Therefore I cannot agree with Münchau’s conclusion that liberalism is failing because of market forces. At least in this case the distortions are not caused by market forces, but by regulators and central bankers who have insufficient idea about what they’re doing. Of course, if crony statism forms part of market forces, which perhaps de facto it sadly could be, then I would be wrong.

When Münchau finally opines, “Any system that leaves behind 60 per cent of households will eventually fail” that is not necessarily so. The world is plagued by examples by how such systems have too often proven to be even more resilient than those who do not. On a small model scale, just look at how Venezuela’s current regime has been able to hang on to power for at least a decade more than it should have been able to.

@PerKurowski

Banks should make their profits by being real banks not simply by leveraging what is “absolutely safe”

Sir, Martin Wolf ends his “Britain’s economy should not go back to the future” April 12, writing “The country needs institutions, public and private, better capable of generating widely share growth.”

He is of course right, but what he refuses to acknowledge is how much lousy bank regulations which impose different capital requirements for different assets based on perceived risk has distorted their capacity to allocate economic resources efficiently.

Currently banks are making their profits not as they used to, by taking smart risks, but by leveraging enormously what is perceived as "absolutely infallible", something which as recently seen is also an extremely dangerous experiment. Therefore what is most urgently needed, not only in Britain is for bankers to become real bankers again.

Wolf also mentions some failures in the Thatcher legacy identified by Professor John Van Reenen of the London School of economics. These are “rising inequality, excessive financial deregulation and inadequate investment in both human and physical capital”, and these are all closely connected to the mentioned capital requirements.

If you favor the access to bank credit of those already much favored, the haves, the history, the old “The Infallible” you are discriminating against those already much discriminated against, the have-nots, the future, the young, “The Risky”. And that can of course only lead to rising inequality and inadequate investments. 

But to call this dangerous excessive regulatory prudence an excessive financial deregulation, that is pure nonsense. As I recently wrote to you, Margaret Thatcher would never have approved of these so sissy capital requirements for banks.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has told me not to send him anything more about these “capital requirements”… he already knows it all, so he thinks.

Margaret Thatcher, if explained the capital requirements for banks based on perceived risk would ask “Are you nuts? Accept defeat?

Sir, I have read many obituaries of Margaret Thatcher that attributes to her much of the bank de-regulations they blame for the current crisis.

I do not hold to know the whole story but, let me assure you that if someone would have asked her about the possibility of, by means of bank regulations, allowing the banks to earn immensely higher risk-adjusted returns on their equity, by sticking to financing solely “The Infallible” and keeping away from “The Risky”, the Iron Lady would most certainly have asked “Are you nuts? That sounds like a defeat and I do not recognize the meaning of that word" 

And if also told that the most infallible of “The Infallible” was to be the government, and that therefore banks could lend to it without any capital at all, leveraging without limits, she would also most certainly have asked “Are you a communist?

There is still a lot learning to do about the real meaning of “getting out of the way of markets”

Sir Martin Wolf writes “Gone, too, must be the assumption that governments should merely get out of the way of markets”, “A weakened Britain enters the post post-Thatcher era”, December 4.

Absolutely not! When we see governments ordering the banks to hold significant amounts of “high quality” government bonds and allowing them a zero percent capital requirements when lending to the government, as compared to the 8 percent required when lending to an ordinary citizen, we cannot but wish that the governments and some financial commentators someday learn “what getting out of the way of markets” really means.

And also, when Wolf suggests that we should not suppress markets but instead support them and guide them, I can´t keep but wonder on what Margaret Thatcher would have had to say about the guiding part.