The “Parable of talents” is currently quite inapplicable to any wealth tax.

Sir, I refer to “Why the toughest capitalists should root for a wealth tax” Martin Sandbu, FT, May 10.

Much of the current wealth is the direct result of huge liquidity injections, and which are distorted by risk weighted bank capital requirements that, among other, so much favors the debts of the government over debts to the citizens… all as if bureaucrats/politicians know better what to do with credit for which repayment they are not personally responsible for, than e.g., small businesses and entrepreneurs.

To favor such wealth tax, besides removing such distortions, I would also like to know what assets, and to whom, the wealthy should sell in order to raise the money to pay such taxes… and what would be the resulting overall productivity of such resource transfer. I believe a full review of the current productivity of all government spending is long overdue.

So, in this respect, taxing wealth with its revenues seemingly not being sufficiently productive, an understatement, sort of reminds me of a Harry Belafonte & Odetta song titled A hole in the Bucket

Sandbu also writes that “a net wealth tax…is the tax version of the New Testament’s parable of the talents” I’m not at all sure that’s currently really so.

I extract the following from Matthew 25: 24-27: 24 “Master,’ 25 I was afraid and went out and hid your gold in the ground. 26 “His master replied, ‘You wicked, lazy servant! So, you knew that I harvest where I have not sown and gather where I have not scattered seed? 27 Well then, you should have put my money on deposit with the bankers, so that when I returned, I would have received it back with interest.”

First, we now have regulators who, with bank capital requirements, tell banks that when they scatter and sow, they should be risk averse, guarding it all in safe gold, e.g., loans to governments and residential mortgages; staying away from what’s risky, e.g., entrepreneurs and small businesses.

Second, to top that up, with QEs central banks are injecting money thereby keeping interest rates ultra-low.

So, are we allowing bankers to exploit their talents? No! 

Will that produce good interest rates for the depositors? No! 

And if inflation takes off, will they receive their real money back? No!

Sir, with respect to risk taking, and even though I am a protestant, let me finally quote Pope John Paul II: Our hearts ring out with the words of Jesus when one day, after speaking to the crowds from Simon's boat, he invited the Apostle to "put out into the deep" for a catch: "Duc in altum" (Lk 5:4). Peter and his first companions trusted Christ's words, and cast the nets. "When they had done this, they caught a great number of fish" (Lk 5:6).

Macroeconomic theory stands no chance while autocratic regulators distort the allocation of bank credit.

Sir, in reference to Martin Sandbu’s “The revolutions under way in macroeconomics”, January 28, I must ask: What macroeconomic theory stands a chance against the Basel Committee’s risk weighted bank capital requirements? 

Lower bank capital requirements when lending onto the government than when lending to citizens, de facto implies bureaucrats know better what to do with credit they’re not personally responsible for than e.g. entrepreneurs. 

Lower bank capital requirements for banks when financing the central government than when financing local governments, de facto implies federal bureaucrats know much better what to do with credit than local bureaucrats.

Lower bank capital requirements for banks when financing residential mortgages, de facto implies that those buying a house are more important for the economy than, e.g. small businesses and entrepreneurs.

Lower bank capital requirements for banks when financing the “safer” present than when financing the “riskier” future, de facto implies placing a reverse mortgage on the current economy and giving up on our grandchildren’s future.

https://subprimeregulations.blogspot.com/2019/07/risk-weights-are-to-access-to-credit.html

@PerKurowski

To save the earth, start by saving it from phony saving-the-earth profiteers

Sir, Martin Sandbu writes about “how a conflict of interests over climate change — something that really is humanity’s common challenge — aligns with and reinforces a deeper culture war dividing centrist urban elites from system-critical populists… [So] we have missed the potentially much greater obstacle of political polarization in the age of populism” “The burden of tackling climate change must be shared”, November 5.

Hear hear! This is exactly the type of issues and challenges we must learn to tackle, if there’s going to be any hope for us to survive as the society we always dreamt of, or avoid turning into that society we always dread, something that in fact means even more than our survival on earth.

But, when Sandbu speaks about what “reinforces a deeper culture war dividing centrist urban elites from system-critical populists”, I disagree, because the real hard core divide in this case is between those expected to pay for to help save our planet, and those who expect to profit from those efforts.

But Sandbu also refers to a remedy to that, when he mentions, “the carbon ‘fee and dividend’ approach advocated by climate scientist James Hansen [which] would levy duties on fossil fuels and redistribute the revenue in equal per capita amounts to all residents”

That’s precisely in line with what I recommended in a letter published in FT on how Mexico City should go about in order to reduce its serious pollution problems.

If Emmanuel Macron, perhaps hand in hand with Canada’s government that is also thinking about higher carbon taxes, decides that all revenues from taxes on fuel, and similar, are to be shared out equally among all citizens, that would set an example to other nations, that would at least be worth some ten Paris agreements.

Sir, let me be cleat about it. If I am going to help to save the world, by paying higher carbon taxes, I want all of it translate into a clear market signal that saves the planet, and not into something which unduly enrich those promoting saving the world, or those profiteering on the process.

@PerKurowski

Sweden sadly forgot risk-taking was the oxygen of its development.

Sir, Martin Sandbu, when discussing Scandinavian countries, the Nordic mixed model begins with: “Ten years ago, the global crisis laid bare the failures of financial capitalism.” “Nordic lessons for today’s socialists” August 29

That most still believe the crisis “laid bare the failures of financial capitalism”, is just the result of what seems to be one of the greatest cover up stories in mankind, promoted by those who want the regulatory mistake of the risk weighted capital requirements for banks to remain forever as something that shall not be named.

And it has absolutely to do with the subject discussed here because, one of the reason little Sweden, the Nordic country I best know, became such huge success, was the willingness of many Swedes to take extraordinary risks. In the Swedish Church psalm book we find a psalm that begs, “God make us daring”.

I find it outright shameful that a Swede, Stefan Ingves, could chair the Basel Committee and not enlighten his colleagues on risk-taking being the oxygen of development.

Of course, to top it up, that the risk weights are foolishly based on the risk of assets per se, and not on the risks of how bankers perceive and manage the assets, namely the conditional probabilities, makes it all so much worse. We will not have explosions fueled by risk-taking but much worse explosions fueled by excessive risk-aversion 

Today Swedish banks, as most of the world, are on route to build up extremely dangerous exposures to what is perceived as safe, like to sovereigns, residential mortgages or any other concocted security that manages to get hold of an AAA rating. 

Sir, today Swedes risk end up in their “safe” houses from which they have extracted all equity, and without the jobs needed to service their mortgages or to pay the utilities. Sad!

@PerKurowski

To really understand the 2007-08 crisis, it is the ex ante perceived risks that should be used, and not the ex post understood risks

Sir, Martin Sandbu, when reviewing Ashoka Mody’s “EuroTragedy: A drama in nine acts" writes: “Mody nails the biggest policy error of them all: the insistence that euro member states could not default on their own debt, or allow their banks to default on senior bondholders.” “A crisis made worse by poor policy choices” August 6.

That refers indeed to a great ex-post crisis policy error, but not to the biggest error of all, that which caused the crisis, namely the ex ante policy of the regulators, for the purpose of their risk weighted capital requirements for banks, assigning all EU sovereigns, Greece included, a 0% risk weight.

Mody (on page 168) includes the following: “If, for example, €100 of bank assets generate a return of €1, then a bank with €10 of equity earns a 10 percent return for its equity investors, but a bank with only €5 of equity earns a 20 percent return.” Though not entirely exact (because it might be slightly more difficult to generate that €1 with less capital) it shows clearly Mody understand the effect on returns on equity of different leverages.

But what Mody, and I would say at least 99.9% of the Euro crisis commentators do not get, or do not want to see, or do not dare to name, is that allowing banks different leverages for different assets, based on different perceived, decreed (or sometimes concocted) risks, distorts the allocation of bank credit to the real economy. In the case of the Euro, the two shining examples are: the huge exposures to securities backed with mortgages to the US subprime sector that, because they got an AAA to AA rating, could be leveraged 62.5 times; and the exposures to sovereigns, like Greece.

Sir, let us be clear, there is no doubt whatsoever that, had for instance German and French banks have to hold as much capital/equity against Greece that they had to hold against loans to German and French entrepreneurs, then they would never ever have lent Greece remotely as much.

The other mistake that Mody in his otherwise excellent book makes, and which is one that at least 99% of the crisis commentators also make, is that they fall into the Monday-morning-quarterback trap of considering ex post realized risks, as being the ex ante perceivable risks. Mody refers in the book to that George Orwell might have written about narrating history “not as it happened, but as it ought to have happened” In this case the risk referred to, are not the risks that were seen but the risks, we now know, that should have been seen.

Sir, Ashoka Mody’ EuroTragedy has so much going for it that it merits to be rewritten. Just reflect on what it means for the Greek citizens having to pay the largest share of sacrifices, for a mistake committed by European technocrats.

PS. Mody goes into the details of the demise of “the smallest of Wall Street’s five top tier investment banks” Bear Stearns. It “was an accident waiting to happen… it had borrowed $35 for every dollar of capital it held”. Had Mody added the fact that Bear Stearns had been duly authorized by the SEC to leverage this much and even more, the recounting of the events would have been different.

@PerKurowski

Bank regulators, imposing irresponsible insane rules, are prime destroyers of the rational liberal rules-based world order

Sir, Martin Sandbu writes of “opponents of the liberal, rules-based world order built up over 70 years” and that “The anti-liberal front’s undisputed leader, is the US under President Trump”, “The battles of ideology for our age”, December 27.

Sir, forget it, whatever President Trump might have done until now with respect to breaking down a rules-based world order, is nothing when compared to the damage bank regulators have done when trying to impose their own petit committee concocted regulatory rules on the world.

What they did, namely to allow banks to leverage more with assets perceived as safe than with assets perceived as risky; something which allows banks to earn higher risk adjusted returns on equity on assets perceived as safe, is something absolutely irresponsibly insane.

First, because that distorts the allocation of bank credit with serious consequences for the real economy, like favoring “safe” financing of houses over “risky” financing of “risky” entrepreneurs; which results in many basements for the young to live with their parents but few jobs for them to afford their own upstairs.

Second, by decreeing the risk-weight of the sovereign to be 0%, while that of the citizens on which that sovereign depends were weighted 100%, they effectively, 1988, one year before the fall of the Berlin wall, introduced through the backdoor, a mechanism to provide the financing to sustain (for some time) runaway statism.

Third, because since major bank crisis never ever result from excessive exposures to what was ex ante perceived as risky, it all serves absolutely no stability purpose at all.

Sir, if the “liberal internationalist camp working to defend a multilateral system of collaborative rules-based governance for economic openness to mutual advantage” is to go anywhere, that must begin by forcing bank regulators to satisfactorily respond the very straightforward question of: Why do you require banks to hold more capital against what has been made innocous by being perceived as risky than against what’s made dangerous by being perceived as safe?

Sandbu correctly argues: “In a global battle of ideas, liberals must show urgently that the existing order can be made to work for everyone”. But, injecting quantitative easing liquidity and low interest assistance, while such distorting regulations are in place, guarantees these will not be made to work for everyone, but only for those already in possession of safe assets, like the parents’ houses.

@PerKurowski

If a manufacturing trade deficit leads to deficits of skills, then that can be something truly serious.

Sir, Professor Robert H Wade when commenting on Martin Sandbu’s “Trump’s love of manufacturing is misguided” of February 15 writes: “manufacturing typically has strongly positive “externalities”, especially in innovation, and that the innovation intensity of manufacturing depends on close, physical links between production and innovation (“learning while doing”).” “Manufacturing has positive externalities” February 17.

Indeed, just think of where you, I and we all would have been, if America had not had that manufacturing capabilities and those skills that allowed it to build up what Franklin Roosevelt called “The Arsenal of Democracy”, and which allowed for the defeat of Germany’s impressive war machinery during World-War-II.

And currently, the possibility of some other nation ending up with 1st class robots, and your own with 2nd or even the 3rd class robots should clearly be a source of much concern to everyone.

My current pray is “God save my grandchildren from being surrounded by dumb artificial intelligence and 2nd class robots”. But that said perhaps intelligent artificial intelligence could be worse, since then we humans might turn into having to be its obedient servers. Who really knows?

​PS. Here is what I commented previously​ on Sandbu's article

PS. This is personal. Without “The Arsenal of Democracy” I would not be.

@PerKurowski

The fiercest manufacturing competition will be for the most capable robots, and there you never want to fall behind

Sir, Martin Sandbu writes “The economic nationalism of President Trump and Messrs Navarro and Bannon can be described as Germany-envy…Like so often with machismo, the envy is rooted in insecurity — a feeling of inadequacy compared with the perceived strength sported by these economies” “Trump’s love of manufacturing is misguided” February 15.

I can agree with much of Sandbu’s arguments, but that part of his article is simply under the belt out of place Trump bashing, which leads to nothing constructive at all. But, having gotten that out of my system, let me refer to another more vital issue.

When you lose manufacturing jobs, you do not only lose jobs, you lose skill-building opportunities; and to be able to retain some of the manufacturing skills in your country could also be part of your national security needs.

To understand that argument it suffices to read A.J. Baines “The Arsenal of Democracy”. Had America’s manufacturing capacity not existed in America, Sandbu would have lived under German rule, and I would not exists, since it was Americans that rescued my polish father from a German concentration camp… so perhaps we should both thank God for American “machismo”, and fret its possible disappearance.

Moreover, since “automation is reducing the need for manufacturing jobs everywhere” one can wonder if the dwindling manufacturing is not a great learning ground for robot and automation development. If so, giving up on that, one could face the serious problem of not ending up with the absolutely best robots.

Sir, I have tweeted: “God, please save my grandchildren from being dependent on dumb artificial intelligence and 2nd class robots”

PS. Of course there is also the great race for the most intelligent artificial intelligence.

PS. But what if we have the best robots?

@PerKurowski

Please help save us from regulators applying their standardized risk models to all banks… that would be the end

Sir, Martin Sandbu, in “Free Lunch: The bank, the fox and the henhouse”, June 13, discusses the issue that “Rules for banks’ capital cannot rely on their own models of risk”

Sandbu writes: “non-initiated may be surprised to know that [some] banks were [and are] permitted to decide how risky their assets were — which determines their capital requirements under rules that set safe capital thresholds as ratios of “risk-weighted assets”. To the extent banks perceive capital requirements as a burden, that creates an incentive for them to engineer risk assessments that minimize that burden.”

And so clearly when “The Basel Committee on Banking Supervision, which recommends global standards for national banking authorities, proposes to replace banks’ internal models of riskiness with external standardized models” this sounds very logic to many.

But the non initiated are not aware either of that, with Basel II, the regulators already gave a set of standardized risk weights to be used by all banks deemed not sophisticated (or big enough) to run their own risk models.

And Sir, it behooves us to fully understand what regulators did, before we dare to hand over to them one iota of more power.

Unbelievable, Basel II derived the risk weights, those that determine the capital requirements, from the ex ante perceived risk of the assets per se, and not from the risk these assets can pose to the banks or the bank system.

And therefore we have that assets rated below BB-, speculative and worse, those assets to which banks would never ever create excessive exposures to, got a risk weight of 150%, while assets rated AAA to AA, those to which banks could easily get to be dangerously exposed, these got a risk weight of only 20%.

So Sir, is there any good reason for us to welcome the same regulators to start working on a Basel IV?

As a minimum minimorum, before Basel IV work begins, we must require regulators to clearly specify what is the purpose of the banks, something they never did before they regulated. I say this because with the distortions produced with Basel I, Basel II and Basel III, they clearly evidenced, they do not give a damn about whether banks allocate credit efficiently to the real economy.

The only useful risk model is that which understands that bank capital is to be there against unexpected events, not against expected credit risks. For example, capital could be 8 percent against all assets.

But perhaps banks do need more capital, like 10 percent, because now we also have to guard them against the “unexpected” reality of regulators being capable of such an immense hubris, they can just push on without a clue about what they’re doing.

PS. To top it up... their risk-weights were portfolio invariant

@PerKurowski ©

The regulators, by helping bankers have their wet dreams come true, worsened our young’s future perspectives.

Sir, Martin Sandbu writes: “The giants of the US asset management industry have held secret meetings since August to discuss how to push company executives to make more long-term decisions. Participants included veteran investor Warren Buffett, JPMorgan CEO Jamie Dimon, and leaders from Blackrock, Fidelity and other major managed fund providers.”, “From boardroom to Shangri-La”, February 20.

And Sandbu refers to: “Negative externality” is the economist’s term for the harm a company’s activities cause to the world around it… lobbying for government rules that privilege one sector over others may, in the longer term, make the rest of the economy less efficient. Indeed and there are no better examples of that that current bank regulations.

Mark Twain is rumored to have said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

And with their risk weighted capital requirements of banks, the current regulators added “A banker is a fellow authorized to leverage equity immensely much more when lending out his umbrella when the sun is shining, than when it seems it looks like it could rain.”

And with that banks have now realized their wet dreams of earning much higher risk adjusted returns on equity when lending to the safe than when lending to the risky, like SMEs and entrepreneurs; and with that banks no longer finance the risky future, they only refinance the safer past.

And all for nothing since major crises are never ever the result of excessive exposures to something ex ante perceived as risky, always of something ex ante perceived as safe but that ex post turned out to be risky.

Sandbu also refers to that Yngve Slyngstad, the head of Norges Bank Investment Management stated that “Norway’s sovereign wealth fund demands that boards pay particular attention to climate change, water management and child labour”

Though I generally believe it arrogant and dangerous to intervene in the markets, if Mr Slyngstad really wanted to help, he should then better support purpose weighted capital requirements for banks. Those would allow for higher risk adjusted returns on bank equity when financing something society finds has special merits… like water management and creating jobs for our young ones.

@PerKurowski ©

Nothing could have predicted the financial crisis more than economics… the question is where were the economists?

Sir, Martin Sandbu writes: “The economics profession lost a lot of lustre when its practitioners failed, with only a few exceptions, to foresee the global financial crisis of 2008… it also added to the credibility of those who have long argued that economics is a deeply flawed discipline, built on a misrepresentation of people as selfish beings and ideologically constituted to conclude in favour of free-market policies.” “New model economics”, October 31.

That must be because Mr Sandbu is unaware of what happened. Bank regulators allowed banks to leverage much too high on assets that were perceived as safe; and so banks made too high risk adjusted returns on equity holding assets perceived or decreed as safe; and that of course caused, as any economic 101 course teaches, banks to create too large and dangerous exposures to what is perceived as safe… and for the economy equally dangerous scarce exposures to what is perceived or decreed as risky.

And so the problem had nothing to do with economics, it had all to do with economist not looking at regulations…. perhaps they thought that handwork was unworthy of their fine minds.

@PerKurowski ©

The established bank regulatory elite is doing what they can to hinder the discovery of their mega-mistake

Sir, Martin Sandbu speculates that the insistence on Greece following “austerity and monetary tightening” might be because “the established elites cannot afford to admit that they were wrong” "Democracy at the heart of fight for Greece.” August 10.

Of course the elites do not want to admit they were wrong, but in this case the real mistake has little to do with their austerity and monetary tightening, and all to do with regulations.

I am absolutely convinced that without the loony capital requirements for banks that gave banks so large incentives to lend to Greece, the current Greek tragedy would not have happened.

And I am also absolutely convinced that if Greece, and the rest of the world for that matter, does not get rid of these credit-risk weighted capital requirements, those which hinder the fair access to bank credit for those perceived as “risky”, like SMEs and entrepreneurs, there is no way economies can regain healthy sustainable growth. 

It would be so easy to perform an autopsy to identify what I suggest is the source of the problem, the problem though is that many of those who created the problem, do also control much of current autopsy procedures.

Would that not make an interesting thriller, having the one who poisoned performing the autopsy?

@PerKurowski

Forget the liquidity trap, Europe is mostly trapped in a regulatory trap.

Sir, Martin Sandbu opines that “we should take issue with the idea monetary policy has done as much as it can”, “Central bankers are ensnared in a trap of their own imagination” November 3.

And Sandbu believes ECB must “buy anything – but whatever you do, buy something” in order to get inflation going, in order to make real interest rates negative… “if that is what the economy needs fully to employ its resources”.

That sounds desperate and extremely dangerous… because that sounds like a recipe not necessarily for getting inflation going, but for the markets to lose their trust in the ECB, but more importantly so in the Euro.

But of course central bankers are ensnared in a trap, not even of their own imagination, but of their own doing.

Forget about liquidity trap when the real problem is a regulatory trap that stops liquidity from going to where it should be going in the absence of the trap… and current credit-risk-weighted capital requirements for banks do just that.

Sandbu writes that ECB “typically changes the money supply by offering loans to banks rather than buying financial assets – making monetary expansion dependent on banks’ willingness to take up the offer.”

So? Why does not ECB better push regulators into using a simple non-distortive leverage equity ratio for all banks independent of their assets… and then inject billions in preferred shares into the European banks? Those shares could have a clause making them redeemable in 30 years time.

That way, the day after, banks could at least again lend to the medium and small businesses, entrepreneurs and start-ups, something they cannot currently do because of an outright stupid suicidal bank regulation.

Does Martin Sandbu really not know who did the eurozone in?

Sir, in November 1998 in an Op-Ed titled “Burning the bridges in Europe” I believe I expressed as reasonable concerns as any about the Euro.

What I did not know at that time was that bank regulators would introduce a Basel II, by which banks were required to hold 8% in capital when for instance lending to SMEs but did not have to hold any capital when lending to “infallible sovereigns”. That of course dramatically reduced all possibilities the markets had of putting brakes on any macroeconomic imbalances.

And so now, when I read Martin Sandbu´s otherwise excellent “The euro is a scapegoat for the blunders of politicians”, August 25, I wonder more than ever about how come the absolute blunders of the Basel Committee are so brazenly ignored.

Does Martin Sandbu really not know who did the eurozone in? Or is it something else I am unaware of?

An absolute capital requirement for a bank, expressed in pounds, euros or dollars, is not a good idea.

Sir, Martin Sandbu, holds that regulators should require and publicise absolute capital requirements for banks, not as a fixed equity ratio, but in terms of an absolute level of equity expressed in pounds, euros or dollars “to be reached regardless of how the balance sheet evolves over the review period”, “Ignore the bluster from banks over capital requirements”. August 30.

Except for as a temporary emergency measure, that sounds like a bad idea.

That would make it even more impossible than now for the market to know what the real capital requirement for the banks is; leading to that many who could be interested in being shareholders in a bank would postpone their decision to invest; meaning that would place our banking system into the hands of some regulator’s risk-models (1.6 percent capital when lending to Greece?); meaning the regulatory risk weighting that so distort bank credit allocation in the real economy would only have found another way of express itself; meaning that banks would, for political purposes, sooner or later, would be need to conform with being "a friendly bank".

But, since an absolute level of equity de facto operates as an equity ratio making risk-weighing irrelevant for the bank, for a while at least, much better would be to go for a one and the same equity ratio for all banks that makes prudential sense... in my opinion the 8 percent basic capital requirement of Basel II which was a good number… until it got so risk-weighted down.

Of course then you need to help and support the banks to reach those capital levels that for many banks now seems only like having to reach for the stars.

Yes, bad domestic credit regulations did the eurozone in

Sir, Martin Sandbu writes “the crisis in many euro countries has more to do with bad domestic credit regulations than with the capital imbalances between them… The bright side of this is that the euro is not as flawed as all that”, “Europe needs new fables as Dutch and Portuguese go off-script” August 19.

And he is absolutely correct because that is precisely what has been my thesis for many years now as you know. More than a year ago, when Sandbu was blaming the “crazy capital flows” I sent you, and him, a letter titled “Don´t kill the eurozone dream just because bank regulators failed” and with which I also included a copy of my earlier “Who did the eurozone in?” At that time though, Sandbu only accepted that “lax capital requirements” were just “a bit of the culprit.

And as recently as in June this year, I repeated to Sandbu the same argument in a letter titled “Europe, I am sorry, as long as credit cannot flow freely, you will not get out of the hole.”

PS. By the way, are you not supposed to reference who have earlier made to you the arguments you are making? Or are you only morally obliged to do so, when it relates to some PhD or to some of your inner circle. I mean, Martin Sandbu, the author of "Just Business: Arguments in Business Ethics" would appear as someone knowledgeable about these sort of issues.

Europe, I am sorry, as long your banks must use channels, and credit cannot flow freely, you will not get out of the hole.

Sir, I refer to Martin Sandbu’s “Forget the Fed – it’s the ECB that should worry investors” June 21. In it Sandbu writes that in order for the “ECB to scale its operations down private cross-border credit must resume” and that “While pre-crisis credit was often wasted, richer savers lending to borrowers (who must deploy borrowed funds better) is what economic efficiency requires”. 

Indeed, the problem though is that the reason for why so much pre-crisis credit was wasted was that bank credit was not allowed to flow freely, but had to use an irrigation system designed by regulators. In that system, the depth of the channels, the capital requirements, varied dependent on the perceived risk. For instance bank credit could flow to the Greek government in a 62.5 to 1 leverage deep channel, while if lending to an unrated Greek business it had to use an only 12.5 to 1 deep channel.

And since these capital requirements based on perceived risk are still the most prominent feature of Basel III, there is no reason whatsoever to believe the allocation of bank credit will achieve the efficiency required to take Europe out of their hole. Europe, I am so sorry, but that is how it is.

Don´t kill the eurozone dream just because bank regulators failed

Sir, Martin Sandbu is absolutely correct when in “Forget break-up: it just needs more parental love” april 3 he writes “It is not the euro’s fault that investors, policy makers and academics failed to spot the dangers”, though one of the current problems is that at most policy makers and academics do not want to acknowledge that.

When Sandbu writes about crazy capital flow that threw money at American house-buyers with no income or Icelandic banks with no experience or European sovereigns – he is referring precisely to those sectors which were subsidized by bank regulators, because their perceived risk of default was low. Had the bank regulators required the banks to hold as much capital/equity when lending to these as they required the banks to hold when lending to small business and entrepreneurs, some other crisis might have happen, but definitely not this one and definitely not one as large.

PS. Who did the eurozone in?

Bank regulators and FT should also heed Aristotle

Sir, on January 13 Martin Sandbu explained very well “Why Aristotle is the banker’s best friend” though besides the bankers he should have included their regulators. I say this because in all the current banking regulations originating from the Basel Committee there is not one single word about the purpose of the banks, as all that regulators expect from them is that they do not fail.

When on the theme of “granting impunity to lazy thinkers” he should also consider the responsibility of a paper like the Financial Times… as the way it has decided to silence opinions like the previous, and other, and “not engage in reasoning”, because seemingly it rubs some of its associates the wrong way, would not have been something approved by Aristotle.

You, oil dictators, give us our (f……) oil revenues.

Sir Martin Sandbu and Nicolas Shaxson in “Give the people their resources wealth” June 5 write that “improved transparency, has hardly empowered ordinary citizens”. Of course not, with respect to oil revenues improved transparency is more like allowing the tortured to also be able to see when they extract their fingernails.

There are many places where citizens are finally waking up to the fact that the principle of that very well intentioned Extractive Industries Transparency Initiative and that states “We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development”, is just plain wrong.

And if there is truly one single thing the US should regret in the US is not having taken the opportunity to promote oil revenue sharing of the citizens in Iraq. Trying to sow democracy in a land where oil resources are centralized would be laughable but for its tragic implications.

In Venezuela I have over the last two years published at least 40 articles on the subject of why we need to wrestle away the oil check-book from the Hugo Chavezes of this world, and I am currently trying to form a global coalition of oil cursed citizens, to see if we can help each other since, at the end of the day, there is no such thing as an oil-cursed politicians, oil-cursed governments or oil cursed policymakers, on the contrary they are all most often shining examples of oil blessings... there are only oil-cursed citizens.

Unfortunately, since we citizens do not have the oil revenues yet, few want to help us, they prefer helping the dictators to become more saloon respectful dictators, but I guess that’s life on the oil curse lane.

http://theoilcurse.blogspot.com/