Will this tweet be ignored by FT?

How much hubris is needed for regulators to impose risk weighted bank capital requirements, as if they know what the risks are?

How much wishful hoping is needed when even Nobel Prize winners in Economic Sciences believe that the regulators do know?

http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

Beware, nudging, like that done by bank regulators, can have very dangerous unexpected consequences

Sir, Tim Harford writes: “Professor Richard Thaler’s catch-all advice: whether you’re a business or a government, if you want people to do something, make it easy.”, “Thaler’s Nobel is a well-deserved nudge for behavioural economics” October 10.

Yes “making it easy” is great advice, but it is only truly helpful if what is made easier is really good for you… otherwise it could be outright dangerous… like nudging someone over a cliff.

Regulators, caring little or nothing for the credit allocation function of banks, foremost wanted these to avoid risks. To that effect they allowed banks to hold less capital against what’s perceived or decreed safe than against what’s perceived risky.

With that regulators allowed banks to easily obtain higher risk-adjusted returns on equity lending to The Safe than when lending to The Risky.

With that regulators dangerously nudged our banks into too much exposure to The Safe and too little to The Risky.

The result was a bank crisis because of excessive exposure to The Safe: sovereigns, AAArisktocracy and mortgages; and economic doldrums because of insufficient credit to The Risky: SMEs and entrepreneurs.

Sir, and so here we are, without most not even knowing about the odious regulatory nudging that was as is being done.

What rules do we have to impose on nudging to make sure it is done right?

https://teawithft.blogspot.com/2008/11/at-least-listen-to-joker-before-giving.html

https://teawithft.blogspot.com/2008/08/how-do-you-nudge-financial-times.html

https://subprimeregulations.blogspot.com/2015/12/professor-richard-thaler-do-not-give.html

@PerKurowski

When in a peace process you cannot award both sides a Nobel Prize, you should know you should refrain entirely

Sir, Andres Schipani writes: “coming to Oslo represented a closing chapter for me too. I stood as the victims of the conflict Mr Santos had brought with him received thunderous applause. Oddly, there was no Farc presence. Instead, there was Ingrid Betancourt, a former hostage who has acquired celebrity status” “A Nobel Prize and the struggle for peace in Colombia” December 13. 

Let me be clear. I wish for peace in Colombia as much as anyone else, but the current peace proposal, and this Nobel Prize, represents way too little of a closing chapter for many Colombians than what it could represent for irrelevant outsiders, like Schipani and me.

And since Schipani brings up Dylan, again I must speculate on the possibility of secretarial errors at the Nobel Committees in Oslo and Stockholm. Perhaps Bob Dylan, with his "how many times must a cannon ball fly?" was more worthy of the Peace prize, while Santos of the literature one. The latter because for Santos to have presented to his people a 297 pages long document for referendum, must surely represent an outstanding moment in required reading. Would anyone in Britain have dared to do such thing? I doubt it.

That said, I also do not agree with the Nobel committee’s prize to Santos, for the very simple reason that if in a peace process, if you do not find yourself capable of giving both sides the same prize, then you should know that you should better abstain altogether.

Besides even if one could argue that had he proposal won the referendum, Santos would have been worthy of the prize... now, going "fast-track", over the peoples heads, clearly puts the whole process in a much less favorable light. 

And, if the prize was a sort of domestic consolation for the role Norway played as an observer in the negotiation, then it could have been more transparent to give that prize directly to Norway. Why not? Do observers not very often have to play the most difficult role of total neutrality while utterly disliking one or the other side, or both?

@PerKurowski

Was there not some secretarial mix-up with this year’s Nobel prices to Dylan and Santos?

Sir I refer to Ludovic Hunter-Tilney’s “Dylan is a deserving Nobel laureate” October 14.

Absolutely (I belong to those of the 60s who are currently living out their 60s). Yet I must ask: could there have been some mix-up with this years Nobel prices?

I mean could not the Peace one have been intended for the “...how many times must the cannon balls fly” Bob Dylan, while the Literature one was for Colombia’s Juan Manuel Santos, for his 297 pages long fiction book on peace?

@PerKurowski ©

Nobel prizes should be recalled if wrongly exploited & tenure of most professors of finance revoked for incompetence.

Sir, I refer to Tim Harford “Down with mathiness!” June 6.

ONE: Harford writes: Paul Romer holds “I point to specific papers that deserve careful scrutiny because I think they provide objective, verifiable evidence that the authors are not committed to the norms of science.” and suggests: “that Nobel prize winners should be ejected from academic discussion because of their intellectual bad faith.”

If Romer is right about the first he is obviously right about the second. But I would like to take it even further than that. The Nobel prize is often exploited to the tilt by some of its winners to further opinions that bear no relation to the specific achievement for which they won it. That could also qualify as intellectual bad faith. They got the prize, they got the money, but they did not get the right to sell other nonsense as of Nobel prize quality to innocent bystanders. If the winners do not make clear when they simply opine like any other professional, their Nobel prize should be recalled, for the good of society.

TWO: By allowing banks to hold different percentages of capital against different assets depending on their ex ante perceived credit risk, and therefore allowing banks to be able to obtain higher risk adjusted returns on equity with some assets than with others; the regulators completely distorted the allocation of bank credit to the real economy. And that clearly is not a minor thing… that can bring down an economy and a society.

And the explanation the regulators give for what they did can be found in a mumbo-jumbo document where some monstrous mistakes can be identified, even though these hide behind what would be too much mathiness for any layman. As far as I know, tenured financial professors have not questioned it… and that alone should be reason enough to revoke their status.

Think of it this way. Suppose those who fabricate compasses did not like that ships where navigating western waters and decided to introduce some weights which tilted the directions more in favor of ships going to eastern waters. What would happen if teachers in seamanship did not even refer to this distortive compass manipulation when educating the captains to be licensed? Should those teachers not have their own license revoked?

@PerKurowski

When in doubt just announce a Nobel Peace Price Objective

Sir personally I am convinced that Obama got the Nobel Prize for Peace by default since the committee could not really find someone else. That said I would not suggest for Obama to return the prize as Clive Crook does in “It is too early to land Obama – or to be disappointed” October 12, as that would be an unnecessary slap in the face of the Norwegians who must find themselves going through much pains anyhow trying to come up with a worthy winner each year. May I suggest to them the following alternative?

Those years when they do not find thee natural candidate why do they not declare an objective and that if accomplished would automatically give right to a Nobel Peace Prize sort of placing the carrot more explicitly before any possible candidates. As is it is not really sufficiently clear whether Obama got it for past or future achievements.

Should the credit raters undergo a security clearance?

Sir, Nassim Nicholas Taleb and Pablo Triana, “Bystanders to this financial crisis were many” December 8, are right in that we need to extract more accountability from the experts and from those that showed themselves incapable of questioning the experts. And, now and again, a please-return-your-Nobel-Prize back does not have to be so bad for the Nobel Prize either. That said I do not share in the extremisms like that of retiring “Value-at-Risk” books from the shelves” especially because those are exactly the books that now need to be reread so that we can learn from a better understanding of What-Was-Really-at-Risk.

Also, let us not look at this financial crisis as created only by financial scientists gone mad. The financial regulators are also to blame. Not only did they introduce minimum capital requirements for banks based on their own subjective interpretation of what risk means and without giving much thought on how that would affect the whole system but they also empowered some few credit rating agencies to be the official guides on risks which, as we have seen, was a magnificent act of pure madness.

Let me here ask the question that perhaps best helps to place the whole issue of the credit rating agencies in its real perspective. Since these agencies have been given so immense powers that if misused could turn them into dangerous weapons of mass destruction capable of inflicting big sufferings on humanity… should then the individual credit raters have to undergo a security clearance? Of course I do not imply any planned wrong doings, that I swear, but I guess you have to agree with me that this is at least great stuff for nail-biting movies.