Should financing human rights’ violators help fund US pensions?

Sir, I refer to Colby Smith’s “Year began with ‘hardcore fear of missing out’ but now holders of Caracas debt have lost hope” December 21

I wonder how one can discuss the chances of creditors collecting on Venezuela’s debts, ignoring that their funds have all gone to finance a notoriously corrupt and inept government that has and is evidently committing crimes against human rights?

Odious debts is mostly the direct result of odious credits…

With respect to the sanctions of Venezuela by the US Treasury’s Office of Foreign Assets Control, an international bondholder is quoted. “These sanctions were just a disaster, and all this has done is damage holders of the bonds, many of which manage money for US pensioners.” Really in these days when financing of good social purposes is promoted, like to finance the sustainable development goals, SDG’s, should financing human rights’ violators really help fund pensions?

Frankly, “Fidelity, T. Rowe Price, BlackRock and Pimco” as well as Goldman Sachs should all be shamed; and tell us the name of that “one bondholder group holding $8bn of Venezuela’s debt”, because such exposures do not happen without very close and incestuous contacts with the government.

@PerKurowski

To save the banks the regulators must admit their huge mistakes, and rectify these urgently and intelligently

Sir, Philippe Bodereau, the global head of financial research at Pimco writes: “To prevent… equity volatility [to] temporarily destabilise a large institution the European Central Bank must convince the equity market that rates will not go deeper into negative territory, capital requirements will not spiral higher in perpetuity and regulators will not move the goalposts on asset quality again.” “European banks’ crisis of earnings cries out for a quick Italian job” July 19.

I disagree because that is at best a very temporary solution. The banks and their shareholders in general, though specially the European, cry out for a real explanation of what is happening, and so that they can regain the trust in the future of banking.

This because the truth is that the current risk weighted capital requirements, those which allow banks to leverage their equity and the societal support they receive more with what is perceived as safe than with what is perceived as risky, are entirely unsustainable, for two reasons.

First, though they might allow banks to earn high risk adjusted returns on equity on what’s safe for quite some time, in the long run they will cause banks to dangerously overpopulate “safe” havens, which is precisely the stuff major bank crises are made of.

Second, as they impede the “risky”, like SMEs and entrepreneurs, to access sufficiently bank credit, the real economy will begin to suffer, and there is not a chance banks can expect to survive with a real economy in tatters.

Substituting a significant leverage ratio for the risk weighting, would eliminate the distortions.

That said it has to be done intelligently, so that the economy does not suffer an excessive credit squeeze. One way could be allowing banks to hold the capital originally required on all their current assets and have the new ones apply solely to any new assets.

Since that would, on the margin, reduce the demand of banks for safe assets such as loan to sovereigns, that would, on its own, help to avoid getting deeper and deeper into negative territory.

I would also suggest European finance ministers to look at Chile’s intelligent way of extricating its banks from very similar difficulties in 1981-1983

@PerKurowski ©

In terms of dangerous hubris, Bill Gross is nothing when compared to bank regulators.

Sir, I refer to Gillian Tett’s “Hubris, politics and finance make a toxic mix”, October 4.

She makes many good points and I am sure a Daedalus Trust can play a very important role as a hubris buster…that is as long as it can keep the hubris of its own hubris slayers in check.

But here the center of Ms. Tett’s concerns on excessive hubris is Bill Gross, ex-Pimco, and he is really nothing compared to the hubris that is still rampant among bank regulators. Their mind-boggling hubris caused them to believe they could, with their risk-weighted capital requirements for banks, even act as the risk-managers for the whole banking world.

Ms. Tett reminds us of slaves who walked alongside victorious Roman generals reminding them they were mere mortals. That is exactly the role for a FT, and with its motto FT shows it knows it, but, over the recent years, it has too often instead fed the hubris of some of those most at risk, like for instance "whatever it takes" Mario Draghi… in whom it trusts so so much.

For the last decade I have diligently walked along FT, trying to un-requested perform the role of such a slave. Unfortunately those at FT seem not to be anything like a Roman general wanting to hear the truth.

Mr. Gross was the victim of bank regulatory distortions in favor of the “infallible sovereigns”

Sir, Gillian Tett writes: “After a life of trend spotting, Gross missed the big shift” September 29 and she argues that “Mr. Gross is a potent symbol of a distorted investment world”.

Indeed he is, but again Ms. Tett is not able to identify the main source of the distortion that I believe Gross missed, namely the risk-weighted capital requirements for banks which allow banks to hold debt of the “infallible sovereigns”, against much less capital than what they need to hold against any other asset. 

In November of 2004 FT published a letter in which I wrote “how many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector”

Clearly neither Mr. Gross nor Ms. Tett read that letter.

And when are investors to sue Blackrock and Pimco because of these experts lack of due diligence?

Sir, I read Camilla Hall and Luc Cohen reporting “Six banks sued over trustee roles” June 19.

What­? If Pimco or Blackrock had had any of those executives really deserving huge bonuses they hold they have, they should have know that if regulators authorized banks to hold securities rated as AAA, against a so meager 1.6 percent in capital, meaning they could leverage their own capital 62.5 times to 1, something very bad was going to happen, and so they needed to be very alert.

And so in this respect I ask, when are the Pimco and the Blackrock investors going to sue Pimco and Blackrock for the lack of due diligence?

If expert companies can try to get out of their buyer’s beware responsibility, why should not the small investors try?

How much safe sound private money can we really have before it really becomes just too dangerous?

Sir, Paul McCulley writes “The crisis of the past decade was a reminder of the instability inherent in private money”, as if public money is inherently stable, “Make shadow banks safe and private money sound” June 17.

Also, as I see it, the number one reason private money turned unstable, was precisely the efforts of regulators to make it safe… as they concocted those senseless capital requirements for banks based on perceived risks, and which only guaranteed that when a bank crisis resulted from excessive exposures to what was perceived as absolutely safe, as all bank crisis do, the banks would then be standing there with their defenses, their capital, at a very low.

No Mr. McCulley, you at Pimco might have a vested interest in it, but I guarantee you that we, the rest, have no wish for Easterly’s tyrant experts to make our private money too safe… that is just too dangerous.