A Universal Basic Income, a Societal Dividend, needs always to be slightly small, so as never risk being too large.

Sir Ralph Atkins and Gemma Tetlow report that “Swiss vote against basic income provision” “Welfare systems” June 6.

I support Universal Basic Income, for me it is a Societal Dividend, but I would have voted NO in the referendum. 2.500 Swiss Francs, about US$3.500 monthly, about 50 percent of the Swiss GDP per capita is way too large for a “Basic”. In Switzerland, something like $1.000, perhaps expressed as a percentage of GDP or of average or median salaries, would be a much more reasonable level at which to start this social experiment.

And of course the idea of those working not getting the UBI plays directly into the hands of those arguing that UBI could cause people to work less.

So what is a Societal Dividend or a Citizen's Dividend of that kind proposed by Thomas Paine? Here is my personal take on it.

It is a basic amount transferred to anyone independent of having been able to capitalize on society’s strengths and accumulated assets, like having been able to get a good job.

It could be seen as an effort to grease the real economy by combating the natural concentrations of wealth.

It could be seen as a substitute for many those redistribution efforts that because of their complexity, is bound to attract the profiteers.

It is a well-funded transfer, no funny money, from citizens to citizens, or from natural resources inherited by an Act of God, but not depending on government favors. It could therefore be seen as an effort by citizens to become more independent of that populism and demagoguery that often lies behind all societal redistribution.

Also the way it is funded, can help to align the incentives for other societal causes, for instance if with carbon taxes, with the efforts for a better environment.

But a Societal Dividend should never ever be so large so as to risk de-capitalizing the Society or induce generalized lazyness.

@PerKurowski ©

PS. In other words the Swiss UBI referendum was set up to fail... probably by some anxious redistribution profiteers L

Could a beneficiary sue a pension fund for blatant breach of trust if it buys a bond with negative interest?

Sir I refer to Ralph Atkins’ and Elaine Moore’s “Negative rates to hit financial system”, February 16.

I have a question: Could a beneficiary sue a pension fund for blatant breach of trust if it buys a bond with negative interest? I mean is that not something like agreeing to a sort of prepaid pre-accepted haircut with somebody else’s money?

If I managed a pension fund, I would sure send a letter to all those who are expecting my management to provide them with a decent retirement stating something like: 

“Warning, we must inform you that central banks and governments are creating dangerously strange market conditions for which we hope you will not hold us personally responsible… and, for the time being, forget about expecting something like an 8 per cent return... if you earn enough with us to pay our costs, consider yourself a winner”.

Sir FT, what would European public borrowing cost be without bank regulations which discriminate in favor of such borrowings?

Sir, I refer to Ralph Atkins "Greece’s clash with its creditors is part of a global challenge" February 6. It states “More controversial would be further sovereign debt restructurings…This debate has so far largely escaped markets’ notice as a result of QE — most lately by the European Central Bank — which has suppressed private and public sector borrowing costs.”

Yes, QEs have artificially suppressed borrowing costs, meaning also the returns to investors. But what really has escaped the debate, is on how much the borrowing costs of sovereigns all around the world, are being suppressed by those risk-weighted equity requirements for banks imposed by the Basel Accord and that so much favor the public sector borrowings?

Tell me Sir FT: what would the public sector borrowing cost be for the European sovereigns, if banks needed to hold as much equity against their loans than what they are required to hold when lending to small European businesses or entrepreneurs?

November 2004, in a letter you published I asked: “How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Sir, why have you for more than a decade not even tried to advance an answer to that concern?

Sir FT, don’t you know that those who do not criticize what’s dumb, do de-facto confess to be coward or dumb themselves?

Europe is caught in a bank regulation trap set up by the Basel Committee and the Financial Stability Board

Sir, I refer to Ralph Atkins’ and Michael Mackenzie’s “Caught in a debt trap” January 29.

They write “Crisis-fighting actions by central banks have not only sent yields on government debt to lows not previously seen in recent history but many of them are negative. Across much of Europe, investors are actually paying for the privilege of lending money to governments in some cases.”

Indeed, but little can be concluded from that without referencing the regulatory trap in which banks have been caught.

In Europe banks represent by far the most important part of how liquidity is transmitted to the real economy. And Europe’s equity scarce banks, because of tightening equity requirements, for instance by means of the leverage ratio, while the risk-weighted equity requirements are still in place, are being forced to take cover, more and more, in what regulators have denominated to be safe havens… with deposits at central banks and debts of “infallible sovereigns” being the safest of those.

And so banks, at gunpoint, are forced to accept negative rates on their deposits with central banks or incest in low yielding sovereigns. And so what we see is not a market expressing its free will, but a market that is competing with banks subject to distorting regulations.

If Mario Draghi had not been the Chairman of the Financial Stability Board, and might therefore be too reluctant to concede how disastrous current bank regulations are, then perhaps the recent stress tests of European banks would have included an analysis of what was not on their balance sheets. And that would have pointed squarely to the lack of lending to the “risky” small businesses and entrepreneurs… those tough risk-takers Europe needs to get going now when the going is tough.

I still believe bank regulators did it all because of sheer group-think derived stupidity but, if not, they should be… well, I leave that to you.

European Court of Justice. Beware, ECB's Mario Draghi does not know what he is doing, and if he does, then so much worse!

Sir Ralph Atkins writes “Trust them, they are central bankers… That, in essence, will be the European Court of Justice’s thinking on government bond buying by the European Central Bank” “Short View” January 15.

Trust them? Hah!

“Your Honor, Mario Draghi, the President of the European Central Bank, is the former Chair of the Financial Stability Board. As such he helped to impose on banks equity requirements that limited the leverage of bank equity to about 12 to 1 when lending little to a small European business or entrepreneur, but allowed banks to leverage 60 to 1 and even more when investing in AAA rated securities backed with mortgages awarded to the subprime sector in the USA or lending to such an “infallible sovereign” like Greece.

Your Honor, I am sure that when hearing this you will dismiss as utter nonsense, the claim presented to you, that central bankers know what they are doing.

And if by any chance he really knew that, so much the worse. That would mean he was on purpose discriminating against all european small businesses' and entrepreneurs' rights of having fair access to bank credit ... No wonder there is a shortage of jobs in Europe!

And judge, you won't believe this... now they want to inject more liquidity into the markets with what they call Quantitative Easing... QE... without first removing the regulatory distortions that impedes bank credit to be allocated efficiently in Europe”

We need bank regulators to be more like lions and less like scared of mice kittens.

Sir, Ralph Atkins’ writes that “Across most of the Eurozone governments can borrow at historically low costs” and I wonder whether he is not comparing apples with oranges, “Financial system is a flighty animal in search of its inner lion” January 2.

The low interest costs he sees are not all the costs there are. The current risk weighted capital requirements for banks, which so much favor bank lending to the “infallible sovereigns”, have introduced huge distortions, which guarantee that capital will not be allocated efficiently; and which final costs could be equally humongous.

He should ask a Greek. Had banks needed to hold as much capital when lending to Greece’s government than what they needed to hold when lending to a small Greek business, then Greece would not have suffered such a build up of excessive sovereign debt and would not be in the mess it is in.

Today, in FT’s and Atkins’ Britain the interest rates on Britain’s public debt is being subsidized by many small businesses or entrepreneurs, through by paying higher relative interest rates or by having less access to bank credit… let us pray the costs of that will be manageable.

Sir, Atkins has no business asking the financial system for its inner lion, when so many problems derive from that regulators have turned into kittens so risk adverse they do not even dare to chase mice.

That this kitten has been able to tame the western markets making them lose “much of their lion-like abilities” should evidence the dangers of empowering kittens with too much regulatory powers.

Central banks pushing down government borrowing costs to historic lows. Is it by wooing markets, or is it a shotgun wedding?

Sir, Ralph Atkins and Michael MacKenzie write that “the world’s biggest central banks have this year wooed financial markets, pushing down government borrowing costs to historic lows”, “Central banks take their cue from Sinatra” December 11.

Really, is it by wooing or is it more of a shotgun marriage? Since capital requirements for banks are being increased all around, but the risk-weighting that so much favors the borrowings of the infallible sovereigns remains entrenched, more than of Sinatra’s singing it makes one think of his rumored relations to the mafia.

The Basel Committee giving hints on what to do

Central banks’ Friedman helicopter pilots have no idea about how to spread quantitative easing and low interest rates

Sir, Ralph Atkins report that "Central bankers face ‘confidence bubble’” August 28.

With respect to central bankers as bank regulators you know very well it’s been a long time since I have had any confidence in them. They are so lost in the labyrinth of their own making.

For instance they are now also supposed to base their monetary policy on the job rate, and so they pour liquidity and low interest rates on the economy while at the same time, with their risk-weighted capital requirements, they make sure that does not go as bank credit to “The Risky”, the medium and small businesses, the entrepreneurs and start-ups… those who could create the next generation of jobs. How crazy is not that?

Really, how smart is it of the central bankers to believe ordinary lowly bankers to be so blind and so dumb so as to require them to hold 5 times as much capital when they lend to someone they know has a BB- rating than when they lend to someone they know has an AA rating?

Or, inversely, how smart is it of central bankers to believe ordinary lowly bankers when they argue they could hold only a fifth of capital when lending to someone who has an AA rating, than what they should hold when lending to someone with a BB- rating?

I can’t help to ask myself what Friedman would have to say about the ability of the current central bank’s helicopter pilots. I am sure he would be aghast at their stupidity.

PS. FT, dare to ask!

The weaker their banks the lower the interest rates of their sovereigns; the sick result of risk-weighted capital requirements.

Sir, Claire Jones and Ralph Atkins report “EU borrowing costs hit new lows amid call for ECB intervention” August 22.

And they write for instance that “Portuguese yields fell to a near decade low – despite fears about weaknesses in its banking system”. Is it so hard to understand that precisely because of perceived weaknesses in the banking system sovereign yields must fall… because sovereign debt is precisely what weakened banks with no capital can hold without being required to have bank capital?

That is one of the very sick results of the very sick risk-weighted capital requirements for banks.

PS. FT reporters... dare to ask The Question!

Draghi’s “Whatever it takes” does not include admitting risk-weighted capital requirements for banks cause distortions

Sir, Ralph Atkins reports on “businesses unable to tap capital markets – which includes job-creating small and medium sized enterprises”, “Crisis drags on for small European companies” July 11.

Not only do small companies have to face the fact that their loan requests are small and so the credit analysis is much more expensive per euro borrowed compared to those larger who can afford a credit rating but, to top it up, regulators also ask banks to hold much much more capital against these than against safer companies.

And this regulatory fact is not even mentioned by Atkins… it is frankly embarrassing.

And ECB hopes “targeted longer term refinancing operations”, or Tltros, which will inject liquidity in banks will help to solve this problem. That is embarrassing too, since what banks most lack is not funds but capital.

Clearly ECB’s Mario Draghi’s “whatever it takes” does not include admitting that the risk-weighted capital requirement for banks odiously discriminates against the possibility of “the risky” for a fair access to bank credit… by dangerously favoring the access to bank credit of those who are already favored by being perceived as “absolutely safe”

PS. Q: Why did interest rates on sovereign periphery debt tumble? A: Much because banks do not need to hold capital against it.

ECB European banks have no lack of funds but they do have an enormous lack of shareholders’ capital.

Sir, Christopher Thompson and Ralph Atkins report that despite targeted long term refinancing operations, TLTROs, some banks will not lend to SMEs, “Doubts grow over effect of ECB loans” May 10. 

Of course not! “There isn´t a funding crisis any more” they quote Ken Watrett of BNP Paribas saying and the full truth is that there has not been a funding crisis for a long time now. The crisis, in full bloom, is that of an enormous lack of that shareholders´ capital banks are required to have, especially if they to lend to SMEs.

Just days ago, June 4, Sam Fleming ends a comment in the Analysis "Still unstable" with: “Many euro area banks remain undercapitalized, and for the taxpayers to be insulated from future banking crises balance sheets may need to be strengthened by more than €400bn.” What an extraordinary coincidence that the TLTROs figure announced is also €400bn… could there be something there?

PS. By the way think of those chips used by Mario Draghi when doubling down, as the future of our kids.

PS. I have been writing to FT for years on this problem… but Sir, You have silenced me. My TeawithFT blog with all my letters are out there on the web though, and perhaps soon also in a book… and so one day you might have some explaining to do.

A virtuous circle or cycle in Europe? Hah!

Sir, you hold that “Mr Draghi may not have to go down the QE road. There is growing sentiment in financial markets that the ECB chief’s credibility has already created the virtuous circle Europe needs to emerge from the crisis. Lower bond yields are improving credit conditions across the eurozone”, “Draghi must tackle threat of deflation”, May 10.

And Ralph Atkins also refers to the same “virtuous cycle” in “Draghi’s bluff closer to being called”.

What can I say? As I see it the risk weighted capital requirements for banks which favors immensely bank lending to the “infallible sovereigns” over any lending to “the risky” medium and small businesses, entrepreneurs and start-ups, has placed Europe in a vicious circle, or cycle, in a real death-spiral.

And Mario Draghi, as a former chairman of the Financial Stability Board, bears much responsibility for that.

Why on earth should there be any Quantitative Easing in Europe if the liquidity provided cannot flow freely to where it is most needed?

Can bank regulators keep silence on the conversion to equity probabilities of cocos?

Sir, I have one question in reference to Alice Ross’ and Christopher Thompson’s “German banks line up to join coco party”, April 24.

Do regulators have any moral or formal duty to reveal to any interested buyers of cocos if they suspect the possibilities of these having to be converted into bank equity being very high? I say this because if so, and if they keep silent on it, that would make them sort of accomplices of bankers. Would it not?

Of course banks need capital, lots of it, but tricking investors into it, does not seem like the right way for getting it.

All triple-A ratings are doomed to be downgraded, sooner or later.

Sir, Ralph Atkins and Keith Fray report “Triple A government debt ratings fall as financial crisis takes toll” April 1. It could not be any other way as all triple A ratings are doomed to be downgraded.

The fact of combining the implied safety of a triple A rating with lower capital requirements for banks when holding such debt guarantees that, sooner or later, those so rated will receive too much debt in too lenient conditions, and will then wake up to a disaster.

In 2002 in an Op-Ed titled “The riskiness of country risk" I wrote: “What a difficult job sovereign credit rating is! If they overdo it and underestimate the risk of a given country, the latter will most assuredly be inundated with fresh loans and will be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If on the contrary, they exaggerate the country’s risk level, it can only result in a reduction in the market value of the national debt, increasing interest expense and making access to international financial markets difficult. The initial mistake will unfortunately turn out to be true, a self-fulfilling prophecy. Any which way, either extreme will cause hunger and human misery.”

No Mr. Ralph Atkins. We know precisely that the next financial polar vortex is going to hit… where it always hits!

Sir, Ralph Atkins writes that “six years after the eruption of the financial crisis… we know remarkably little about where the next ice storm might break”, “Investors hunt for the financial polar vortex", January 10.

He is wrong. We know exactly that the next financial polar vortex is going to break out where these always do, namely in a haven that has been perceived as “absolutely safe”, but has become dangerously overpopulated.

And the damages will be worse than ever, because of the manmade fact that, when it hits, just like when the last 2007-08 hit, our banks will have little capital to cover up with, as a direct consequence of those nonsensical risk-weighted capital requirements the Basel Committee concocted.

Does FT´s capital markets editor really believe that in free markets banks could leverage equity 50 times or more?

Sir, I refer to Ralph Atkins´ review of Costas Lapavitsas´ “Profiting without producing”, “A Marxist take on economic meltdown” December 9.

In it Atkins writes “The resulting financial turmoil and global economic slump cast doubt on the ability of free markets to provide sustainable growth and employment in advanced economies”. I truly marvel at how one can call the current financial turmoil a result of “free markets” when for instance there can be no doubt that in really free markets banks could never ever have leveraged their equity 50 times or more. That was only made possible by extremely intrusive bank regulations that were based on such nonsense as risk-weighted capital requirements for banks.

It also argues that “financialisation”, which can indeed be corrosive, “has forced the retreat of labor and exacerbated income equality”. But again that is not the consequence of free markets but of regulations that so much favor the access to bank credit of “The Infallible” over that of “The Risky”.

Atkins correctly holds that “when it works, finance discipline governments and companies” but then he blithely ignores the fact that for instance, with Basel II, banks were authorized to lend to “infallible governments holding no capital at all. What a disciplining!

And as to "a Marxists take on economic meltdown", that is precisely what I would first ask the author… what is not Marxist about requiring the banks to hold substantial capital when lending to the private citizen and zero capital when lending to a central government?

EU, ECB, what “Robin Hood” taxes are you talking about? Sounds like mislabeling to me

Sir, Ralph Atkins writes “ECB offers to recast‘Robin Hood’ tax amid fears over market impact” May 27, and I just have to ask “What Robin Hood tax?” as in its current form it seems just to be another tax collected by a Sheriff of Nottingham to feed the coffers of Prince John. 

PS. Never forget, nothing as effective against tax-havens than tax-heavens

Has Robin Hood sold out and now been co-opted by King John as a neo-Sheriff of Nottingham?

Sir, Ralph Atkins and Alex Barker quote Simon Chouffot saying “You can draw parallels between the Sheriff of Nottingham and financial services, and Robin Hood redistributing gains back to those who needed it.”, “Robin Hood tax: A long shot”, May 21.

Sorry but I am utterly confused, I always saw the Sheriff of Nottingham as the tax collector for bad King John, and Robin Hood as providing good people a safe-haven in the Sherwood Forest.

There might be many reasons for wanting to feminize banks but, if it is to reduce risk-taking, then down we go!

Sir I refer to Ralph Atkins “If banks really want to be safe they should hire historians”, April 3.

Absolutely! Those historians would be able to inform you that historically the real dangers for banks have always lurked among what is perceived by the bankers to be absolutely safe, and never ever among what they perceive as risky.

Those historians might also add that one of the most important components for the nations and for their economies to develop, and move forward, is the willingness and the capacity of taking smart risks, which is the reason of course why in some churches we can hear psalms praying “God make us daring!”

Those historians might also add that there is no better way of keeping banks safe, than a sturdy and growing economy.

There might be many reasons why you would like to feminize your banks, like some of those referred to by Susan Menke in “The feminization of banking, why we need a kinder gentle banking” July 2011.

But if you want to do it in order to reduce risk-taking like the research of the Bundesbank that Atkins refers to, then you just have just had it from the very start.

In fact, even though perceived risks of bank assets are already cleared for by means of interest rate, amount of exposure and other contractual terms, bank regulators, primarily with Basel II, and following it up with Basel III, decided that those same perceptions of risk should also be reflected in the capital requirements of banks… more-risk-more-capital less-risk-less-capital.

And with that they allowed the banks to earn much higher risk adjusted expected returns on their equity on exposures to “The Infallible” than on exposures to “The Risky”.

And that, which completely ignores that smart daring risk-taking is the oxygen of any growing and sturdy economy, effectively castrated the banks and made them sing in falsetto… and down we go!

Fat chance Mario Draghi and ECB will be able to help “The Risky”

Sir, Ralph Atkins writes about “the challenge the ECB faces in ensuring low official interest rates feed through into lower [bank] borrowing costs, especially for job-creating small businesses in countries such as Italy and Spain”, “Blow to ECB as widening loan rates hit south" April 1.

Current bank regulations allow banks to obtain immensely higher expected risk adjusted returns on equity with assets perceived as “absolutely safe” than on assets perceived as “risky”. The “risky” must therefore pay the banks more than usual in order to make up for that competitive disadvantage in access to bank credit created by the regulators.

Mario Draghi, the ECB president, and who as Chairman of the Financial Stability Board has been closely involved with bank regulations, has never even understood how current capital requirements cause the widening of the spreads between "The Infallible” and The Risky”

And so with respect to the possibilities of the ECB successfully meeting the aforementioned challenge I can only say… Fat chance!