About Italy, there are serious questions that FT, and others, should not silence.

Sir, I refer to “Draghi plots €221bn rebuilding of Italy’s recession ravaged economy” Miles Johnson and Sam Fleming, and to “Europe’s future hinges on Italy’s recovery fund reforms”, Andrea Lorenzo Capusella, FT April 22, and to so many other articles that touch upon the issue of Italy’s future, in order to ask some direct questions.

Do you think Italy’s chances of a bright future lies more in the hands of Italy’s government and its bureaucrats, than in hands of e.g., Italian small businesses and entrepreneurs?

I ask this because, with current risk weighted bank capital requirements, regulators, like Mario Draghi a former chairman of the Financial Stability Board, arguably arguing Italy’s government represents less credit risk, do de facto also state it is more worthy of credit. I firmly reject such a notion.

Yes, Italy clearly shows a stagnant productivity, but could that be improved by in any way increasing its government revenues?

Italy, before Covid-19, showed figures around 150% of public debt to GDP and government spending of close to 50% of GDP. I am among the last to condone tax evasion… but if Italian had paid all their taxes… would its government represent a lower share of GDP spending, and do you believe its debt to GDP would be lower?

One final question: Sir, given how Italy is governed, excluding from it any illegal activities such as drug trafficking, where do you think it would be without its shadow eeconomy, its economia sommersa? A lot better? Hmm!

PS. As you know (but seemingly turn a blind eye to), Italy’s debt, even though it cannot print euros on its own, has, independent of credit ratings, been assigned by EU regulators, a 0% risk weight.

Cutting taxes by means of inflation adjustment vs. reducing regulatory subsidies to state borrowings?

Sir, Sam Fleming reports “The Treasury has been examining the merits of adjusting capital gains taxes for inflation” “White House push to cut taxes for rich faces thorny obstacles” August 3. 

Fleming points out that the “initiative could cost $100bn or more over 10 years” and “Estimates from the Congressional Research Service suggest as much as 90 per cent of the benefits would go to the top 1 per cent of households.

Steve Moore, a visiting fellow at the Heritage Foundation opines: “It would be good for the economy. This is something we as free market people have been talking about for a long time.”

I am for free-markets, and I defended with great enthusiasm even more extensive inflations adjustments when they were introduced in Venezuela some decades ago, clearly before its current anti-free market regime came to power.

That said I would now use this occasion to ask, are such inflation adjustments, which reduces tax income, really compatible with the 0% risk weight assigned to the quite sizable US debt for the purpose of the capital requirements for banks?

That 0% risk weighting, de facto subsidizes US public debt, and which, on the tune of some 21 trillion in debt, could easily represent $100bn or more over 10 years.

If I were to choose, both from fairness and a free market perspective, I would much rather cut the bank credit distortions in favor of the sovereign than the inflation adjustment.

Just for a starter that would allow all to see better what the real unsubsidized interest rate on government debt is, and that should be useful, except fro those who do not want that to be known. 

PS. With a 0% interest rate, a 2% inflation target, how can regulators argue a 0% risk weight for a sovereign? That is of course unless they are from Venezuela or Zimbabwe, and only think of honoring public debts in nominal terms with the printing machine.

@PerKurowski

Mr. Powell. Tear down that wall of risk weighted capital requirements that destroy bank systems and economies

Sir, Sam Fleming writes that Jeremy Stein, a Harvard academic describes Jay Powell, the newly appointed chairman of the Fed, as curious, incredibly collegial, and willing to learn. “A safe pair of hands takes over the Fed” November 4.

Sir, for the umpteenth time: All major bank crisis have resulted from unforeseen events, like major devaluations or wars, criminal behavior or excessive exposures to something that was perceived as safe when incorporated in the balance sheets of banks. Never ever from excessive banks exposures to something ex ante perceived as risky.

Therefore I pray Jay Powell is curious enough to ask the following question:

Colleagues, the standardized Basel II risk weights sets 20% for what is AAA rated and could be very dangerous; and 150% to what is below BB-, that which seems so innocous because bankers would not touch it even with a ten feet pole. Could you please explain the thinking process that supports such risk weights?

If he does, I hope Mr Powell will not be hindered by too much collegiality, so that he is able to realize that the absence of a convincing answer to that question should make him seriously suspicious of some of his colleagues. 

And if he then wants to learn something I would offer him as an appetizer offer him the following:

Mr. Powell, the future problems of the Fed (and other central banks) will be insurmountable if we persist in using risk weighted capital requirements for banks.

Credit is not flowing to where free markets offer the highest risk adjusted net margins but, since 1988, Basel I, and most specially since 2004, Basel II, it is flowing to what offers the highest risk adjusted returns on capital, something which totally distorts when banks are allowed to leverage assets differently, depending on how their risk have been perceived, decreed or concocted as safe.

And the distortions are alive and kicking in Basel III too.

That impedes the economy to realize its full potential and also does not in any way guarantee financial stability, much the contrary.

Our savvy bank loan officers have now been replaced by saddening bank equity minimizing, bonuses maximizing officers.

And for a more complete explanation I would refer Mr. Powell here

@PerKurowski

Janet Yellen, Mario Draghi, ask IBM’s Watson what algorithms he would feed robobankers, to make these useful and safe

Sir, Sam Fleming reporting from Jackson Hole writes “Janet Yellen, the Federal Reserve chair said regulatory reforms pushed through after the great financial crisis had made the system “substantially safer” and were not weighing on growth or lending. … If the lessons of the last crisis were remembered “we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly”, “Yellen warns opponents of tighter financial rules to remember lessons of crisis” August 26.

As I see it Yellen has not yet learned at all that past and future financial crisis have not, nor will ever, result from excessive exposures to what was or is perceived as risky, these will always result from unexpected events, like when that was perceived, decreed or concocted as very safe, turned out ex post to be very risky.

Since regulators do not to want listen to anything else but their own mutual admiration net-works’ risk biases, I wish they would contract IBM’s neutral Watson to ask it the following:

Watson, while considering the purpose of banks as well as the real dangers to our financial systems, what algorithms would you suggest feeding robobankers with?

THEN Yellen, Draghi and colleagues should compare that algorithm with what they are feeding the human bankers with; the portfolio invariant risk weighted capital requirements that assumes that bankers do not see or clear for risks by means of size of exposure and risk premiums charged.

Then these regulators would understand that with their over-the-board incentives for banks to invest or lend to what is safe, like AAA rated securities and sovereigns, like Greece, they are in fact creating those conditions that dooms banks to suffer huge crises, sooner or later, over and over.

Then these regulators would understand that their regulations induce banks to stay away way too much from lending to what is perceived risky, like SMEs and entrepreneurs, something which clearly must weigh heavy against the prospects of our real economy to growth.

Janet Yellen, Mario Draghi, please ask Watson! Perhaps you could find him on LinkedIn 😆

@PerKurowski

It is in our best interest to keep Yellen, Draghi and other failed regulators out of tackling financial instability

Sir, I refer to Sam Fleming’s and Claire Jones “Yellen to tackle financial stability at Jackson Hole” August 24. Is the title a Freudian slip? Does “tackle” not refer to a problem, such as financial instability?

I argue that since Yellen, as part of that bank regulatory brotherhood that with risk weighted capital requirements for banks helped to cause financial instability, is simply not capable enough to help out achieving financial stability.

The idea of requiring banks to hold less capital (equity) against what is perceived, decreed or concocted as safe, like sovereigns, the AAArisktocracy and residential houses, than against what is perceived as risky, like SMEs and entrepreneurs, is absolutely cuckoo.

That means that when banks try to maximize their risk adjusted return on equity they can multiply (leverage) many times more the perceived net risk adjusted margins received from “the safe” than those from “the risky”. As a result clearly, sooner or later, the safe are going to get too much bank credit (causing financial instability) and the risky have, immediately, less access to it (causing a weakening of the real economy). 

Anyone who can as regulators did in Basel II, assign a 20% risk weight to what is AAA rated and to which therefore dangerously excessive exposures could be created, and 150% to what is made so innocuous to our banking systems by being rated below BB-, always reminds me of those in Monsters, Inc. who run scared of the children. I wish they stopped finding energy in the screams of SMEs and start using instead the laughters of these.

The report also includes a picture of some activists holding a “We need a people’s Fed”. Yes, we sure do! Assigning 0% risk weight to the sovereign and 100% to any unrated citizen is pure statist ideology driven discrimination in favor of government bureaucrats and against the people. But perhaps the activists depicted are not into that kind of arguments. 

Draghi and Yellen might discuss problems associated to ECB’s and Fed’s large exposures to sovereign that their QEs have caused. If they were honest about the size of the problem, they should in the same breath include all sovereign debts and excess reserves held by banks only because of a 0% risk weight. Sir, if that’s not financial instability in the making what is?

PS. Those in Monsters Inc. all finally figured it out. Our bank regulators in the Basel Committee and the Financial Stability Board have yet to do so, even 10 years after that crisis produced mostly by AAA rated securities backed by mortgages to the US subprime sector. and loans to sovereigns like Greece 😩

 

@PerKurowski

One day, Stanley Fischer, like most current central bankers and regulators, will ask himself, why did I not see that?

Sir, Sam Fleming writes: “Fischer worries about attacks by lawmakers on global regulatory bodies such as the Financial Stability Board, arguing that the rules it proposes are good for the world if everyone adopts them.” “Lunch with the FT Stanley Fischer ‘It’s dangerous and short-sighted’” August 19. Like Gershwin wrote it, “It ain’t necessarily so!”

In November 1999 in an Op-Ed in Venezuela I wrote: “The possible Big Bang that scares me the most, is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause its collapse”

In April 2003 as an Executive Director of the World Bank I argued that Board that "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind."

And in January 2003, FT published a letter in which I stated: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”

Sir, had regulators not introduced their risk weighted capital requirements for banks, made worse by the importance given to some few human fallible credit rating agencies, the 2007/08 crisis would not have happened; and the economy, net of automation and demographic factors, and considering the outlandish stimuli, would not be as stagnant as it is now.

PS. That Op-Ed I referred to above also included: “I recently heard that SEC was establishing higher capital requirements for stockbroker firms, arguing that “. . . the weak have to merge to remain. We have to get rid of the rotten apples so that we can renew the trust in the system.” As I read it, it establishes a very dangerous relationship between weak and rotten. In fact, the financially weakest stockbroker in the system could be providing the most honest services while the big ones, just because of their size, can also bring down the whole world. It has always surprised me how the financial regulatory authorities, while preaching the value of diversification, act in favor of concentration.”

Let me translate that into the current risk weightings. “It establishes a very dangerous relation between risk and the right to access credit. The “risky”, like SMEs, could be providing the most important additions to the real economy, while sovereigns and AAA rated, just because of their perceived “safety”, could bring the whole world down.”

@PerKurowski

With current bank regulations a pervasive drop in economic dynamism should come as no surprise

Sir, Sam Fleming writes: “The US has seen a pervasive drop in economic dynamism in every one of its states since the early 1990s as new business formation sinks and workers move jobs less frequently, according to research that underscores the challenges in restoring entrepreneurial verve.” “Fall in US dynamism underlines Trump challenges” May 24.

How could that not be? Since 1988, our banks are in hand of regulators who decided that, in order to make banks safer, it would be better for these to finance home ownership, which can somewhat reduce mobility, and to avoid financing the risky, such as SMEs and entrepreneurs, those number one economic dynamism providers.

It amazes me how so few understand the distortion in the allocation of bank credit to the real economy that the risk weighted capital requirements cause. The day the world wakes up to that fact, the regulators will have a lot of explaining to do… perhaps even in front of International Courts of Justice.

@PerKurowski

The Sovereign’s footmen, the regulators, are force-feeding the economy public debt. When will the liver explode?

Sir, Sam Fleming and Robin Wigglesworth report: “The Fed will need to operate with a much larger balance sheet than before the crisis — at least three times as big, say some investors — in part because of regulatory and other changes governing institutions’ appetite for safe assets” “Fed edges towards paring back its balance sheet” May 2.

Of course, in 1988 the Sovereign had his bank regulation footmen declare him risk free, 0% risk weight, while the citizens, they got a 100% risk weight.

When kicking with QEs the 2007/08 crises can down the road, the Fed as well as some other central banks, purchased enormous amounts of public debt.

With Basel III the regulators kept going at it introducing liquidity requirements that much favored “marketable securities representing claims on or guaranteed by sovereigns”.

Insurance companies’ regulators, with their Solvency II, are closely following the same path.

Now when they are thinking of reeling the 2007/08 can in, to sort of prepare for the next crisis, how is the Fed to do that? Well the authors report that accordingly to Mr Rajadhyaksha, head of macro research at Barclays: “Assuming that it wants to get rid of all its $1.8tn of mortgage bonds as it retreats from the home loan market, it may have to start buying Treasuries again at the tail-end of the process” which means more sovereign debt will be purchased.

In other words the Sovereign’s foot soldiers are de facto force-feeding public debt down the economy’s throat. When will the economy’s liver explode?

And the craziest thing is that most experts still take the interest rates on such debts to be market fixed, and to reflect the real risk-free rate.

How could so much statism have been injected in our system without it being noticed?

This statism de facto presumes that government bureaucrats know better what to do with credit than the private sector. That presumption leads of course to disaster. 

We now read in IMF’s Fiscal Monitor 2017 (page x), with IMF acting like the Sheriff of Nottingham for King John, that “the case for increasing public investments remains strong in many countries in light of low borrowing costs” and that “the persistent decline in the interest rates may have relaxed government budget constraints in advanced economies; if the differential between interest and GDP growth were to remain durably lower than it has been in past decades, countries could be able to sustain higher levels of public debt.” “Low borrowing costs” IMF? Do your research and dare to figure out why. Others are paying for that by having less access to credit.

Sir, IMF has the galls to title 2017 Fiscal Monitor as “Achieving More With Less”, while completely ignoring that over the last decades, Sovereigns, have been Achieving So Much Less With So Much More.

@PerKurowski

President Trump. Bankers have already way too much representation. Give the much-needed “risky” borrowers more voice

Sir, I refer to Sam Fleming’s and Alistair Gray’s “Bank’s president is latest alumnus to be tapped for a senior White House job” December 10.

Current bank regulations overtly favor banks earning much higher expected risk adjusted returns on equity when lending to something perceived as safe, than when lending to something perceived as risky, like to SMEs and entrepreneurs.

That of course delights bankers but the other side of the coin, is that the real economy is not getting its credit needs efficiently satisfied.

Therefore Trump would do a lot better assuring the perspective of “borrowers” is more represented in his government, than the clearly overrepresented perspective of bank lenders.

PS. I would love for Trump to convene the regulators and ask them a set of questions that they refuse to answer to someone as powerless as me… that is unless perhaps I threaten them with going on a hunger-strike.

@PerKurowski

Truth is that all in the Fed behave less like doves, and much more like statist hawks

Sir, Sam Fleming writes: Federal Reserve once again held short-term interest rates unchanged… a victory for doves… Even if they concede a quarter-point increase by the end of the year, it will leave the Fed on track for the shallowest rate-lifting cycle in modern times”. “Doves ascendant in Yellen’s Federal Reserve” September 23.

The effects of keeping those interest rates down, when combined with the QEs, and when combined with the regulatory subsidies implicit in the 0% risk weighting of the sovereign, goes primarily and in large scale to the government. In that respect I am not sure we should talk about Fed doves, they all qualify more as statist hawks.

@PerKurowski ©

​

More than low-growth, central bankers fear having to explain risk-weighted capital requirements for banks

Sir, Sam Fleming, reporting on the meetings at Jackson Hole writes: “Eight years after the crash, major economies including the US are stuck with sub-target inflation, ultra-low rates, and economic growth that remains pedestrian…[central banks] could be trapped in a low growth rut that leaves them hugely vulnerable when the next downturn comes.” “Central bankers fear threat of low-growth rut”

And again the distortion in the allocation of bank credit to the real economy that the credit risk weighted capital requirements for banks causes, was not even discussed.

But of course, who would want to discuss the following?

Sir, you risk weigh an AAA to AA rated asset with 20% and a below BB-rated asset with 150%. Do you mean that assets that are perceived as very risky are more dangerous to the banking system than assets perceived as very safe?

Sir, explain how on earth you have gotten away with risk-weighing the Federal Government at 0% while risk weighing “We the People” at100%?

Sir, if a bank can leverage one asset more than another, would it then not expect to earn a higher risk adjusted return on equity with that asset, and would it then not invest more than normally in that asset?

@PerKurowski ©

Dare ask bank regulators: Why do you think that what is perceived as risky is riskier than what is perceived as safe?

Sir, Philip Stephen writes: “The crash and the subsequent depression broke the confidence of a generation of political leaders. All the guff they had learnt about a new financial capitalism, self-equilibrating markets and the end of boom and bust was shown to be, well, guff… bankers by and large got off scot free. Not so politicians who believed their own propaganda and embraced the laissez faire Washington Consensus as the end of history. Capitalism survived the crash, but at the expense of a collapse of trust in ruling elites” “Politicians are paying the bill for the crash” December 18.

What “laissez faire Washington Consensus”? That which with the Basel Accord prescribed a risk weight of zero percent for sovereigns and 100% for the private sector? That which with the risk-weighted capital requirements for banks completely distorted the allocation of bank credit?

The problem is that the trust of politicians in the ruling regulating technocrats did not collapse. As I have said many times, neither Hollywood nor Bollywood would have been so dumb as to allow the producers of a box office flop like Basel II to proceed, with the same scriptwriters, to produce Basel III.

I have a feeling politicians, Fed’s policy makers and perhaps even some FT journalists start to suspect that something is making the Fed and the ECB stimulus fail; and would therefore want to ask regulators: Why do you think that what is perceived as risky is riskier for the banking system than what is perceived as safe?

Why don’t they ask? Perhaps the explanation is one that John Kenneth Galbraith gave in “Money: Whence it came where it went” 1975, namely that “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections.”

PS. Sir, now when the credit quality of EM markets is deteriorating, banks holding such debt are required to put up more capital against positions taken up during sunnier days, putting a squeeze on bank lending, and so everything will become darker yet. Vive la procyclicité!

@PerKurowski ©

What? “Historic gamble for Yellen as Fed makes quarter-point rise” Has the world gone bananas?

Sir, “a quarter-point increase in the target range for the federal funds rate to 0.25-0.5 percent”… and that is what you title a “Historic gamble for Yellen”? Unbelievable, it sounds like a something taken out of a Bird & Fortune sketch, or a Lilliput vs Blefuscu war.

Sam Fleming writes that the “Move comes amid lacklustre global growth”. Of course, as I have explained to FT in more than 2.000 letters, there is no way to achieve anything different than lackluster global growth, if you allow banks to earn much higher ROEs on assets perceived as safe than on assets perceived as risky. Risk-taking is the oxygen of any forward movement of the economy.

As is banks are mostly refinancing the safer past and safer houses, and staying away from financing the riskier future and job creation.

@PerKurowski ©

When regulators told banks: “Stop chancing on the future and just safeguard the past”, they doomed the middle class

Sir, I refer to Sam Fleming’s and Shawn Donnan’s FT’ Big Read. “America’s Middle-Class Meltdown: Changing fortunes” December 10.

To explain why the middle class and those who aspire to be middle class, those who are doing fine and growing when the economy grows in a balanced way are currently doomed, let me quote two passages from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975.

First: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]”

Second: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

And so Sir, when bank regulators introduced credit risk weighted capital requirements for banks; which allow banks to leverage more their equity with the net risk adjusted margins provided by those perceived as safe, than with those provided by the “risky”; which allows banks to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky; then they effectively instructed banks not to take a chance on the more risky future, but to concentrate on safeguarding the safer past… and that was, and currently is, the beginning of the end of the middle class… and the increase of inequality.

Let us be clear, in the Home of the Brave, the Trojan Horse of the Basel Committee, helped cement a dangerous sissy aversion to credit risks.

​@PerKurowski ©

Failed bank regulators, Mario Draghi, FSB, should not be given a chance, ECB, to cover up for their mistakes, Greece

Sir, Ferdinando Giugliano, Sam Fleming and Claire Jones write: “Mr Draghi is adamant that rules, not politics, have dictated its approach to Greece and other member states.” “Peak Independence?” November 9.

Thomas Hoenig’s the vice chairman of FDIC in a speech delivered on November 5 stated: “Some sources of risk undoubtedly have been fed by current regulations designed to direct banks’ activities in accordance with regulators’ views. For example, banks levered up on sovereign debt of nations such as Greece due to the zero risk-weighting given by “risk-based” rules.”

Clearly FDIC’s vice chairman agrees with what I have been saying for years, namely that it was the Basel Committee, and their associates, who did Greece in.

Mario Draghi the now President of the European Central Bank and the former chairman of the Financial Stability Board, should never have been placed in a position where he could try to cover up for his participation in the mistakes that brought Greece down.

As is the fatal credit risk weighted capital requirements for banks still conspire against all Greek SMEs and entrepreneurs having fair access to bank credit, in order to help their land crawl out of the hole its in.

PS. When I think about all those “risky” who because of regulators have not had fair access to bank credit in order to try to create the new jobs the new generation need… I get so… sad/mad

@PerKurowski ©

Ben Bernanke: “The Courage to Act” - in the midst of a sissy regulatory aversion against banks taking credit risks?

Sir, I refer to Sam Fleming’s comment on Ben Bernanke’s book “The Courage to Act”, “Bernanke attacks Capitol Hill over crisis role” October 6.

From the book he quotes “The Fed can support overall job growth during an economic recovery, but it has no power to address the quality of education, the pace of technological innovation, and other factors that determine if the jobs being created are good jobs with high wages.”

There is an Equal Access to Education Act. Suppose there were some few agencies that rate the qualifications of a student to make it meritoriously; and suppose universities used these ratings during their pre-screening process. What would America say if the Department of Education ordered these Education Worthy ratings to be considered once again in the final selection… and with double importance?

There is an Equal Credit Opportunity Act (Regulation B). Bankers already consider credit risks when setting interest rates and deciding on the size of exposure, among others the information provided by credit ratings. But then bank supervisors decided, by means of the Basel Accord in 1988 and its subsequent revisions, that the capital banks would be required to hold, were also to be based on exactly the same credit risk perceptions. 

That of course meant that anyone who was perceived “risky” from a credit point of view would be considered doubly risky, while anyone perceived “safe” would be considered doubly safe. And of course that has completely distorted the allocation of bank credit and thereby hindered job creation and, by keeping a lid on opportunities, helped cause more inequality.

On this odious discrimination against fair access to bank credit, Ben Bernanke has kept absolute silence. Most probably he did so completely unwittingly, but that is not a valid excuse for a chairman of the Federal Reserve. But of course he is far from being the only one to blame.

To top it up Bernanke names his book “Courage to act”; when the last decades have been signed by a sissy regulatory aversion to credit risk... as if avoiding taking the credit risks that helped the country to become what it is, has now become the only purpose of banks… in the Home of the Brave. Hah! 

With bank regulations like these, clearly the “American economy will fall tragically short of its extraordinary potential”. 

By the way, regulators assigner a zero risk weight to the Sovereign (the government), while the private sector, that one were most citizens that make up a Sovereign usually work, got a 100 percent risk weight. Anybody who does not find that strange, harbors a statist heart and mind.

I can hear all the SMEs and entrepreneurs who thanks to bank regulations never got their chance rocking away:

You ain’t nothing but a statist… scheming all the time.

You ain’t nothing but a statist… scheming all the time.

You ain’t never created something… and you sure ain’t no friend of mine.

PS. Courage is involved when taking calculated risks, not when taking desperate measures. 

@PerKurowski © J

FT, do you really think credit-risk-weighted capital requirements for banks do not cause lower productivity?

Sir, Sam Fleming and Chris Giles ask: “what can be done to restore the productivity levels needed to boost living standards…?” “The waiting game”, May 26.

But even though they point out “Investment is too low”, they do not even mention the effect that credit-risk-weighted capital (equity) requirements can have on that and on productivity.

The Basel Committee’ credit-risk-weight of governments is 0% while the weight of SMEs and entrepreneurs is 100%.

And that is something quite discussable, especially in these days when governments announce they need to use financial repression in order to impose informal haircuts on their obligations.

But that also translates de facto into the Basel Committee stating that the risk weight for bank credit not being used productively is 0% for government bureaucrats, and 100% for SMEs and entrepreneurs.

And only communists could think that has no negative effect on productivity.

Are you communists FT? If you’re not then it is high time you help me to ask regulators about the concept of productivity weighted capital requirements for banks? I mean something that gives our banks a more elevated societal purpose, than just being safe-mattresses, and housing or government financiers.

Have not our children and grandchildren waited enough for that?

@PerKurowski

Risk weights for bank credit not used productively: for bureaucrats 0%; for SMEs 100%. And FT still wonders what went wrong?

Chris Giles and Sam Fleming write: “Economists now identify the problem of low productivity as one of the great threats to improved living standards, in rich and poor countries alike… The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers”, "No great shakes Weak growth turns into a problem of global proportions" May 26.

Regulator set up their credit-risk-weighted capital (equity) requirements for banks, based solely on who could most safely repay a bank loan, and not one iota based on who could best use a bank loan.

And so, as ideologues, they gave the government bureaucrats a zero percent risk-weight and an SME, or an entrepreneur, a 100 percent risk weight.

And FT, you still do not get what has gone wrong?

@PerKurowski