For banks to lend to businesses it takes two to tango, liquidity and bank capital.

Sir, Valentina Romei, with respect to ECB’s targeted longer term refinancing operationswrites “According to TS Lombard: In both Spain and Italy, TLTRO borrowing corresponds to about 15 per cent of gross domestic product… Yet in both Italy and Spain, growth in commercial bank loan books has been weak”. Francesca Vasciminno, of Fitch Ratings in Milan explains it with “Partially this is the result of banks using the cheap funds “opportunistically to invest in government bonds if yields are attractive” “ECB loans fail to ignite bank lending” April 10.

Does ECB not know that banks in Italy and Spain, which as most banks are not awash with capital to say the least, need to hold 8% in capital against risk weighted assets and currently, because of EU’s insane Sovereign Debt Privileges, 0% against loans (or bonds) to their government?

There simply is no way that a TLTRO, or any other fancy program, is going to sustainably result in more and in relative equitable terms business lending by banks, without the removal of the risk weighted bank capital requirements. One might think that the introduction of a leverage ratio might have reduced its distortions but the truth is that, on the margins, there where it most counts, the distortion pressure of these has only increased.

Sir, soon for the three thousands time, before the insane risk weighted bank capital requirements disappear, there will be no muscular economic growth, which requires risky proteins, and all we will see is increased bank obesity resulting from increased exposures to safe carbs.

@PerKurowski

Anyone jumping ship on the delusion that risk-weighted capital requirements make banks safer and economies better, has a better chance to survive

Sir, Wolfgang Münchau discusses many delusions held by both Brexiters and Remainers, and argues correctly: “To make the best of Brexit, the UK will need to embrace a more entrepreneurial and innovative economy” “An old-fashioned economy heads towards a downfall” November 20.

But when he writes: “For Brexit to succeed the UK will end up becoming more — dare I say it — European”, I disagree.

That because when Münchau holds that Britain “has an entrepreneurial culture to build on”, that is unfortunately no longer the case. No country with an active “entrepreneurial culture” would ever have allowed the de facto anti entrepreneurial risk-weighted capital requirements for banks.

Sir, if I had to choose between a Britain that did not hold back its risk takers, and one that was comfortably living off a larger European market then, if thinking about my grandchildren, I would without any doubt prefer the first one.

As I see it the European Union, governed by unelected risk adverse technocrats, who like old soviet central planners paint from their desks roads to the future, is doomed to fail… and that no matter how much “Universities… work more closely with industry”. In that Europe, the faster you jump ships the better.

If I were a British citizen I would instead be calling out to Europe proposing a different EU. Who knows what answer I would get from Poland, Italy, Spain, Portugal and others? Why for instance should they stay with those who most benefit from a Euro made weaker by the weaker?

PS. For those who do not know me in the context of any European Union and Euro debate, perhaps the following Op-Ed could help as an introduction. 

https://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

@PerKurowski

Sadly Bolivar did not free Venezuela from its natural resource curse

Sir, Gideon Long writes about the immense significance Simon Bolívar has for all Venezuelans. “Bitter enemies invoke spirit of Bolívar as vote looms” July 27.

As a Venezuelan I can only agree with most of it but, unfortunately, in October of 1829, Bolivar ordered the continuance of what had been decreed in 1783 by Carlos III of Spain, namely that all precious metals and “juices of the earth” reserves belonged to the Republic.

With that Bolivar guaranteed the Venezuelan governments would not depend exclusively on the citizens and that, sooner or later, some would capture the government to steal it blind.

If we Venezuelans are to gain real independence all our net oil revenues have to be shared out entirely to the citizens.

Had that been achieved earlier, the current disaster would not have had a chance to happen.

It is a great tragedy that freeing Venezuela from the curse of centralized oil revenues is still not on the agenda of anyone the most important opposition leaders.

@PerKurowski

When you parents prod banks to finance houses more than SMEs, more of your children will have to live with you.

Sir, Stephen Burgen when reporting on the horrifying lack of jobs in Spain, especially for the younger, informs: “According to a report by Spain’s Youth Council, a body of youth organisations, nearly 80 per cent of those aged between 16 and 29 years old live with their parents” “Part-time labour” April 22.

For purposes of setting the capital requirements for banks, in 2004 Basel II set the risk weight for financing residential houses at 35% while that for financing an unrated SME or entrepreneur was set at 100%.

That meant that banks could leverage their equity much more when financing the purchase of a house than when lending to SMEs or entrepreneurs.

That meant that banks would earn higher risk adjusted returns on equity when financing the purchase of a house than when lending to SMEs or entrepreneurs.

And so of course, the result of such distortion in the allocation of bank credit, will mean there will be much more financing of houses than job creations.

C’est la vie! Those who will most pay the consequences of bank regulators being so dumb, are of course the young.

Though their chances of obtaining clear answers are very slim, here are some questions the young could try to ask the bank regulators.

Burgen writes: “Casual contracts keep Spaniards looking for permanent work. Only a minority enjoy the benefits and security of permanent employment”. “Part-time labour” April 22.

Welcome to the new world… in which structural unemployment, created among other by robots and automation, and nurtured by dumb regulators, might mean hundred of millions young never ever having something resembling an employment.

I ask would not a Universal Basic Income, let’s say some 400 Euros allow everyone to adapt? It would be a small but useful ladder with which to step up to the gig economy. 

That could be much more efficient than introducing additional costly distortions such as paying “up to €9,600 per annum to employers who offer young people permanent contracts” or “giving public sector workers on short-term contracts [special benefits to obtain] permanent jobs”. Really? Threatening to take away the permanent jobs of bank regulators if they don’t smart up, fast, seems like a better strategy.

http://bombaaaa.blogspot.ca/2014/07/mi-carta-al-rey-felipe-vi.html

@PerKurowski

This would be my brief testimony about what caused the 2008 bank crisis… if ever allowed

Sir, John Authers writes: “This week, Senator Elizabeth Warren, said the next president should reopen investigations into senior bankers who avoided prosecution, and that the FBI should release its notes on its investigations. The failure to punish any senior bankers over the scandal angers the populist left and right, the world over.”, “We are still groping for truth about the financialcrisis” September 17.

The following, if I am ever allowed to give it, as so many would not like to hear it, would be my brief testimony on what caused the 2008 bank crisis

Sir, as I have learned to understand it, the 2008 crisis resulted from a combination of 3 factors.

The first were some very minimal capital requirements for some assets that had been approved starting in 1988 for sovereigns and the financing of residential housing; and made extensive in Basel II of 2004 to private sectors assets with good credit ratings.

These allowed banks then to earn much higher expected risk adjusted returns on equity on some assets than on other, which introduced a serious distortion. After Basel II the allowed bank equity leverages were almost limitless when lending to “sound” (or friendly) sovereigns; 36 times to 1 when financing residential housing; and over 60 to 1 with private sector assets rated AAA to AA. Just the signature, on some type of guarantee by an AAA rated, like AIG, also allowed an operation to become leveraged over 60 times to 1.

The second was Basel II’ extensive conditioning of the capital requirements for banks to the decisions of some very few (3) human fallible credit rating agencies. As I so many times warned about (in a letter published in FT January 2003 and even clearer in a written statement delivered at the World Bank), this introduced a very serious systemic risk.

The third factor is a malignant element present in the otherwise beneficial process of securitization. The profits of that process are a function of how much implied and perceived risk-reduction takes place. To securitize something safe to something safer does not yield great returns for the securitization process. Neither does to securitize something risky into something less risky.

What produces BIG profits is to securitize something really risky, and sell it off as something really safe. Like awarding really lousy subprime mortgages and packaging them in securities that could achieve an AAA rating. A 11%, 30 years, $300.000 mortgage, packaged into a security rated AAA and sold at a 6 percent yield, can be sold for $510.000, and provide those involved in the process an instantaneous profit of $210.000 

With those facts it should be easy to understand the explosiveness of mixing the temptations of limitless , 36, and more than 60 to 1 allowed bank equity leverages; with subjecting it too much to the criteria of few; with the profit margins when securitizing something risky into something “safe”. Here follows some indicative consequences:

As far as I have been able to gather, over a period of about 2 years, over a trillion dollars of the much larger production of subprime mortgages dressed up in AAA-AA ratings, ended up only in Europe. Add to that all the American investment banks’ holdings of this shady product.

To that we should also add Europe’s own problems with mortgages, like those in Spain derived in much by an excessive use of “teaser interest rates”, low the first years and then shooting up with vengeance.

And sovereigns like Greece, would never have been able to take on so much debt if banks (especially those in the Eurozone) would not have been able to leverage their equity so much with these loans.

Without those consequences there would have been no 2008 crisis, and that is an absolute fact.

The problem though with this explanation is that many, especially bank regulators, especially bank bashers, especially low equity loving bankers, do not like this explanation, so it is not even discussed.

The real question though is: Who is the guiltiest party, those who fell for the temptations, or those who allowed the creation of the temptations?

I mean how far can you go blaming the children from eating some of that deliciously looking chocolate cake you left on the table, at their reach?

Sir, John Authers, tell me if you believe I at least have a point, should that not merit a discussion?

@PerKurowski ©

Who buy 50-year and negative yield bonds? Those who are not to be held too much accountable in the short term?

Elaine Moore writes that “Spain lures investors with 50-year bond” and Eric Platt in “Munis welcome the world’s yield starved” of May 13, writes about almost $10tn of bonds globally carrying negative yields”.

Who are those buying 50-year and negative yield bonds? Have those buyers anything to do with ordinary investors, like you and me Sir? Are we really talking about investors needing yields because they hurt in their own pockets or are these investors managing other not clearly defined peoples money, like pension funds, with the push comes to shove moment so far away they do not feel too much accountable to anyone, now.

Sir, in order to gauge the market better we might very well need to have the market data refined based on the type of investors.

@PerKurowski ©

“We need worthy and decent unemployments”… and a Universal Basic Income could be useful for that.

Sir, Tobias Buck quotes Marcel Jansen, a professor of economy at Madrid’s Autónoma university with “More than a quarter of unemployed workers in Spain have been out of a job for more than four years. Their chances of getting back into the labour market are very dire” “Spain’s first quarter job losses less severe than usual” April 29.

It relates directly to an Op-Ed I wrote in Venezuela (before I was censored there) titled “We need worthy and decent unemployments”. I quote the following from it:

“What politician does not speak up for the need to create decent and well paid jobs for young people? But, if that's not possible, and the economy is not able to deliver that on its own ... What on earth do we do?

Society must of course do its utmost seeking to solve the problem of youth unemployment ... including taking leisure to levels never thought of… six months vacations! But it also needs to prepare itself to handle a growing number of unemployed, not cyclical but structural, that is, those who never ever in their life will have a chance to get an economically productive job.

The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, at least in the sense of these not interrupting those working.”

And recently I have reflected on that a Universal Basic Income, as that is not-having-a-job-or-not related social contribution, could be a significant part of the efforts needed.

@PerKurowski ©

Urgently fire those damn bank regulators who abandoned the young and ignored their needs for jobs and a future

Sir, I refer to the true tragical horrors described by Tobias Buck in “The fear and despair of Spain’s young jobseekers” March 2.

And I tell you again, though you will most probably ignore me again, that nothing as serious as that would have happened had not some few powerful and arrogant bank regulators, while trying to level the field for banks to compete, unleveled the real economies’ access to bank credit.

Read the chapters of “Capital adequacy and the Basel Accord of 1988” and “The BCBS and the social sciences” in Charles Goodhart’s “The Basel Committee on Banking Supervision: A History of the early years 1974-1997” 2012, Cambridge Press and you will understand. There is not one single reference to that how banks allocate credit to the real economy was of any concern whatsoever to regulators. And most probably it still is not.

Had they given that banks’ social purpose the slightest thought, they would have understood, unless too dumb, that their credit risk weighted capital requirements for banks impeded banks to adequately serve the economy.

Allowing banks to leverage equity differently based on “risk”, allows banks to earn higher risk adjusted return on equity on what is perceived or deemed to be“safe”, than on what is perceived as “risky”

So now “The safe” get too much credit on too lenient terms, while “The Risky” have no access to bank credit, that is unless they pay much higher risk adjusted premiums than they would ordinarily have to pay in an undistorted market.

Houses are safe so lend to that, but SMEs and entreprenuers the job creators are risky so cut them off!

Sovereigns are safe so lend to these, but the private sector is risky so, except for the AAArisktocracy, cut it off!

And so now our banks do not finance the “riskier” future they just refinance the “safer” past.

These regulators must be stopped! They are financial terrorists who threaten the future of our kids. And you FT must stop covering up for them.

“A ship in harbor is safe, but that is not what ships are for” John Augustus Shedd, 1850-1926

But not even ships are safe in a safe harbor if that harbor gets to be dangerously overpopulated.

@PerKurowski ©

Here a call in Spanish to the young to demand the risk taking they need

Here a letter in Spanish to the King asking for him to help the youth of Spain

Yes to a tax on carbon. But no to hidden subsidies or it going to tax revenues profiteers/distorters

I come from an oil extracting country, Venezuela, and so of course I should be horrified of a carbon tax that, one way or another, would affect the value we get from liquidating a barrel of non renewable oil forever.

But I am not, because in order to act responsibly towards the planet that our children will inherit, I accept the need to impose some restrictions on its use.

And I therefore entirely agree with Tim Harford in that “We can’t rely on high oil and coal prices to discourage consumption: the world needs — as it has needed for decades — a credible, internationally co-ordinated tax on carbon.” “Cheap oil and its consequences”, December 20.

But how the revenues produced from that tax should be handled, is an issue of utmost importance.

Let me start with the hardest concept to understand for all who do not posses oil on their own. The reason why you can charge a very high tax at the pump is the very high convenience value consumers give to petrol/gas. And so it is not really correct for a country that did not give up that non-renewable resource, to, by means of taxes, capture all that rent for its own benefit.

In some ways it would be like if oil extracting countries imposed a tax on the consumption on all foreign products that have especial attractiveness to their local consumers… a kind of luxury tax directed solely to the luxuries provided by others. What would for instance France say about a tax that in an oil extracting country they taxed French wines valued over a certain price range?

And we are not talking about peanuts. As I wrote in a letter published in FT in 2003 at that time, before the big increase in oil prices, for every $1 received by the one supplying the petrol, the European taxman got $4. And sometimes at that time, like in Germany and Spain, much of those tax revenues were even used to subsidize coal, like rubbing salt into the wound, and this even while the petrol tax was justified in environmental terms.

So how do I suggest the carbon tax revenues are applied? I have no defined idea about it, except wanting to avoid that some carbons get a better treatment than others, and that all those revenues fall into the hands of vulgar tax revenues profiteers or distorters.

What if all carbon taxes collected in the world were put in a big pot and thereafter just distributed in equal shares to all citizens of the world? That could both dent existing world inequalities (a stimulus for the economy), and increase the general interest in the fight for a better environment.

@PerKurowski ©

Mr. Regulator: Do we now need political risk weighted capital requirements for banks?

Sir, John Authers writes how “The Children’s Investment Fund (TCI)… is challenging the Spanish government’s move to reduce the tariffs that the Spanish airport operator Aena can charge, [because] that will reduce Aena’s value by more than $1bn… and TCI is the second stakeholder in Aena after the Spanish government itself.” “Political risk lowers the appetite for infrastructure deals” June 11.

Holy moly! It looks like we now could need political risk weighted capital requirements for banks. I wonder how that meshes with the current zero percent risk weighing of government debt?

@PerKurowski

Spain (the whole Western world) needs a manifesto that explains what happened and then inspires hope… and here is what I propose.

Sir, Andres Ortega’s “The debt Greece owes us is the least of Spain’s worries” February 5 is a very responsible written article… perhaps too responsible for the times, because a call for responsibility, to produce responsibility, must be accompanied by a clearer reason for hope than what is reflected in his “So extend and pretend — and reform and grow.”

The following would be my message, my manifesto to Spain.

“Bank regulators, with the intentions of making our banks safer, decided that banks needed to hold more equity against what was perceived as risky, than against what was perceived as safe. Unfortunately, this translated into that banks were able to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky… and that, as you should be able to understand, excluded all small businesses and entrepreneurs, our primary growth agents, from having fair access to bank credit.

In this respect we are announcing that, effectively today, we are requiring our banks to hold the same equity against all assets, 8 percent; and since that generates immediately an immense deficit of required banks equity, which the markets will not be able fast, we, the government of Spain, will subscribe all equity needed to fill that gap, with the intention of not exercising its voting rights and of selling it back to the market, little by little over the years.”

Andres Ortega writes about “a wedge between the north and south of the Eurozone”. He would benefit from understanding that the real wedge is between “the risky” and “the safe”, between the ordinary citizens and their "infallible sovereigns" and the AAArisktocracy.

Do I own a copyright of myself? If so, should I not get a cut of what’s paid when advertising is tailored to me?

Sir, I refer to your editorial on the upcoming law in Spain that indicates that “all online news aggregators will be required to pay Spanish publishers a fee for contents that they link to”, “Spain’s flawed challenge to the mighty Goggle” December 12.

I mostly agree with what you write, but I do have some question on other two related issues:

First, if online news aggregators have to pay, why do not newspapers also have to do that, for instance when they review a book… and when that review can even lead to the book not being read, much less bought?

Second, cannot it be said that I own a copyright of myself? If so, why should I not get a cut of what’s paid to Google for someone to be able to tailor his advertising to me? And also, when somebody searches me, should not Goggle collect a fee and split it 50-50 with me?

PS. By the way, if all advertising I receive is tailored to me, does that not go against my human right to be able to become someone different… perhaps even someone better… or as a minimum at least someone with a better taste?

PS. Should not Google and other public private eyes also search our permission before searching us for other to us unknown parties?

“Spaniards you will not have to pay Spain's debts, and you will not have to work too much” stinks pure cheap populism

Sir, Wolfgang Münchau writes “There is nothing controversial about the statement that if debt is unsustainable it needs to be restructured”, “The radical left is right about Europe’s debt” November 24.

Indeed, absolutely right. But then Münchau holds that Podemos of Spain “may be the one that comes closest of all those in the Eurozone to offering a consistent approach to post-crisis economic management”.

If a knowledgeable Münchau cannot differentiate between understanding the need of debt restructuring, and using that need in terms of haranguing “screw those capitalists”, in order to gain self interested power, then Europe is indeed in trouble.

Just two days ago Tobias Buck reported that Podemos’ European election manifesto included “a commitment to a 35-hour workweek, and to lowering the retirement age to 60”.

Does not “Spaniards, you will not have to pay Spain debts, and you will not have to work much” stink cheap populism?

Pablo Iglesia’s offer of a 35-hour workweek and a retirement age of 60 in Spain, sounds more like a “No se podrá”

Sir, I have surprised read Tobias Buck reporting that Pablo Iglesias, of Podemos (we can), suggests “a 35-hour work week and lowering the retirement age to 60”, “Spanish upstart party challenges status quo”, November 22.

Sincerely, in a so job starved Spain, that sounds to me much more like a giving up, like lets share the leftovers, like a defeatist “No-Podemos”.

If that is what Spain wants, then Spain is truly in big trouble.

I hope Spain understands that speaking engagingly, emotionally and with great empathy of the problems of a nation, has absolutely nothing to do with the capacity of solving those problems, on the contrary, these are often worsened by experts in verbal populism. (See: Venezuela)

If I was a Spaniard, and a bit similar to Churchill’s “Blood, sweat and tears”, I would now be arguing: “We can (nosotros podemos) and must get out of this sorry mess, and make Spain great again, even if that takes a 60 hours working week and forces us to work until we’re 100”.

PS. When an Executive Director of the World Bank, 2002-2004, it was a great honor for me to be sitting in the chair which represented, among others, Spain and Venezuela.

La oferta de Pablo Iglesias de 35 horas de semana laboral y 60 años para la jubilación, me suena más a un ¡No Podemos¡ 

Señor Editor, sorprendido leí a Tobias Buck informando que Pablo Iglesias, de Podemos, sugiere "una semana laboral de 35 horas y la reducción de la edad de jubilación a los 60", "partido advenedizo español desafía status quo", 22 de noviembre. 

Sinceramente, en una España tan  hambrienta de empleos, eso me suena mucho más como un abandono, como a un vayamos a compartir las migajas sobrantes, como a un derrotista "¡No-Podemos!". 

Si eso es lo que España quiere, entonces España esta realmente en serios problemas. 

Espero que España entiende que el poder cautivar hablando con gran empatía de los problemas de una nación, no tiene absolutamente nada que ver con la capacidad de resolver tales problemas, por el contrario, éstos son a menudo agravados por los expertos en populismo verbal. (Ver: Venezuela) 

Si yo fuese español, y algo similar a lo de "sangre, sudor y lágrimas" de Churchill, yo estaría ahora argumentando: "Nosotros sí podemos y tenemos que salir de nuestra triste situación, y hacer de España de nuevo grande y fuerte, incluso si esto nos obliga trabajar 60 horas por semana hasta los 100 años". 

PD. Cuando fui un Director Ejecutivo del Banco Mundial, 2002-2004, fue un gran honor para mi estar sentado en la silla que representaba, entre otros, a España y a Venezuela. 

http://bombaaaa.blogspot.ca

IMF, forget it! Spain, for the time being, is incapable of ‘turning a corner’… for the better

Sir, I refer to Tobias Buck’s “Export-shaped cloud looms over Spain’s bright outlook” July 22.

In it he refers to that “The IMF this month declared that Spain had ‘turned the corner’”

Forget it! No country that insists on capital requirements for banks which discriminate against the fair access to bank credit for the “risky”, medium and small businesses, entrepreneurs and start ups, can turn a corner… at least not for the better.

About this, on the web, I placed a message in a bottle to King Felipe VI, on his first working day

http://bombaaaa.blogspot.com/2014/06/carta-publica-al-rey-felipe-vi-de.html

To measure the real costs of bank credit look at those 100 percent risk weighted. The sovereigns are subsidized

Sir, when Peter Spiegel writes about Italian and Spanish borrowing costs are at the lowest levels since the euro´s launch, I presume he refers to the borrowing costs of the sovereign Italy and Spain. I say this because I am sure of that if he went down to the poorer quarters where the Italian and Spanish small businesses and entrepreneurs hang out, he would, at least in relative terms, find a quite different reality, “The eurozone won the war – now it must win the peace” May 17.

One of the current problems is being able to separate the effects from real lower risk appreciations of sovereigns, from the subsidies that much lower bank capital requirements when lending to them imply. In these days of extreme bank capital scarcity the low rates paid by sovereigns might hide the fact that other borrowers have to pay higher rates or do not get access to bank credit at all.

As I see it the eurozone has won no war… it has not yet even discovered who one of the real enemies is, namely that absurd and dangerous risk aversion introduced by its bank regulators. Real peace in Europe, besides other requires throwing away the whole concept of risk weighted bank capital requirements.

Perhaps Otmar Issing should lower the volume of his preaching to Europe.

Sir, in much I agree with what Otmar Issing writes in “Get your finances in order and stop blaming Germany”, March 26, though perhaps he might not be the best suited to be doing the preaching.

As a former chief economist of ECB Issing should have known that: allowing German banks to lend too much to for instance Spain and Italy, against zero capital, and affecting those German small businesses who do not get credit because when lending to them German banks do need to hold much capital; and which later might cause German bank busts which hurt German taxpayers, could be said being disguised transfers from Germans to Spain and Italy.

When Otmar Issing ends stating “The Eurozone did not fall into a crisis because the initial rules were flawed” he should not forget how flawed bank regulations became, are.

Otmar Issing, for your benefit, here´s an aide-mémoire… Who did the Eurozone in?

Sir, don’t you recognize insanity when you see it?

Tobias Buck reports on how “banks from countries such as Spain and Italy borrow money cheaply from the European Central Bank to buy high-yielding sovereign debt from their own governments”, “Spain’s lenders reap profit on Madrid bonds”, January 30. And that the banks can do, because they need to hold no capital against these “infallible sovereigns”.

Frankly, Sir, don’t you recognize insanity when you see it? This is what the banks are doing in countries where the unemployment rates, especially those of the youth, want to make you cry. How on earth are the banks to help these countries to get out of what seems to be a death spiral?

And all because bank regulators do not care an iota about asking themselves what is the purpose of banks before regulating these… and therefore allow themselves to come up with loony risk-weighted capital requirements based on perceived risk of expected losses and which directly discriminates against the access to bank credit of the “risky” medium and small businesses, entrepreneurs and start-ups.

How could Europe have allowed itself to fall in the hands of regulators who do not care about the real economy? And how can FT keep quite on this?

No Europe! Don’t listen to FT. Your only chance is to explore more productive bays, even risking more hitting hidden rocks.

Sir, you write “Steer Europe away from hidden rocks”. November 16… and there you hold: “The tide of cheap money that is lifting all boats will soon be on the ebb. Britain and Europe should navigate their economic challenges now, or risk being beached on the same shore.”

First the tide of cheap money has not and is NOT lifting all boats. “The Risky”, like medium and small businesses, entrepreneurs and start ups, those Britain and Europe most need to get into action, are immobilized for the lack of bank credit, only because bank regulators require banks to have more capital for exposures to them.

Second you are NOT risking being beached on the same shore, you are risking dying gasping for oxygen in the same dangerously overpopulated safe havens, those to which banks can have exposures to against minimum capital.

Britain and Europe, your only chance is to explore more productive bays, even though you risk more hit hidden rocks. Future is only built upon risk-taking, never ever on risk avoidance.

IMF does not understand the strongest headwind affecting sturdy economic growth and employment in Spain, and in Europe

Sir, I refer to Tobias Buck’s reporting “Spain’s return to growth will not ease jobless rate, says IMF”, August 3. 

Our economies have been torpedoed by bank regulations which allow banks to hold much less capital-equity for what is perceived as “safe” than for what is perceived as “risky”. And the effect of that is to allow banks to earn much higher expected risk-adjusted returns on their equity when lending to “The Infallible” than when lending to “The Risky”. And that completely distorts the allocation of bank credit in the real economy making it unreal.

And before this distortion is eliminated the chances to generate jobs in any sustainable way, in Spain or in any other country for that matter, are truly slim.

The big difference, between for instance Germany and Spain, is that Germany is still living on old risk-taking and has not yet had its safe-havens dangerously overpopulated, or is at least in blissful ignorance of it, while Spain has wasted away their banks financing “absolutely safe” real estate and ignoring lending to small businesses and entrepreneurs.

That the IMF has not been able to understand and much less raise their objections to this strong headwind against sturdy economic growth, created by dumb bank regulators, should shame its current professionals.

http://bombaaaa.blogspot.com/