How come bank regulators seem exempt from answering questions made by the public? (And FT from reporting these)

Sir, Brooke Masters rightfully gives utmost importance to both speed and contestability in “UK regulators must judge the right time to go public” August 28. 

After so many years raising some fundamental objections to current bank regulations, without obtaining any type of answer, I hope she does also support speed and accountability when the public challenge the regulators. 

And here is a link to one of those still uncontested challenges: 

http://subprimeregulations.blogspot.com/2012/08/regulators-consider-yourselves.html

The Fed should not pay negative rates but charge an access to the safe-haven fee.

Sir I am not sure Central Banks should charge interests below zero like Wolfgang Münchau writes in “Central Banks can adapt to life below zero” August 31, mainly because those negative rates should not permeate to other areas of the economy, and much less so to the public debt.

Instead, as I have proposed some time ago, the Fed should start charging an access to the safe-haven fee. The final negative return to the investor would of course be the same, but the reason why, would be more transparent, and we would save ourselves having to listen to politicians saying “they trust us so much they even lend us moneys at negative rates”. That would also improve the possibility of avoiding the risk of overcrowding the safe haven and turning it utterly unsafe.

Journalists are just as “complicitous silent”

Sir Gillian Tett in “The financial doublethink that needs to be eliminated” August 21, comes down quite hard on politicians and regulators accusing them, in terms developed by Pierre Bourdieu, of “complicitous silence” and urge them to start thinking more about power structures, vested interest – and social silence”. As a journalist Tett could use herself a little spoonful of the medicine she prescribes.

In her interesting and very readable book “Fool’s Gold”, Tett manages to be very “complicitous silent” about the financial regulations coming out of the Fed and the Basel Committee; which did so naively ignore that by assigning so much power to the credit rating agencies to decide how much equity the banks needed, the regulators set the agencies up for big time capture.

If banks invest $1.000 billion dollars in AAA rated instruments they have only to put up $16 billion as equity… because the opinions of the credit rating agencies cover the other $984 billion even though for these opinions there are no capital requirements at all. Compared to the above, the other and indeed absurd paradox she refers to in her article could be regarded as of a secondary importance.

P.S. Gillian Tett and many other in FT know I have been writing about this serious issue, but they have preferred to be silent perhaps because of some “power structure” reason of their own, excusing themselves with the utterly stupid argument that I write too much.

What would the founding fathers say?

Sir Sam Natapoff recounts part of the US financial history in “Finance and the Fed: the battle is not over” July 17. What I would have found really interesting though is to hear him speculate on what the founding fathers would have said about the following issues:

a. The empowerment of the credit rating agencies with the capacity to influence where the capitals should flow, as they currently do through the minimum capital requirements for the banks that are primarily based on the risk ratings.

b. Favouring the government coffers, because when a bank lends money to the government it does not have to put up any capital, something equivalent to an infinite credit multiplier, but if it instead wants to lend to a private, then the shareholders would have to put up 8 dollars or more for each 100 lent.

c. That the savings of the nation are by means of the current regulatory system strongly biased towards financing sectors that can be construed as low risk, such as mortgage lending (ha!) when compared to other more risky but perhaps more nation developing endeavours such as decent job creation or the reduction of climate change risks.

We need to avoid monopolies or oligopolies in the market of risk-appraisals.

Sir it is indeed comforting to read the president and chief executive of the Federal Reserve Bank of New York admit that "Regulation can distort incentives in ways that make the system less safe" but also disappointing that in his Op-Ed "We can reduce risk in the financial system" June 9 there is not a word about how the appointment by the regulators of the credit rating agencies as their delegated risk surveyors, reduced the incentives for the rest of the markets to do their own risk appraisals.

Transparency is not completely without value

Sir I am not sure I get or even want to get the full drift of John Dizard’s “Time to admit that the models don’t work”, December 18. As I read it states that through the inter-central bank swap the lines Fed might provide liquidity to the non-US central banks so that these having less restrictions than the Fed can help out taking on their books some of the collateralized debt obligation initially owned by the US banks but swapped into the European banks.

If do this is of course a major operation that gives a totally new meaning to central-bank cooperation though I am not really sure I would like to be on the European side of the bargain. That said if risk adverse central bankers think that the conditions are serious enough to warrant this, why on earth do they not recommend their respective governments to proceed with much more targeted fiscal support measures that can perhaps be better explained to the taxpayer?

I for one would always prefer my government helping directly the mortgage holders who I can at least identify as the beneficiary, than having it give support through the purchase of some debt collateralized with mortgages, where I won’t have a clue whom they are truly benefiting, and the authorities will have to plead blissful ignorance.

No Santa comes Christmas?

Sir Kenneth Rogoff with his “The Fed must not play Santa to the markets” December 18 tells us to be careful since besides recession inflation might be lurking around in the woods. Okay that sounds like a reasonable warning from a reasonable man; problem is what are we to do with it? Given that our current problems might very well be derived from the fact that the Fed dressed as Santa during the rest of the year does Rogoff mean that comes Christmas they should now dress in academic robes?

Bore where are you?

Well here we are the day after the Fed announced the “what do the fed know that we do not know” 50bp rate cut to which the market responded with their own “what does the market know that the Fed does not know” too large jump in the value of stock and it all just reminds us about the truth of the Chinese curse “may you live in interesting times”. Now let us all please hurry back to the big bore.

Easy stuff!

Sir, the sequencing of economics often creates confusion. For a normal person, if the US core inflations slows down, April 18, that sounds good, so the dollar should be worth more, while if the UK core inflation goes up, April 18, that sounds bad, so the pound should weaken, but then in reality, like seems to be the case, April 18, the opposite happens. Why? Because as inflation goes down you can afford making money more available while when it is shooting up you have to make it more scarce, and investors do naturally prefer to be where their money is scarce and therefore, hopefully, counts for more in relative terms.

Now, this is only the first round since if the pounds are then not as scarce or the dollars made as available as the investors expect, then the foreign exchange movements could reverse themselves. All this ceteris-paribus which in Latin means all-things-kept-equal but that in normal slang means ignore-the-complications, and , of course, within comparable realities, as we all know there are places where money will always be utterly scarce without the investors being tempted to go there.

Now, in these circumstances, the only thing that is expected from an intelligent investor is to know where he finds himself; where the rest of the market is; what the gatekeepers the Fed and the Bank will be up to; and what other surprises, normally busts and other ugly affairs, could interfere with the way you infer things should be heading. Easy stuff!