Shrink & Sage, here is the latest key I am trying to open that lock that stops Financial Times from understanding.

Sir, The Shrink &The Sage’s ask: “Must we get to the bottom of things?” October 24. Of course we must… especially when it really matters.

The Shrink refers to “Steve de Shazer [recommending that instead of looking] more and more effort into finding out why the lock is as it is or why it doesn’t open… we should be looking at keys” Indeed that is what I have done in my TeaWithFT.

I have for a long time, by means of over 2.000 letters to the editor, been looking for the key with which make the Financial Times understand the true horrors of current bank regulations. Seemingly I have not found on yet, but in words of The Sage, I will keep on looking for what is under the turtle.

The latest key I have been trying out is the following:

Data found on the web:

The fatality rate per 100 million vehicle miles traveled in motorcycles is 21.45

The fatality rate per 100 million vehicle miles traveled in cars is 1.14

In 2011 in the US, 4,612 persons died in motorcycle accidents

In 2011 in the US, 32,479 persons died in vehicle accidents

And so, even though travelling by motorcycle is about 20 times riskier than cars, cars cause about 7 times more deaths than motorcyclists. That is of course because the riskier something is perceived, the more care is taken to avoid the risk.

And yet no one at The Financial Times seem to find something wrong with bank regulators having decided on higher capital requirements for banks when lending “the risky” motorcyclist of the economy, SMEs and entrepreneurs, than when lending to “the safe” car drivers, sovereigns and corporations with high ratings… even though clearly dangerous excessive lending to the latter is much more likely to occur… and even though that clearly must lead to a dangerous misallocation of bank credit to the real economy.

What are my chances this key will work? I guess slim, I guess I will just be told I am being boringly monotonous again.

@PerKurowski ©

Do I have a question to The Shrink & The Sage!

Sir, The Shrink, Julian Baggini writes “It’s hard to give our environment the right importance. Sometimes we assign it too much weight, sometimes too little.” "How important is our environment?" October 18.

He and The Sage, Antonia Macaro, also request questions to be sent to them on their email. Boy, do I have one for them!

Bankers obviously look at the credit risks of a client, or of an investment, before deciding what risk premiums (interest rates), how much exposure they want to have t that risk and what other contractual clauses they need in order to serve their own interests as good as possible. And that makes perfectly good sense. If they did not, they should not be in banking.

But then, sort of surprisingly, bank regulators also require that the capital a bank is required to hold against different assets, are also based on the same perceived credit risks.

So here is the question: Shrink, Sage, do you think ex ante perceived credit risks are getting due importance, or are they getting too much importance? If the second, this would obviously distort the allocation of bank credit to the real economy, even if the credit risks were perfectly perceived.

And if the second, and given that The Sage writes “Just as the quality of a grape is rooted in the earth in which the vine grows, so 'the ground of our opinions' is the human environment in which we are raised”, the question is… can these regulators rectify or is rectifying way beyond their reach?

I am anxiously waiting to see their answers… if they are allowed to answer.

@PerKurowski ©

Political correctness is a society-wide groupthink that can be very dangerous.

Sir, In the Shrink and the Sage’s “Can we get used to anything?” of May 16, the Sage mentions “society-wide groupthink”. And the best example of current society-wide groupthink I can think of is “political correctness”.

I just came back from a week in Sweden. There I heard many expressing to me, in sotto voce, sort of ashamed, sort of “don’t tell anyone about this”, some very ordinary and human concerns about there being too many migrants and about the risk they felt that could dilute their meaning of being a Swede.

My immediate thought was that political correctness, if it blocks this way citizens from venting their concerns, then it must be a dangerous powerful growth hormone for extremism.

In other words, if you use a “That’s like Hitler” in response to too many of people concerns, then too many might end up thinking “That Hitler guy sound’s quite right for me”.

Let us never forget that the emotions involved in the not liking something for the wrong reasons, are just as strong as that of the not liking something for "the right reasons".

PS. My father suffered years of concentration camp because of Hitler. I don’t remember him saying, “That’s like Hitler” about anything or anyone… perhaps because he would never want to diminish Hitler’s evilness to something being sharable.

@PerKurowski

Shrink and Sage, in these days of skepticism, why are bank regulators so trusted and so obvious questions not asked?

Sir, Psychotherapist Antonia Macaro (The Shrink) and philosopher Juan Baggini (The Sage) ask “Which great thinker is most relevant today?” May 9.

In it The Sage writes: “Ours is a skeptical age, where old certainties have collapsed and no new ones have taken their place. Fewer people in the west now look to religious leaders for guidance but, following various disasters with drugs, pesticides and nuclear power stations, there seems to be at least as much distrust of scientists.”

And “The Shrink & The Sage”, they end by requesting suggestion for questions. Boy, do I have one for them.

Regulators have decided banks need to hold much more equity against assets perceived as risky from a credit point of view than against assets perceived as safe. Though more-risk-more-equity and less-risk-less equity might intuitively make some sense, it absolutely does not. This because never ever have major bank crises resulted from excessive exposures to what was perceived ex ante as risky, but always from excessive bank exposures to what was ex ante perceived as “safe” but which ex post turned out to be very risky.

And by favoring so much the access to bank credit of those perceived as safe, it also introduces a seriously dangerous distortion in the allocation of bank credit to the real economy.

But the members of this “skeptical age”, like journalists who should be on the forefront of skepticism, they do not want to ask why and seemingly they blindly trust regulators to know what they are doing. How come?

For instance Martin Wolf in July 2012 wrote that when "setting bank equity requirements, it is essential to recognise that so-called “risk-weighted” assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk."

And yet Wolf is unable to take it from there and arrive at the only logical conclusion, which is that if equity requirements are to be based on the risk of assets then, for stability purposes, they should be 180 degrees the opposite… slightly higher for what is perceived as safe than from what is perceived as risky.

So Shrink and Sage… why in this “skeptical age” are questions not asked and scientifically failed bank regulators so trusted so as to keep on regulating banks even when they have failed?

In my blog http://teawithft.blogspot.com you will find copy of all my hundreds of letters sent about this issue to FT and to their journalists and opinion makers for more than a decade. You can use it as evidence for what I am saying.

@PerKurowski