Mr. Martin Wolf, what do you mean, is liberalism not broken?

Sir, I refer to “Liberalism is battered but not yet broken” Martin Wolf, FT January 10, 2024.

Since 1988, with Basel I, non-elected by the citizens bank regulators, with risk weighted bank capital requirements, in the name of making our banks safe, have allowed themselves to distort the allocation of bank credit to the economy. 

Wolf opines: “What liberals share is trust in human beings to decide things for themselves.” So, Mr. Wolf, why have you been silent on this clear breach of free market liberalism?

These days, in reference to the farmer’s protests in Berlin I have tweeted/Xd: “Would now John F. Kennedy have wanted to deliver his 1963 ‘Ich bin ein Berliner’ speech? - If the Berlin Wall was still up, would Ronald Reagan now have needed to tell Putin, ‘Tear down this wall’?”

My answer in both cases is NO! US and Russia – West and East Berlin, have been too long exposed to communistic weakening. But it’s coming to an end. More and more nations now need more public debt in order to service their current public debts, and are thereby, de facto, becoming zombie nations.

I pray someone with real political standing would dare to stand up and order: “Basel Committee, tear down your regulations.” I fear that might not happen until this “wall” has crumbled on its own. Those regulations have empowered bureaucracy autocracies, and way too many want to be members or beneficiaries of it. And by the way, if they speak up, they risk not being invited to the World Economic Forums in Davos; and we would not want to risk that, would we?

Sir, how can we make sure to capitalize on the opportunity of artificial intelligence helping to empower a citizens’ democracy? I mean before AI regulators decide to send it to Gulag too.

PS. I tweeted - Xd: "If there’s anything that could help focus on what has happened in the world, and on what’s going on, that is to have a record of all those who, since 1971, have assisted World Economic Forum #WEF meetings in #Davos."

Good global economic governance also depends on the Financial Times of the world doing their duty by questioning diligently.

Sir, you write “The world economy is in good health. Global economic governance is not. The first remains acutely vulnerable to the second… Davos produced few ideas on compensating for US destructiveness” “The gaping hole in global economic governance” January 27.

No! The world economy is not in good health. Just look at all current world debt contracted to kick the 2007/08 crisis can forward, to finance current consumption and to inflate stock markets with excessive dividend payments and buy backs; and then compare it to how little of that debt has been used to finance future production.

And whatever US destructiveness you want to identify, it would pale when compared to the destructiveness caused by bank regulators with their risk weighted capital requirements for banks.

Sir, in a world were sleaziness abounds everywhere and for so many reasons, you find it more worthy of the Financial Times to launch a full-fledged investigation “without fear and without favor” of an all male-charity dinner; than daring for years to ask bank regulators some basic questions like:

Why do you want banks to hold more capital against what has been made innocous by being perceived as risky, than against what is dangerous because it is perceived as safe? Is that not setting us up for too big to manage crises?

What went through your mind (what did you smoke) of the Basel Committee allowing with Basel II banks to leverage a mindboggling 62.5 times their capital only because an AAA to AA rating issued by human fallible rating agencies was present?

Is being a safe mattress under which to stash away our savings a more important objective for our banks than allocating credit efficiently to the real economy? “A ship in harbor is safe, but that is not what ships are for.” John A Shedd

Why should you, as a regulator, want with lower capital requirements favor bank credit to what’s already favored by being perceived as safe, and thereby cutoff more the credit to what is already disfavored by being perceived as risky?

Why did you assign a 0% risk weight to sovereigns? Is that not runaway statism? If it is because sovereigns can always print money to pay back their loans, don’t you know that is precisely one of the real and worst risks with sovereigns?

As is, don’t you know you are dooming our economies to subprime performance and our banks to end up gasping for oxygen in some overpopulated safe-havens?

And that’s just for starters:

FT is as much at fault as anyone for the absurdness of current global governance of banks. Sir, this could also be referred to as sleazy journalism.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

@PerKurowski

Will Davos 2018, again ignore the financial weapon of mass destruction concocted by the Basel Committee populists?

Sir, Gillian Tett when commenting the concerns that will be expressed at the 2018 Davos meetings writes “The biggest perceived danger of 2018, in terms of impact, is that somebody uses weapons of mass destruction”, Holy moly! and ends with: “keep a close eye on what Davos is not worrying about enough this year: that pesky matter of global finance, particularly in places such as China.” “Populist swing alarms financial titans” January 19.

My concern though is that the technocratic and hubristic populism, proclaimed by the Basel Committee will again not be denounced in Davos, perhaps because doing so might be deemed ungentlemanly or ungentlewomanly behavior in such fine surroundings.

I refer of course to their promise that distorting bank credit with risk weighted capital requirements for banks will make our banks safer.

Higher capital requirements for what’s “risky”, has caused among other that millions of entrepreneurs, those on which so much of our economic future depends, have seen their credit applications rejected or not even received by banks.

Lower capital requirements for what’s “safe”, has among other, helped to fuel house prices which has overloaded that sector with mortgages that, within a future subprime economy, seem impossible to service.

And let’s not even talk about what the 0% risk weight awarded to sovereigns has done in terms of statism and of blurring the risk free rates.

Sir, no doubt about it, the risk weighted capital requirements for banks, is a weapon of financial mass destruction.

Did we not see it explode with AAA rated securities that banks were allowed to leverage 62.5 times with?

Did we not see it explode in Greece with sovereign debt that European regulators allowed their banks to hold against no capital at all?

If a regulator is incapable to provide a clear answer to: “Why do you want banks to hold more capital against what has been made innocous by being perceived as risky, than against what is dangerous because it is perceived as safe?” should he not be fired Sir?

http://theaaa-bomb.blogspot.com

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

PS. On the same page Philip Stephens writes:” The World Economic Forum and the Davos crowd pride themselves on their globalism has set itself the fearsome task of mapping “a shared future in a fractured world”. “Trump, Davos and the special relationship”. The risk weighted capital requirements, which favor refinancing of the “safer” present over financing the “riskier” future, is fracturing the world and causing the future to produce less and less of what could be shared.

@PerKurowski

Trump should make certain that “risky” Main-Street borrowers, like he, are invited to Basel, Davos or a Dagenham.

Sir, Robert Shrimsley writes: “the Financial Times has learnt the sensational and entirely fictional news that next year’s pilgrimage has been moved from Davos to the rather more earthy and economically deprived location of Dagenham in east London. The move was the brainchild of Sir Nigel Farage, who said it would help the global liberal elite get back in touch with the real world” “A Davos for the Donald — do it in Dagenham, mate” December 2. 

That’s not so farfetched: We have regulators who for the purpose of setting the capital requirements for banks, use risk weights such as: 0% the Sovereign, 20% what is AAA rated, 35% house financing, and 100% for We the People, like SMEs and entrepreneurs. 

Those regulations make it much harder for those who, precisely because they are perceived as riskier, already face great difficulties accessing bank credit. 

Around the world, over the last decade, those discriminatory regulations against have impeded many millions of SMEs or entrepreneurs to have access to bank credit, and if they got it, they have had to pay much more for it, in order to compensate for this unfair regulatory tax. 

I have no specific information about Trump or his enterprises own bank borrowings, but I am absolutely sure that, over the years, he has had to pay millions and millions more in interests to banks, than what he would have had to pay in the absence of these regulations. 

De facto the Basel Committee’s bank regulations represents a wall which impedes all fiscal and monetary stimulus to reach were it should, in order to create a new generation of jobs and move our economies forward, so as these do not stall and fall. 

Obviously “the risky” SMEs and entrepreneurs, have never been truly consulted about their needs, by for instance regulators in the Basel Committee or the Financial Stability Board, much less have they been invited to places like Davos. 

So, if anyone would want to make a reality of moving “Davos to the rather more earthy and economically deprived location of Dagenham”, the guest list should be much revised, and Dagenham marketed as “The best access to Main Street and the real economy” 

If Trump would then appear in a Dagenham, to speak out on behalf of “the risky”, then perhaps the whole world would learn to appreciate the fact that there are conflicts of interests that can be truly helpful… and should perhaps even be nurtured. 

Sir, I can almost already hear Trump shouting out: “Basel… tear down that wall!” 

@PerKurowski

At least Lucy Kellaway defends with honor the “Without fear and without favor” motto of the Financial Times

Sir, Lucy Kellaway does great living up to “Without fear and without favor” when she socially sanctions all the full of themselves experts, and those who socially suck up to these. Well done! “Boneheaded aphorisms from Davo’s windy summit.” February 1.

It is a real pity there are not many more like her at FT. The world could benefit a lot if the journalists at FT dared to, for instance, question more current bank regulators on what they are up to… like for instance with their zero risk weight to sovereigns and the 100 percent risk weight for that private sector that makes the sovereign strong.

@PerKurowski ©

Martin Wolf, as elite, why have you not spoken out against lousy bank regulators and redistribution profiteers?

Sir, Martin Wolf cries out: “Elites have become detached from domestic loyalties and concerns, forming instead a global super-elite. It is not hard to see why ordinary people… are alienated. They are losers, at least relatively; they do not share equally in the gains… After the financial crisis and slow recovery in standards of living, they see elites as incompetent and predatory. The surprise is not that many are angry but that so many are not… Elites need to work out intelligent responses. It might already be too late to do so” “The losers are in revolt against the elites” January 27.

Of course Wolf is absolutely right… but that requires the elite to be willing to call out the truth, even when that truth hurt other in their mutual admiration club of elites.

For instance, how can the elite gather in a Davos WEF event, year after year, and not tell central bankers and banks regulators in their face, that it is outright stupid to distort the allocation of bank credit to the real economy, especially based on credit risks already cleared for by banks.

For instance, has Martin Wolf himself dared to ask Mark Carney, Mario Draghi, Jaime Caruana, Stefan Ingves about why they believe ‘highly speculative’ below BB- rated assets pose more dangers to the banking system than those ex ante perceived as ‘prime’ AAA rated?

And what about “The wealth of 62 richest equals that of 3.6 billion poorest” message sent out this year by some “NGOs” to all those in Davos. Who said anything there about that being a deviously false and odiously divisive statement?

I do not claim to belong to any elite, especially not the wealthy elite, but, as a father and a grandfather, I know we cannot sit still and not do anything about the growing inequalities, whether the local or the global.

But I also know that if we are going to do something effective about it, we cannot afford to keep failed bank regulators blocking opportunities, or fall into the traps of redistribution profiteers.

December 31, 2009, on the eve of the new decade, FT published a letter I sent titled “The monsters that thrive on hardship haunt my dreams” In it I basically shared and expressed the same concerns Martin Wolf is expressing now. What happened?

@PerKurowski ©

Can journalists wash their hands about the (dis)empowering of citizens and of keeping failed elite in power?

Sir, Gillian Tett referring to “how the global elite converged on Davos this week” writes: “The most interesting issue revolves around something the WEF calls the “(dis)empowered citizen”. This arises because the internet makes voters feel more powerful than ever… The bitter irony is that although the internet gives people the impression they have a voice, in most countries power remains firmly with the elite.”, “The big illusion of empowerment for the masses”, January 22.

Tett holds “This creates disappointment and frustration: ordinary people have the illusion they are vocal. But although they use their mobile phones to exercise power over some issues, they cannot easily use them to change important issues such as politics.”

But, do journalists have no role to play in that? Are they not suppose to in many ways represent ordinary people in front of the elites?

For instance I do not call the Financial Times on the mobile phone (except perhaps when I will travel and suspend my subscription for a week or so) but I have sent thousand of letters to FT, including to Ms. Tett on issues like the following:

Four very important central bankers in Europe; ECB’s Mario Draghi and BoE’s Mark Carney, former and current chairs of the Financial Stability Board; BIS’ Jaime Caruana and Sveriges Riksbank Stefan Ingves, former and current chair of the Basel Committee for Banking Supervision, with their approval of risk-weighted capital requirements for banks, believe that ‘highly speculative’ below BB- rated assets are far more dangerous to the bank system than ‘prime’ AAA rated assets.

Since ex ante perceived ‘highly speculative’ below BB- rated assets have never ever set of a major bank crisis, as these have always resulted from excessive exposure to something ex ante deemed as safe but that ex post turned out very risky; that should raise some very serious questions about the risk management capabilities of those four highly empowered technocrats.

But, would Ms. Gillian Tett raise such question when meeting them? I don’t think so but, if she has, and has not reported back on the answers, to me or to you Sir, then she is just much more complicit in the cover up of the elite’s blunders than I thought possible.

@PerKurowski ©

#WEF, the world needs some ordinary people (like me) to ask the salon experts in #Davos2016 some awkward questions.

Sir, John Thornhill titles his review of World Economic Forum’s Klaus Schwab’s recent book, “The world’s problems solved the Davos way”, January 18. 

And he begins it with: “The World Economic Forum does a remarkable job of forging the conventional wisdom among the global elite. The trouble is that conventional wisdom is invariably wrong.”

Indeed, and that is especially true considering that among the experts there gathered, there will always be too many who, in John Kenneth Galbraith’s words, qualify as those who by pretending to knowledge they do not posses, cannot ask for explanations to support possible objections.

And there are many urgent questions waiting to be made about the nakedness of experts. Among these the following:

Regulators currently allow banks to leverage their equity, and the support the society gives them with deposit insurance schemes and implicit bailout promises, much more when lending to what is deemed or perceived as safe, like infallible sovereigns and the AAArisktocracy, than when lending to the risky, like SMEs and entrepreneurs.

For instance with Basel II, banks could leverage as much as they wanted with OECD sovereigns, over 60 times with what’s rated AAA, 12 times with what is not rated, and 8 times with what’s rated below BB-.

And that of course allows banks to earn much higher risk adjusted returns on equity when lending to “the safe” than when lending to “the risky”.

Why do regulators allow that?

Does that not, by distorting the allocation of bank credit to the real economy, impede banks to perform well what is perhaps their most important social function?

How on earth can something rated ‘highly speculative’ below BB-, be considered more dangerous to the banking system than something rated ‘prime’ AAA?

Do not regulators know that banks already took into consideration credit risk when setting interest rates and size of exposures, before requiring these to double down on ex ante perceived credit risk in their capital?

Do not regulators understand that all risks, even if perfectly perceived, cause the wrong actions if excessively considered?

Regulators know that bank equity is to cover for unexpected losses. Do they not understand that the safer something is perceived the larger its potential to deliver unexpected losses?

Do not regulators and central bankers understand that, while this distortion is in place, whatever fiscal or monetary stimulus they provide will be wasted and not reach where it is most needed?

Do not regulators understand that by favoring “the safe” over “the risky” they will increase inequality?

Do not regulators understand that by doing this, banks will no longer sufficiently finance the riskier future, which is what our young need, but will mostly keep to refinancing the safer past?

World Economic Forum, during #Davos2016, for the good of the world, especially for our young, have someone ask these questions to Stefan Ingves, Mark Carney, Mario Draghi, Jaime Caruana, Janet Yellen, Martin Gruenberg, Christine Lagarde or any similar experts present… and press them for full answers.

WEF/Davos. Clarify the mystery of how global regulatory lunacy invaded the Basel Committee for Banking Supervision.

Sir, Gillian Tett referring to the turmoil in China, low oil prices and the dramatic drop in the Baltic Dry Index writes: “the elites breezing into Davos for the World Economic Forum next week should take note… that globalisation does not always proceed in a straight line” “Globalisation moves in mysterious ways” January 15.

“Mysterious ways” indeed. The elites in Davos would do well asking themselves how on earth the development of bank regulations to be applied globally, the Basel Committee, landed in hands of “experts” who think that what is rated ‘highly speculative’ below BB-, is much more dangerous to the banks and to the banking system than what is rated ‘prime’ AAA?

In Basel II the capital requirement for what was rated AAA to AA was 1.6 percent while for below BB- it was 12 percent.

In Basel II, banks could therefore leverage over 60 times their equity with what was rated AAA to AA and 8 times with what was rated below BB-.

So with Basel II banks could obtain much much higher risk adjusted returns for what is rated AAA to AA than for what is rated below BB-.

And neither has the Financial Stability Board found something curious with that regulatory concept that so distorts the allocation of bank credit to the real economy.

And here we are with a financial crisis that originated in AAA land, and a real economy that is weakening because of lack of access to bank credit for “risky” SMEs and entrepreneurs. How many #Davos201x will it take to ask the right questions?

@PerKurowski ©