What cultural insight could anthropologist Gillian Tett, or any neo-Cannibal Club colleague of hers give in order for me to better understand bank regulations that seem so loony?

Sir, Gillian Tett, commenting on Marc Flandreauan economic historian’s 2016 book “Anthropologists in the Stock Exchange”, writes about the “Cannibal Club, a so-called anthropological society that, its members hoped, would explore far-flung cultures in order to uncover what made humans tick” “It is primitive to ignore what links finance and social science” December 2.

When Tett refers to that “By the middle of the 19th century, much debt was turning sour due to defaults, corruption and fraud (some perpetrated by British swindlers who misled investors about opportunities on offer). Sovereign loans in places such as Venezuela kept delivering nasty shocks.” I would then have liked very much to be able to ask those anthropologists whether if all, or any, of those failed financial assets had been ex ante considered risky. 

Today I would also like to ask any neo-Cannibals why they think current bank regulators could want banks to hold more capital against what is perceived as risky? To me that is a mystery. Is it not when something perceived ex ante as very safe turns out ex post as very risky, that one would really like banks to have the most of it?

On Venezuela’s defaults, Tett suggests “thinking about this historical link between capital markets and culture, and between finance and social sciences” I would add the fact that Venezuela’s main export revenues, oil, currently 97% of these are centralized in its government. If that’s not enough to know that things will, sooner or later, go utterly wrong, I do not know what is.

@PerKurowski

Let’s see if Ms Tett’s recent enlightenment will now allow her to see the monstrosities of current bank regulations

Sir, Gilian Tett writes: “when the 2008 financial crisis hit, I decided that the only way for a country to avoid a massive banking crisis was to have regular, small bank failures. Frequent, tiny failures are perhaps the only thing that really stop regulators and bankers from getting too complacent.” “A vision of life through a dirty lens”, October 15.

In 2003, as an ED of the World Bank, in a workshop for regulators I argued:

“There is a thesis that holds that the old agricultural traditions of burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.

Therefore a regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises.”

It would seem there is some coincidence between what I said then and with what Ms Tett later opines.

Yet, over the last decade, in about a hundred of letters commenting on articles by Ms Tett, I have warned her, and you Sir, about the horrendous distortions that the risk weighted capital requirements for banks produce in the allocation of credit to the real economy; and of that all that distortion fulfilled no stability purpose at all.

But Ms Tett, and you Sir, has steadfastly refused to even acknowledge the problem. Perhaps it is my fault. Perhaps my arguments need to be presented with much more ego stroking than what I thought necessary when communicated with experienced and famous journalists/columnists, or with newspapers, especially one that proclaims “Without fear and without favour”.

So I am curious now to see if Ms Tett’s self declared enlightening experience at some “bars in Hamilton County”, will now allow her to apply what she learnt in the anthropology classes at university, in order to allow her to clean up her glasses on the monstrosities of current bank regulations.

@PerKurowski ©

And the pedigree of the AAArisktocracy, thanks to Basel Committee, is worth much more than the markets ever intended.

Sir, I refer to Gillian Tett’s “Why ‘pedigree’ is the buzzword for elite employers” May 23, in order to comment on the exaggerated importance given to other pedigrees… like credit ratings.

A good credit rating pedigree naturally results in easier, cheaper and more abundant access to bank credit… and that is how it should be.

And some even thought that some market participants, like the bankers, went overboard considering that credit risk pedigree. For instance, Mark Twain has been quoted holding that a banker is the one who lends you the umbrella when the sun shines and wants it back as soon as it looks its going to drizzle a bit.

But then, in 1988 with Basel I, and later in 2004 with Basel II, some too frightened bank regulation bureaucrats, told bankers that was not enough, and that they had to consider that same credit risk pedigree in their capital [equity] too.

And as you can understand any pedigree, no matter how good and correct it is, if it becomes considered too much, will generate the wrong response to that pedigree.

And so Boom! with that manipulation, a tremendous distortion was introduced into the markets of bank-credit… and which has had the real economy suffering from too much and too cheap credit to the AAArisktocracy, which includes the “infallible sovereigns”, and too little and too expensive credit to “The Risky”, like SMEs and entrepreneurs.

And I must say I find it fascinating how an anthropologist like Gillian Tett, writing in the Financial Times, does not find the introduction of such regulatory risk-aversion, to be interesting enough to comment on it. There’s got to be something more to it.

PS. I admit without problem to an obsession against these bank regulations that are destroying the world where my grandchildren will want to find good jobs in. What I do not understand is others´ obsession in ignoring this problem. 

@PerKurowski

Gillian Tett should indeed try to write more as an anthropologist than as a financial expert.

Sir, Gillian Tett, as an anthropologist who believes “that discipline to be woefully underappreciated”, applauds Ford “hiring a group of social scientist… to study the culture of modern carmaking”, “The drive to make a more humane car” March 14.

Great idea! That would at least give me some comfort that if automobile engineers were so dumb so as to design a car that would rev up especially fast, whenever the driver perceived everything as safe, and slow it down more than normal, whenever drivers thought it to be risky, an anthropologist would probably inform him that was a very bad idea.

Like they would equally consider it to be a bad idea to have both a driver learner and his instructor driving simultaneously a car with two driving wheels.

But of course these social scientists must have enough character to speak up and not be blinded in awe by car engineers’ supposed expertise.

For instance I wish Ms Tett hade believed more in herself as an anthropologist, so as to speak out against those risk adverse bank regulations that have us and our banks, driving fast off the road of prosperity.

@PerKurowski

Careful with the systemic risks of supremacy

Sir Gillian Tett is at her most insightful self when she recurs to the background in anthropology to analyze the financial sector as she does in “CDO buffs who schmooze could resolve a financial mess” February 22.

Now if only she drew more on that background when drawing her conclusions then all would be great, since as she goes into a trance of supremacy founded expectancies wishing for schmoozing geeks or geeky schmoozers, we start to shiver thinking of an even worse generation of systemic errors than those that the credit rating agents are already providing the financial sector. No, humanities best and only hope might be that geeks and schmoozers don’t fusion into one.