All Europeans, one way or another, will pay dearly for The Greatest Pushing The Can Down the Road.

Sir, Martin Wolf writes: “the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors. Creditors, too, have a duty to take care. If they are careless, they risk big losses. If governments want to save them, their own taxpayers should be told to pay up.”, “Divorce Greece in haste, repent at leisure”, June 17.

That is partially true. The sad fact though is that if governments, with or without consultations, decide to save private investors, its taxpayers and its citizens in general, will have to “pay up”, one way or another, whether they like it or not. By the way, by not having cleared the deck of the rubbles, so as to allow for a fresh-start, they have for some years already been paying.

Once Europe (and US) gets to understand the full implications of this The Greatest Pushing The Can Down the Road carried out by feeble technocrats during the last years, many are bound to get extremely upset… especially the young.

PS. Again Martin Wolf assigns the fecklessness in this whole Greece affair only to private creditors… leaving his friends the bank regulators out of it. These regulators, by allowing banks to lend to the Greek government against much less capital than what they needed to hold when lending to for instance Greek or German SMEs, were the prime promoters of this crisis.

@PerKurowski

Sir FT, I do not understand how you cannot find current bank regulations more than a bit loony.

We citizens authorize governments to support banks among others with some backstop mechanisms, and not to mention the bailouts.

And then come the regulators and allow banks to leverage that support especially when banks invest in those safe assets in which we, risk adverse small investors, want to invest in, with are own not-leveraged funds.

And in this way the regulators make the banks compete directly with us for what little supposedly really safe is available; and also make them stay away from what should be the banks’ prime business, namely lending to the risky, like small businesses and entrepreneurs, as they are the experts in that... not we.

Sir FT, I do not understand how you cannot find that more than a bit loony.

All public intervention profits could later turn out to be just other can-kicked-down-the-road losses.

Sir, I refer to Andreas Utermann´s “Risky bailouts can deliver a hefty profit for central banks” July 23.

The article is based on the presumption that those interventions where the government has made some profits are good, and that those were it has lost, are bad.

Unfortunately it is not as simple. In effect some of the profitable interventions could easily turn out to be the most expensive if for instance they just kept in place some who should have benefitted from retiring.

Does this make me an enemy of all government interventions? Absolutely not! It all just stops me from being an automatic congratulant of these.

We should also remember that evaluating any current government action, when ordinary economic realities have been suspended by programs such as quantitative easing, is an extremely hazardous thing to do.

In short the truth is that all current profits derived from public interventions, could later just turn out to be other can-kicked-down-the-road losses.

We should not go from “pseudoscientific calculation of risk-weighted assets” to Talibanesque capital requirements

Sir, currently there are many papers analyzing the impact of higher capital requirements for banks on their lending rates. Some say it will be minor, others somewhat important.

What is amazing though is that all these papers are written ignoring the fact that based on risk-weights, lower and higher capital requirements which result in differences in lending rates based solely on regulations already exist. These regulatory induced interest rate differential favor much “The Infallible” and thereby discriminate much against “The Risky”; and make it impossible for banks to allocate economic resources efficiently.

Therefore when in John Kay’s “The bungled bailouts that heralds an overdue shift in attitudes” April 4 he writes of “The combination of useless regulation, irrelevant regulations and state guarantees”, I feel I could live with all that, albeit of course much smaller and more disciplined state guarantees, as long as we could get rid of the dangerous regulations which distort.

And without those dangerous distortive regulations, the banks would not need the huge capital that some propose. Frankly ee do not need to go from one “pseudoscientific calculation of risk-weighted assets” extreme to Talibanesque capital requirements, unless of course what we really want is for private banks to disappear, taking refuge in the shadows.

PS. Why has it taken so long for Kay to call the pillar of Basel II regulations “pseudoscientific”? And why is it not in him to admit that I have been calling the Basel bluff for more than a decade now, with more than 1.000 letters to FT, like this letter to John Kay in May 2010. It is a bit petty of him, wouldn’t you say?

What a great short phrase!

Sir it is always a pleasure seeing someone able to describe perfectly a difficult situation in just one sentence. Therefore I would wish to congratulate Jennifer Hughes, The Short View, April 13, for saying it all summing up the market reactions to the “Greek bail-out” with: “In essence, investors appeared less relieved yesterday than they were worried last week”.

It is all there in only 87 characters and so that after adding 7 with the space for “Greece” she would still have 46 to go on her tweet!

Mark to market the government’s bail-out efforts

Sir Jonathan Guthrie in reference to the bailout of General Motors writes that if he was a US taxpayer “I would tell Fritz that I wanted my $50bn back”, “An industry running on romance alone” July 23. And he is fully in his right to demand that… but only after he had paid his share of the tax of course.

Perhaps what the US should do is to turn around and give a 50% tax credit for anyone willing to pay 100% of face value for whatever the government has received from GM in return for that assistance and then let these papers trade to see what the market considers them to be worth.

Problem though is that government would never dare themselves to be marked to market that way.

The government needs to provide venture capital for new banks.

Sir George Soros discusses “The right and wrong way to bail out the banks” January 23, as if bailing out the banks was our problem. We need to bail out our economy and if doing so we happen to bail-out the banks, great, if not hard luck.

At this moment we have a regulatory system for the banks that by means of the minimum capital requirements prioritizes risk avoidance. What we need instead is a regulatory system that helps us assure that the banks prioritize what is most needed.

In this respect, with government funds, I would create many new banks, with a fix capital requirement for any credit, for instance 6 per cent, and I would nominate a series of management groups to run these banks giving them the incentive of a generous purchase option for the bank in a couple of years, and asking for a secured indemnity in case of any particularly irresponsible act committed by any of these manager.

Also if these banks want to buy “toxic assets”, because they believe it is in their interest to do so, the better.

Sir I guess that it most probably must have been a very long time since George Soros walked down any Main Street.

Let the American motorist pays 50 cents per gallon of gas for new equity in their automobile industry

Sir is Clive Crook panicking? It is hard to draw a different conclusion from his “A question of first things first” December 8. Of course we need some fiscal stimulus and of course we should not procrastinate getting it out on the street… but what is wrong about thinking on the future in terms of what the stimulus should stimulate and what not, and about how to pay for it all?.

The truth is the sooner the market gets a feel for the full circle, “this is what we spend and this is how we pay for it”, in ways that make sense, the faster it will regain the confidence it needs.

For instance I am proposing that the American motorists subscribe and pay for fresh equity in their automotive industry with 50 cents per gallon of gas, as a tax. That should help to raise more than 70 billion dollars a year to take care of the current problems of their industry and finance the green retooling they must embark on. If at the end of the exercise the equity is not worth what the motorists paid, it is still only right that those who drive should primarily carry the burden of rescuing the automobile sector.

Goodbye blissful ignorance!

Sir you insist calling it a “bail-out” plan, when it could just as well turn out to be a take-down plan. The whole world will be watching how the 700 billions are spent putting pressure on buying as cheap as possible and…who is going to be able not to market their investments to the results of this “bail-out”. Goodbye blissful ignorance!

And what about the Basel Consensus regulators?

Sir John Willman in his “Fear and loathing in the aftermath of the credit crisis” October 4 dares not to speak about what will happen to those Basel Consensus regulators that got is into this systemic risk-information leveraged financial crisis.

If you set up a system that is composed of a.- minimum capital requirements for banks that are based on risk; b.- the empowerment of few agencies to measure the risks; and c.- the need to immediately respond and mark to market the consequences of any change in the perception of the risks, then you have gathered up the necessary and sufficient elements to guarantee that, sooner or later, you will suffer a financial tsunami, exactly along the lines of the one we are currently seeing.

They must evidence why the bail-out is not give-away.

Sir Martin Wolf in “Congress decides it is worth risking another depression” October 1, with respect to the failure of Congress to approve the bail-out plan writes that “It is understandable because the use of taxpayers money to buy so-called “toxic” mortgage-backed securities from the greedy fools who created the crisis is hard to tolerate”. With it, unwillingly, he helps to reinforce the belief that there will be a considerable give away of tax payers money to the monsters. Of course if Martin Wolf really believes that to be true, then he should of course object to the plan, no matter what.

The objective of the plan is to try to establish a market price for instruments no one knows what they might be worth; and its biggest problem is that it was never sufficiently explicit on how they intended to go about so as to avoid giving away tax payers money. If the plan from the very beginning had been limited to the use of reverse auctions, to acquire a certain low percentage of many different tranches in many different issues, we might not have fallen into the current quagmire.

By the way there was of course much greed greasing the road to crisis, but the qualification of “fools” needs to be reserved exclusively for the regulators who thought they could appoint the credit rating agencies as their sentries and then calmly go to sleep.

The bail-out plan needs to be spelled out better, really letter by letter.

Sir you say in “The bail-out failure and blame game” October 1 that lawmakers should ask for more “oversight rather than stricter regulation on how deals be arranged”. This would be right if it was possible to identify some responsible for the oversight that could be trusted by all. Unfortunately, this does not seem to be the case.

When, on the same page, we also read the letter from Krzysztof Rybinski and that describes the bail-out plan in terms of Hank and Ben wanting to give money to John and Tim because, drunk, the broke four windows a table and burned a sofa it really evidences how much more clarity is needed in order for everyone to know that the purpose of the plan is in fact to establish a present value for the windows, the table and the sofa, and so that damage assessments can proceed.

Now, if you do not spell that out letter by letter, how can one avoid anyone believing Mr. Rybinski is absolutely right?