Are those who impose regulations that create generous incentives for these to be gamed entirely without blame?

Sir, Brooke Master while discussing regulations for carmakers and banks refers to “mis-sold mortgage-backed securities and payment protection insurance” “The diesel scandal echoes bankers’ woes” July 27.

The regulators, with Basel II of 2004, allowed banks to leverage 62.5 times if a AAA to AA rating was present… while for instance only 12.5 times if there was no credit rating. That temptation set up the banks to, sooner or later fall into a trap. Are these regulators innocent?

In the same vein carbon emission controllers set up procedures that evidently could easily be cheated on. Are these controllers also entirely innocent?

I ask these questions because from what we have seen neither regulators nor controllers have been demoted, on the contrary, at least with respect to banks many, like Mario Draghi and Stefan Ingves, have been promoted.

Had the credit-rated-risk-weighted capital requirements for banks that distort the allocation of credit to the real economy not been introduced, the 2007/08 crisis and the ensuing slow growth would not have happened.

If a country decides to impose a 1.000% tax on liquor, does it not have any responsibility in that its citizens (including its legislators and tax collectors) start smuggling liquor?

@PerKurowski

There must be serious consequences for regulators and controllers who fail or allow themselves to be cheated

Sir, Tim Harford writes “In the case of VW, transparency was the enemy: regulators should have been vaguer about the emissions test to prevent cheating” “How do you catch a cheat?” February 19.

What? That seems like the absolutely most certain way to produce a cheat. Or is it that Harford believes regulators and emission controllers are a different set of humans with angel like qualities? Does he not understand what kind of temptations that would create?

Sir, the greatest problem with Volkswagen cheating on US emissions tests, is that the failed emission controllers who allowed themselves to be cheated have not been publicly shamed and sent packing home. Just like the extremely failed bank regulators of the Basel Committee for Banking Supervision have not been. In fact, the latter are still working on tweaking their fundamentally wrong regulations.

If creating regulations and controlling what’s being regulated carries no consequence when failing or being cheated, things are only bound to get worse. So, should we parade Paul Volcker, Alan Greenspan, Mario Draghi, Stefan Ingves and all their other bank regulating colleagues down our avenues wearing dunce caps? Why not? Do we not owe at least that to all who have suffered and will be suffering the consequences? Sincerely that seems like a very minor and gentle reprimand for all the societal damages they have caused with their risk weighted capital requirements for banks.

Sir, Harford correctly concludes though with “The truth is that the world can be messy place. When our response is a tidy structure of targets and checkboxes, the problems really begin”. Precisely! It reminds me of an Op-Ed I wrote in 1998 titled “Regulations as enemies of bank missions”

PS. Sir you might ask why I here mention Paul Volcker. The truth is that he was one of the responsible for the genesis of what with time will be considered one of the greatest statist regulatory failures ever. 

@PerKurowski

Cement generates carbon - tree stores carbon. Is that something for houses in China?

Sir, I refer to Gillian Tett’s “Can China’s buildings turn green?” April 23.

What I have understood talking with friends who might just be besserwissers as unknowledgeable on these matters as I am; China uses a lot of concrete when building, and cement generates massive amounts of carbon. If they built more houses with tree then they could instead be capturing carbon.

Is it so? Who knows, in the fight against climate change, we must be very careful, there are many climate change profiteers.

And that, to keep profiteers away, is why I am supporting a big tax on gas, distributed by means of a Universal Basic Income. That would also align the incentives in the fight against climate change with those in the fight against inequality.

@PerKurowski ©

When paid by Volkswagen, the fines should go to patent free research of better diesel engines… and emission controls

Sir, Brooke Masters write “Drivers who bought VW’s “clean diesel” engines are now faced with technical fixes that could well reduce both fuel efficiency and power. Their communities have much dirtier than anticipated air” “Lawsuit on behalf of 1m $1 investors is something to fear. Somebody ought to sue” October 3.

Indeed but when suing make sure that if you win it can make a difference, not just make up for something secondary.

Many Volkswagen’s diesel engine buyers, who said they bought it out of environmental concern, many of them just green show-offs, now have a legitimate grievance being left out hanging like fools. But, if they are going to sue, they should at least request that, if successful, all fines paid by VW should go to finance the development of patent free better diesel motors.

Brooke Master’s also writes: “There are many frivolous [and not non frivolous] law suites were the attorneys on both sides walked away with millions of dollars in fees”. And with that she reminds me of that, at least in the case of banks being sued, all lawyers should be paid their fees in bank shares… I mean so that we do not hurt the lending capacity of banks and with that of ten thousands of innocent bystanders borrowers… the sort of civilian casualties.

Perhaps if we start looking into the issue of where compensation payments and fees go to, and how it is paid, then perhaps we will start looking at tort reform from a much more productive angle.

@PerKurowski

FT, can you help me understand the practical significance of different internal carbon prices?

Sir, Pilita Clark reports that Spain’s Inditex fashion group, owner of the Zara brand, says it has a US$30 a ton internal carbon price even though EU benchmark carbon process are around $US9. “Companies accelerate carbon pricing” September 21.

I have no idea whether those prices are high or low so it would be interesting reading what Zara will not be doing with a price of US$30 compared to what it would be doing if the price was $US9.

I ask, because when I announced to my family we will from now on be using an internal carbon price of $US60, twice that of Zara’s, my kids were properly impressed, “Way to go dad!" But then they came back and asked me what that meant for them… and I don’t have a clue… and I hope I don’t have to scrap my outdoor grill now either. 

@PerKurowski

Is the Catholic Church now telling the Lutheran Church: “Thou shall not sell carbon indulgences”?

Sir I refer to James Politi’ and Giulia Segreti’s “Pope says multinationals and greed threaten environment” June 19.

Pope Francis’ encyclical Laudato Si states: “171. The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.”

I have for years I argued that the “carbon credits” so much promoted by Germany among others, are like the indulgences sold by the Catholic Church for the forgiveness of sins, and which Martin Luther protested. And so now, in a strange twist of history, it seems it is the Catholic Church that is telling the Lutheran Church “Thou shall not sell indulgencies”

@PerKurowski

In Paris Conference we will hear many echoing Neville Chamberlain: There will be splendid planet earth for our time

Pilita Clark and Stefan Wagstyl report on “G7 in historic accord to phase out fossil fuel emissions this century”, June 9. Hurrah!

But when Stephen Harper, the Canadian premier, brings it down to reality mentioning that: “doing so would require “serious technological transformation…I don’t think we should fool ourselves, nobody’s going to start to shut down their industries or turn off the lights” it makes it all look much more that a historic hullaballoo… in preparation for all to come out of the Paris conference in December declaring, like any Neville Chamberlain: There will be splendid planet earth for our time.

As I have held for many years, any planet earth environmental agreement, if disconnected from the people will not work… and in that respect Governments, NGOs and Greens are not the people.

Also for me, to read about phasing out fossil fuel without phasing in nuclear power, which for the time being is the only available bridge between now and that “serious technological transformation”, shows this is not a real serious effort.

What do little me currently propose we do for our pied-a-terre?

For a starter… instead of allowing banks to earn especially high risk adjusted returns on equity on anything perceived as safe from a credit risk point of view, something which has no purpose and is dumb, we should give banks the incentives to earn those extra high returns on everything that seems to help sustainability (and job creation).

Put one and the same capital (equity) requirements for banks on all assets, for instance 8 percent, and then reduce these with up to 50 percent depending on planet earth sustainability ratings (or job creation ratings).

And please, please, please… stop talking about differences between rich and poor with respect to their responsibility to planet earth… we are all indigenous to our planet, and we all have the same human right to feel responsible for it. The “I am rich so I can take care of it better” has to stop.

PS. And forget about selling carbon emission indulgences for some fairly undefined sins in order to use the proceeds for some even less defined good deeds.

@PerKurowski