So if the taxman/(Big Brother) is now to get a share of the revenues some Big Tech obtain exploiting our personal data… who is going to defend us citizens?

Sir, you deem “The ability of some of the world’s most profitable companies to escape paying fair levels of tax…unfair both to other businesses which do not trade internationally and to governments, which lose substantial revenue” “France leads the way on taxing tech more fairly”, July 12.

It might be unfair to us taxpaying citizens but “unfair to the government”, what on earth do you mean with that? That sounds like something statist redistribution profiteers could predicate but, frankly, the government has no natural right to any income.

And since Big Techs like Facebook and Google obtain most of their revenues by exploiting us citizens’ personal data, then if there were some real search for fairness, a tax on ad revenues from such exploitation should better be returned directly to us, perhaps by helping to fund a universal basic income.

But what ‘s the worst with these taxes is that now effectively governments will be partners with these companies in the exploitation of our data. With such incentives do you really believe our interest will be duly defended? We, who are afraid of what all our data could feed with information a Big Brother government, must now recoil in horror from that we will also be suffering an even richer and more powerful Big Brother.

PS. Sir, it is not the first time I have warned you about this.

https://teawithft.blogspot.com/2018/03/our-need-to-concern-ourselves-about-use.html

https://perkurowski.blogspot.com/2019/05/i-have-some-ideas-about-what-could.html

@PerKurowski

America, warning, industrial policy fertilizes crony statism

Sir, Rana Foroohar argues that America has chosen “to support a debt-driven, two-speed economy rather than one that prioritises income and industry” “Plans for a worker-led economy straddle America’s political divides” June 9.

“Debt-driven” indeed, but that has mostly been by prioritizing the safety of banks and the financing of the government.

In 1988 the Land of the Free and the Home of the Brave signed up to a statist and risk adverse bank regulation system. The Basel Accord favors “the safer present”, for instance lending to the sovereign and financing the purchase of houses, over that of “the riskier future’, like lending to entrepreneurs. 

In 1988 when a 0% risk weight was assigned to it, the US debt was $2.6Tn. Now it is $22Tn, and still has a 0% risk weight. And just look at how houses have morphed from being homes into being investment assets.

There’s no doubt the report issued by Marco Rubio, as the chair of the Senate small business committee, is correct in that “the US capital markets had become too self-serving and were no longer helping non-financial business... and that public policy could play a role in directing capital to more productive places — away from Wall Street, and towards Main Street.”

But that does not mean the US, in order to “successfully compete with state-run capitalism” like China, has now to turn to industrial policy and thereby risk being captured by even more crony statism.

Regulators assigned a 20% risk weight to what, because it has an AAA rating could really create dangerous levels of bank exposures, and one or 150% to what is below BB- rated, and which banks do usually not want to touch with a ten feet pole. So why should we believe that governments who appoint such regulators, have better ideas than the market on how to funnel capital to the most productive places, connecting the dots between job creators and education.

Therefore the public policy most urgently needed is that of freeing America (and the rest of the world) from that public policy distortion of the allocation of bank credit, that which builds up dangers to the bank system, and weakens the real economy.

PS. Germany has benefitted immensely from so many eurozone nations helping to keep the euro much more competitive for it than what a Deutsche Mark would be. Therefore it is not really correct to bring up the “success” of Germany as an argument in favor of more state intervention.

http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

@PerKurowski

Venezuela poses a unique opportunity, for all citizens of the world, to clearly define what should be considered as odious credits, and how these should be treated.

Sir, Colby Smith and Robin Wigglesworth quote a holder of Venezuelan debt with: “The ultimate objective is to reach a point where [Venezuela] regains market access at market-determined terms without the risk of renewed default”,“Venezuela debt fight pits veterans against hot-headed newcomers” March 13.

It is absolutely clear Venezuela needs much financing to reconstruct its entire run down basic infrastructure but, as a citizen, having seen how much public indebtedness goes hand in hand with corruption and waste, and how it so often makes it harder for the private sector to finance its needs, I would not mind Venezuela not reaching that “ultimate objective” for a long-long time, especially not as long as the government already receives directly all oil revenues.

Our Constitution clearly establishes that all “Mineral and hydrocarbon deposits of any nature that exist within the territory of the nation… are of public domain, and therefore inalienable and not transferable” and yet 99% of the debt it contracts is implicitly based on its creditors having access to the revenues produced by extracting Venezuela’s non-renewable natural resources, mainly oil. 

So now, the least our legitimate creditors could do, is to help us extract oil; and to that effect the following is a message I have been tweeting for about two years: “For Venezuelans to be able to eat quickly, starts by quickly handing over PDVSA’s junk to its and Venezuela’s creditors, so that they quickly put it to work, to see if they are able to quickly collect something, so to pay us citizens, not bandits, some oil royalties quickly”

But, that said, what is most important is to classify all Venezuela’s debts. Many of these were not duly approved; others had a large ingredient of corruption and lack of transparency and so all these must be scrutinized in order to establish their legitimacy.

For example, when Goldman Sachs in May 2017 handed over $800 million cash in exchange for $2.8billion Venezuelan bonds paying a 12.75% interest rate, to a notoriously corrupt and inept regime that was committing crimes against humanity. Especially since Lloyd Blankfein cannot argue an “I did not know”, that to me is as odious as odious credits come.

Sir, it behooves all citizens of the world to use this opportunity to set up an adequate defense against governments anywhere, mortgaging their future with odious credit/odious debts.

That also includes stopping statist regulators from distorting with a 0% risk weight the allocation of bank credit in favor of the sovereign, against the 100% risk weighted citizens. 

@PerKurowski

Those who fell for the “We will make your bank systems safer with our risk weighted capital requirements” populism should not throw the first stone

Sir, Martin Wolf reviewing three books related to the rise of populism writes “Populist forces are on the rise across the transatlantic world … It may also prove to be a historical turning point, away from liberal democracy, global capitalism, or both.”“The price of populism” October 27.

Indeed, but to me that started some decades ago when bank regulators, as if they where clairvoyants, told us they could make our banks systems safe by imposing risk weighted capital requirements on banks. “Wow, risk-weighted, that’s sure scientific!” 

Sir, if that’s not populism what is? The world, FT and even Martin Wolf fell for it, lock stock and barrel.

Referring to Robert Kuttner’s “Can Democracy Survive Global Capitalism?” Wolf agrees when Kuttner mentions the “incompetent deregulation of finance, especially the growth of short-term cross-border capital flows and the plethora of regulatory loopholes.”

Really? When regulators allowed with Basel II to leverage 62.5 times with assets human fallible credit rating agency have assigned AAA to AA rating, what more loopholes do you really need?

Kuttner also argues against “the disastrous counter-revolution of the 1980s and the relaunch of deregulated capitalism” NO! What “deregulated capitalism” can there be when regulators assign a risk weight of 0% to the sovereign and one of 100% to the unrated citizens? That Sir is regulated crony statism.

@PerKurowski

The dangers of the unknown unknowns are greater than those of the known unknowns.

Sir, Martin Wolf asks, “Is it possible to know the state of the UK public finances under present conditions?” He answers “No. The unknowns are too great.” “Some ‘known unknowns’ about the UK economy”, October 19.

Indeed, but to me, the most dangerous unknowns for the UK, and for much of the rest of the world, are the “unknown” unknowns. 

Like how much of the savings for the future, of those who are the least able to manage major upheavals, has been invested in houses; those homes that because of so much preferential finance increased their prices so much, that they were turned into also being risky investment assets?

Houses are good investments… until too many want to convert them simultaneously into main-street purchasing capacity.

Like how much of the illusion of public debt sustainability is solely the result of preferential regulations, like the Basel Accord of 1988 decreeing a 0% risk weight to sovereigns and a 100% risk weight to citizens?

Any sector given more preferential access to credit than other is doomed to unsustainable debt… just like Greece was doomed by the 0% risk weight some yet unknown EU authorities awarded it.

Sir, when compared to these in general unknown unknowns, the known unknowns, like Brexit or trade wars, are just peanuts. 

@PerKurowski

Many “independent” central banks, like the Fed and ECB, are behaving as statism cronies

Sir, Michael G Mimicopoulos, when commenting on your editorial “The long bull market enters its twilight period” (October 13), writes“The debt of non-financial companies in the US, which has risen to 73.5 per cent of GDP, an all-time high… Companies have been borrowing money to buy back their own stock, to increase earnings per share rather than pay down debt.” “Fed should be viewed against its record” October 17.

Absolutely and that has been going on in front of Fed’s eyes; just like banks have been shedding assets which require them to have more capital, in order to show better capital to risk weighted asset ratios.

Fed independence? Central banks that approve of a 0% risk weighting of their sovereign with a 100% for citizens, keep interest rates ultralow, and launch quantitative easing programs purchasing loads of sovereign debt, can hardly be called independent, much more statism cronies.

@PerKurowski

To minimize the next unavoidable financial crisis, get rid of the dangerous risk weighted capital requirements for banks.

Sir, Martin Wolf backs IMF’s Global Financial Stability Report of October 2018 by requiring that “above all we must keep [bank] capital requirements up”, “How to avoid the next financial crisis”, October 9.

No one, except of course those bankers whose bonuses depend a lot on not having to compensate much capital, would argue against banks having to hold more capital. But, after a bank crisis that resulted exclusively from excessive bank exposures to assets especially perceived as safe, and that therefore regulators allowed banks to hold against especially little capital, it should be clear that even more important than more capital, it is to get rid of the risk weighted capital requirements for banks, those which so distort the allocation of bank credit.

Wolf writes: “The pre-crisis world was one of globalisation, belief in markets and confident democracies” Really? If so that’s because way too few knew what was happening.

“Confident democracies” In 1988, with the Basel Accord, one year before the Berlin Wall fell, bank regulators, without due consultations, smuggled in risk weights of 0% for the sovereign and 100% for the citizens. Sir, no matter how you see it, that is statism imposed by unelected autocrats that has nothing to do with democracy.

“Belief in markets” When regulators, with Basel II of 2004, assigned a risk weight of 150% to what was rated below BB- and only 20% to what was rated AAA to AA, they very clearly, stated, bankers don’t see shit, so we must help them out.

Sir, some might take comfort that current figures, even not as good as if the crisis had not happened, are still acceptable. They will soon wake up to the fact that these relative decent post crisis results, come from kicking the crisis can forward, and from the debt-financed anticipation of demand. That can, will soon start rolling back on our children and grandchildren. Great kicking authorities!

PS. Again! Had regulators understood that risk-weighted capital requirements for banks only guarantee especially large exposures, against especially little capital, to what’s perceived or decreed as especially safe, an especially big crisis like that of 2008 would not have happened

@PerKurowski

What we have is not by a long shot economic liberalism, it is much more statism, and of the crony kind.

Sir, Martin Wolf refers to Yascha Mounk of Harvard University arguing “that undemocratic liberalism, notably economic liberalism, largely explains the rise of illiberal democracy: ‘vast swaths of policy have been cordoned off from democratic contestation’, [carried out] by international agreements created by secretive negotiations carried out inside remote institutions.” “Saving liberal democracy from the extremes” September 25.

Hold it there! The Basel Committee for Banking Regulations, with Basel I of 1998 decided, without any real public consultation, that the risk weights for those risk weighted capital requirements it itself concocted, were to be 0% the sovereign and 100% the citizens. What has to do with “economic liberalism”? Nothing! To me it is pure unabridged statism… that is unless it is derived from pure unabridged stupidity.

Ignoring that allows Wolf to opine, “What is true is that poorly managed economic liberalism helped destabilise politics… and to argue, “Elites must promote a little less liberalism” 

Again, no! Mr. Wolf (for the umpteenth time), we are not living a time of “poorly managed liberalism”, we are living thru times of expertly camouflaged statism, that which is so beneficial to the redistribution profiteers and to those of the private sector who love to engage in crony statism.

Sir, all journalists, even those considered its elite, have a duty to denounce that; less they might be accused of covering it up. I mean should not journalists be the citizens’ frontline for any “democratic contestation”? 

How many times have I asked Martin Wolf to use his influence to ask the regulators: “Why do you want bank to hold more capital against what’s perceived as risky and is therefore less dangerous to our bank system, than what is perceived as safe and that, precisely because of that, becomes so much more dangerous to it? Hundreds? Has he dared to ask it? Not that I know Sir. Though perhaps he just did not like the answer or the non-answer 

@PerKurowski

No coroner has asked for a postmortem examination of the global financial crisis to be performed by a truly independent pathologist.

Sir, Nouriel Roubini writes:“As we mark the 10th anniversary of the global financial crisis, there have been plenty of postmortems examining its causes, its consequences and whether the necessary lessons have been learnt” “Policy shifts, trade frictions and frothy prices cloud outlook for 2020” September 12.

Yes, many postmortems but none performed by a truly independent pathologist. 

Had that occurred he would have established that absolutely all assets that caused the crisis were those banks were allowed by their regulator to leverage immensely, because these were perceived, decreed or concocted as safe.

And from that he would have reported, not a lack of regulation but missregulation; and not excessive risk taking but excessive exposures to AAA rated securities, residential mortgages and 0% risk weighted sovereigns, like Greece.

And after such a report it is clear there would have been a total shake up of that group-thinking mutual admiration club known as the Basel Committee for Banking Supervision.

But since that report would have contained so many of truths that shall not be named, it never saw light, and consequentially the lessons have not been learned. 

Therefore the distortions in the allocation of credit have remained; something which has caused all the mindboggling large stimuli, like Tarp, QEs, fiscal deficits, growing personal debts that anticipate demand, and ultralow interests, to only result in kicking the crisis can forward and higher.

Sir, I have never been a bank regulator but from very early on I disliked much of what little I was seeing; and as an Executive Director of the World Bank I formally warned in 2003 against “entities such as the Basel Committee, accounting standard boards and credit rating agencies introducing serious and fatal systemic risks”

When later I discovered aspects like the runaway statism that was reflected into risk weights of 0% the sovereign and 100% the citizen; and the Basel II naiveté of allowing banks to leverage 62.5 times assets only because these had been rated AAA to AA by human fallible credit rating agencies, I could just not believe we had fallen so low.

Now, 10 years after the crisis, sadly, I am still waiting for any important authority to ask the regulators: 

“Why do you want banks to hold more capital against what by being perceived as risky has been made more innocous than against what by being perceived as safe poses so much more dangers to our bank system. Have you not heard about conditional probabilities?”

PS. Here is a somewhat more extensive aide memoire on the mistakes in the risk weighted capital requirements for banks.

@PerKurowski

How many Greece will it take before the bank-sovereign doom loop is really discussed and then dismantled?

Sir, Isabel Schnabel, a member of the German Council of Economic Experts writes about a “contentious issue: the regulation of banks’ sovereign exposures. Currently, this benefits from regulatory privileges, being exempt from capital requirements and large exposure limits. The result is high volumes of sovereign debt on banks’ balance sheets, with a strong bias towards domestic bonds… it is up to the European Commission to shift this important issue to the top of the agenda”, “How to break the bank-sovereign doom loop”, August 29.

About time! It is now thirty years since regulators, with the Basel Accord, Basel I, introduced risk weighted capital requirements for banks; and thereto assigned risk weights of 0% to sovereigns and 100% to citizens, and so gave birth to the bank-sovereign doom loop.

It was European Authorities who assigned a 0% risk weight to Greece and thereby doomed it to its current tragedy.

If there is something the EC firsts need to come clear with, is how that happened.

When I first heard rumors about that regulatory statism, around 1997, I just did not believe it… I mean did not the Berlin wall fall in 1989? 

In a letter published by FT in November 2004, soon 14 years ago, I wrote: “We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.” And of course that applies to developed nations too.

Why has this issue never really been discussed? How come the world has allowed itself to be painted into a corner with sovereign risk-weights it dares not change scared of that would on its own set off a crisis? Why did Greece have to pay for a EU mistake? Is that a way to treat a union member? And thousands of questions more.

Sir, how do we stop this "I guarantee you and you lend to me (against no capital)” incestuous relationship between sovereigns and banks?

@PerKurowski

For better transparency should newspapers have a section of “Journalism” and one of “Political Activism”?

Sir, Rana Foroohar discussing the issue of ever growing student debt, ends her review of Devin Fergus’s book “Land of the Fee”, with: “Perhaps the new generation of millennial socialists rising in the US should make this the issue they tackle first”, "Slow bleed" August 18.’

What’s wrong with plain millennials? Do they have to be socialists? Or is Foroohar more than a journalist an activist?

Sir, since many years I have been arguing that higher education should be much more of a joint venture between the students and their Alma Maters; and that financing preferentially educational costs would just leave over-indebted students and enriched professors. Just as financing preferentially house purchases benefits those who have invested in houses, much more than those who want a house just to be their home.

Here below are two of my tweets that I think cut over political lines, but that therefore might not be of too much interest to redistribution or polarization profiteers.

1. “Instead of taking on debt, perhaps students should go for crowdfunding their study costs, offering to pay a percentage of their incomes during their first 15 after graduation years. If so would not investors want their professors to have some skin in the game too?”

2. “Would insurance companies be willing to invest in the future by financing students against a percentage of their first 15 after graduations years of income? Would IRS be willing to certificate the incomes of these students for the investors?”

I have now ordered, “Land of the Fee” and so I will keep my comments till after I read it. That said I am sure I will again have to ask: Where was FT when regulators risk weighted sovereigns 0% and citizens 100%? Where was FT when regulators allowed banks to leverage 62.5 times only because an AAA rating issued by human fallible rating agencies was present? Where is FT on that all the real benefits of securitization do not accrue those securitized, much the contrary securitization profits are maximized when hurting the most? 

@PerKurowski

What if Germans knew German authorities approved of giving Greece a 0% risk weight?

Sir, Mehreen Khan writes, “hawkish governments, led by Germany… are reluctant to award Greece more generous terms that mean their taxpayers are not paid back in full” “IMF signals need for more Greek debt relief” August 1.

The historical fact is that European central bankers, for the purpose of the risk weighted capital requirements for banks, assigned Greece a 0% risk weight. That meant banks needed to hold no capital (equity) when lending to Greece. That meant that among other German banks, caused Greece to take on that excessive debt that lead it to its current tragic predicament.

Some will argue that Greece also played statistical shenanigans with its economic data. That is true, but if German banks had to hold as much capital on loans to Greece than what they needed to hold against loans to German entrepreneurs or German small businesses, you could bet your last Deutsche Mark, sorry your last Euro, on that German banks, no matter how good economic data on Greece looked, would not have lent it a fraction of what they did. 

And now IMF’s calculations find Greece’s debt costs will “begin an uninterrupted rise” after 2038, to about 20 per cent of the country’s gross domestic product every year.” Sir, is it really fair to single out some groups of European citizens to pay for the mistakes of everyone’s European authorities? Should that not be a totally shared responsibility?

Germans should be aware that at this very moment German banks, are required to hold much less capital when lending to its government or to some other governments, than when lending to German citizens… and that dooms Germany, sooner or later, to end up being another over-indebted Greece. And that applies to banks and nations much everywhere.

May I make a suggestion to Germans, and all Europeans, and all Americans, and all other? If so, that would be to get rid, immediately, of bank regulators that are either so statist so as to assign the sovereigns a 0% risk weight, or so loony so as to believe that what is perceived as risky is more dangerous to their bank system than what is perceived as safe.

PS. And don’t tell us they did not know they were favoring sovereign debt so much

PS. Some in Germany are aware of the problem

@PerKurowski

Central bankers have surely favored government borrowings… and the costs will be horrendous.

Sir, Desmond King reviews and discusses Paul Tucker’s “Unelected Power”, which asks:“To whom are central bankers responsible? How is oversight of their discretionary authority monitored in a democracy? Can central banks remain legitimate as they choose financial winners and losers?”

The starting point for Tucker’s questions seems to be when, in September 2008, “Citizens and bankers sat transfixed as Lehman Brothers collapsed, rattling equity and credit markets”.

Wrong! Not that I had any idea of it back then but the genesis of the problems herein referred to seem to me be in 1988 when bank regulators came up with the incredibly hubristic concept of risk weighted capital requirements for banks, as if anyone could measure ex ante the risks that would explode ex post.

From a cv. on the web I see that Paul Tucker worked in 1987 in “the Banking Supervision Division; as part of the 4 person team negotiating the Basle International Capital Convergence Agreement; and assistant to chair of Basle Supervisors Committee”

So when King writes that “Tucker argues that the “most compelling reason” for [central bank independence] is to “enable governments to save paying an inflation risk premium on their debt”, I must ask: “Really Mr. Tucker, does that require risk weighing the sovereigns with 0% while assigning the citizens 100%?” 

That regulatory subsidy causes, sooner or later, governments to take will be getting up too much debt, that which can only be repaid by the printing machine… meaning inflation… meaning tragedies. 

I have not seen anyone holding Sir Paul Tucker accountable.

PS. I dare Paul Tucker, the current chair of the Systemic Risk Council, to give a coherent explanation for why banks should hold more capital against what’s made innocous by being perceived risky, than against what’s perceived safe and therefore carries more dangerous tail risks? The distortion that produces in the allocation of bank credit constitutes, as I see it, a huge systemic risk.

@PerKurowski

Risk weights of 0% the sovereign and 100% to its source of strength, the citizens, is putting the cart before the horse

Sir, I refer to Professor Lawrence Summers’ “The threat of secular stagnation has not gone away” May 7.

Again, for the umpteenth time: Regulators allow banks to hold less capital against what is perceived safe, like houses and friendly sovereigns, than against what is perceived risky, like entrepreneurs. This allows banks to leverage more with the “safer” present economy than with the “riskier” future. 

And this allows banks to earn higher expected risk adjusted returns on equity when financing the “safer” present economy than when financing the riskier future, something which causes banks to give too much credit to the current economy, without giving sufficient credit to the future productive means that could generate a much needed debt repayment capacity. 

This has to result in the “slow productivity growth [and] unsound lending and asset bubbles with potentially serious implications for medium-term stability” which is of such great concern to Professor Summers. Why is this so hard to understand?

Why can renowned professors with so much voice, not be able to also understand that if you assign a risk weight of 0% to the sovereign, and one of 100% to the citizens, those who signify a sovereign’s prime source of strength, you are putting the cart before the horse? Are they too statist or, behaving like sovereigns with an après nous le déluge, just too indifferent about the future. 

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

@PerKurowski

Know the difference between ordinary private sector citizens and corporate leaders engaged in crony statism.

Sir, Rana Foroohar writes about “a role for corporate leaders who think about more than share prices… Some are calling on the private sector to take up the mantle of US leadership.” “Business can fill the leadership vacuum” August 21.

Boy, the aspiring Bill Gates and Mark Zuckerbergs of this world just got to love her. But, as I see it, many corporate leaders do not really belong to the ordinary real private sector, they are too much often just representatives and members of the crony-statism sector… as in “I called up Mike Spence, [then governor] reminded him the we were the biggest tech employer…”

Look for instance at those big banks loving it when they can leverage their equity manifold lending to “the safe”, like sovereigns and the AAA rated, and express no concerns at all with the fact that this stops them from lending sufficiently to the SMEs and entrepreneurs.

Do I disagree with Marc Benioff, head of Salesforce, when he states: “CEOs have to be responsible for something more than their own profitability. You have to serve a broader group of stakeholders — from employees to the environment — and when politicians don’t get things right, corporate leaders have to act”? Absolutely not! They have all the right to do so… but, any strengthening of corporatism, should also come with the label: “Warning, allowing corporate leaders to speak out too much for the ordinary private citizen’s interests, might be very dangerous for the health of society.”

PS. As another example look at a Goldman Sachs’ Lloyd Blankfein selling himself of as a responsible citizen, while at the same time he approves of financing dictators that odiously violate human rights. 

@PerKurowski

The crisis can of ten years ago was kicked down some roads leading to nowhere

Sir, in your “Ten years on, the crisis leaves a dark legacy” of August 12 you rightly write, “A newly minted mortgage-asset securitisation industry had turned the borrowed capital into very liquid but little-understood securities”; but you so wrongly silence the fact that if these securities were just rated AAA to AA, regulators, with their Basel II of 2004, had allowed banks to leverage their capital (equity) an amazing 62.5 times to 1. If banks only obtained a 0.5% percent margin on these, they would earn a 50% return on equity.

And you recount: “The freeze in money markets hit global banks that had [authorized by regulators] leveraged their balance sheets to astonishing levels. They could not bear the strain… The rest — bank bailouts, recession, central bank intervention — is history. The history is unspooling still”

That’s true, but why is that so? The answer, because our baby-boomer leaders, egged on by failed regulators not wanting to understand or confess their mistakes, were to coward to bite the bullet, and so just kicked the can down some roads. Those roads, because of the distortion produced by the risk weighted capital requirements for banks in the allocation of credit to the real economy, lead to nowhere. If we do not completely eliminate this source of distortion, our capitalism, that which has served the Western world so well, will never regain legitimacy again.

You argue, erroneously I believe: “Financial crises end because market prices for tainted assets are established and credit flows again. In this case, only dramatic action by government made that possible.” On the contrary, had the markets been allowed to act, like what I suggested in 2006 with my letter “Long-term benefits of a hard landing”, we would probably already be clearly out of the woods, and the too big to fall banks would not have just grown bigger still.

Besides Sir, what capitalism do you refer to, that in which bank regulators assigned a risk-weight of 0% to the sovereign, and one of 100% to the citizens? To me that sounds pure and unabridged statism. Could it be you all in FT are devout statists, and that is why you have so insistently silenced my arguments?

@PerKurowski

Those in 1989 so illusioned with the fall of the Berlin wall, never saw the Basel Accord that had hit the West 1988

Sir, Edward Luce writes: “We returned to England in 1989, hungover, each carrying a small chunk of the Berlin wall…We were infected with optimism.” “When west isn’t the best” Life & Arts, May 6.

And now, soon thirty years later Luce is so disappointed with what has happened thereafter, that he even writes such nonsense as “Others… in Caracas… share Russia’s hostility to western notions of progress”. Mr. Luce, dare go to the street of Venezuela and see for yourself how more than 80 percent of that country is risking their lives on the streets, fighting to maintain liberal values you hold, all in order to demolish a Havana-Beijing-Moscow-Teheran wall built by thugs, and which has destroyed a beautiful nation.

Luce ends with: “The west’s crisis was not invented in 2016. Nor will it vanish in 2017. It is structural and likely to persist. Those who gloss over this are doing liberal democracy no favours”; and that’s having already stated: “The self-belief of western elites saps their ability to grasp the scale of the threat.”

Sir, let us put the house in order. Luce writes: “The year 1215, the year of the Magna Carta, is today seen as the “year zero” of liberal democracy… By limiting the power of the king, the Magna Carta set a precedent for what would later be known as “no taxation without representation.”

Limiting the power of the king? In 1988, one year before Luce chipped away at the Berlin wall, the Basel Committee for Banking Supervision managed to get the Basel Accord agreed… and that accord, for the purpose of the capital requirements for banks, risk weighted the king, the sovereign, with 0% and its subjects, the citizens with 100%. From that moment on the statists’ wet dreams were realized and, amazingly, the western elite said nothing about this rape of the Magna Carta.

But Basel’s bank regulations did not only favor the king, it also introduced a risk aversion that had nothing with that “God make us daring!” attitude that made the west great.

That also realized the wet dreams of bankers, namely that of leveraging the most with what was perceived as safe, so as to be able to earn the highest risk adjusted returns on equity on what was perceived as safe, so as not having to lend the credit umbrella to risky SMEs and entrepreneurs.

Of course the west, with banks no longer financing the riskier future but only refinancing the safer present and past, and the sovereign, could, after that, only go in one direction, namely down, down and down.

Add to that the complications created by robots and automation. Those, on top of having to create jobs, now also require us to create decent and worthy unemployments.

The challenges for the west loom immense. To face these requires a neo Magna Carta that probably has to include something about a universal basic income, and of course getting rid of that insane mindset that came up with current bank regulations. That because, as Einstein said: “No problem can be solved from the same level of consciousness that created it”.

@PerKurowski

Martin Wolf. When the Basel Committee introduced irresponsible financial miss-de-regulation, why did you keep mum?

Sir, Martin Wolf writes of the risks… of “irresponsible financial deregulation... closely linked to the agenda of the Republicans” and argues: “The short-term effects of taking the brakes off an unstable financial system might also be positive. The longer-term ones might include a more devastating crisis even than the one of a decade ago.” “An upswing is not sustained growth” April 26.

Indeed! The short term effects of the Basel Committee favoring what was perceived as safe with much lower capital requirements for banks, had positive short term effects, but also caused the crisis a decade ago, by pushing too much investments in what was AAA rated and lending to sovereigns like Greece.

But I don’t remember reading Mr. Wolf warning about that miss-de-regulation.

The current (republican) proposals we now hear about, like the Financial Choice Act, that suggests a 10% leverage ratio instead of the Basel risk-based capital standards, seems to head in the right direction of eliminating the distortions in the allocation of bank credit to the real economy caused by Basel’s risk weighted capital requirements.

Of course, that is as long as exposures to sovereigns are not calculated differently from other exposures.

As is, lower capital requirements for banks when holding the sovereign’s debts than those of the citizens, de facto implies a belief that government bureaucrats know how to use bank credit better than citizens… and that is of course totally false and absolutely unsustainable.

@PerKurowski

Martin Wolf seems slightly lost in the oceans of global bank regulations

“A natural connection exists between liberal democracy.. and capitalism... They share the belief that people should make their own choices as individuals and as citizens.” “Democratic capitalism is in peril” August 31.

Absolutely! But Martin Wolf seems not to agree with the right of accessing bank credit freely, and gladly accepts regulators distort with risk weighted capital requirements for banks.

Wolf opines: “Capitalism is inegalitarian, at least in terms of outcomes”

Absolutely not! Capitalism both takes away from the lazy and by offering opportunities, gives to those with initiatives and is therefore extremely egalitarian! It is when besserwissers, like those in the Basel Committee intervene, that capitalism stands no chance to deliver opportunities for all.

Wolf writes: “Today, however, capitalism is finding it far more difficult to generate such improvements in prosperity.”

Yes, how could it not, when regulators allow banks to earn higher risk adjusted returns on equity when lending to the safe than when lending to the risky.

Wolf writes: “Controlled national capitalism would then replace global capitalism”

Frankly, has that not already happened with the risk weights of the sovereigns set at 0% and that of We the People at 100%?

Wolf writes “My view increasingly echoes that of Prof Lawrence Summers of Harvard, who has argued that “international agreements [should] be judged not by how much is harmonised or by how many barriers are torn down but whether citizens are empowered… if the legitimacy of our democratic political systems is to be maintained, economic policy must be orientated towards promoting the interests of …the citizenry”

Sir, frankly, how can citizens be empowered when bank regulators decide that the risk weight of the sovereign is 0%, that of the AAArisktocracy 20%, and that of We the People 100%?

Democratic capitalism is in peril? No it has already been defeated. To recover it let’s get rid of current bank regulators and their dumb regulations.

PS. Here is one new attempt to get people like Martin Wolf to understand what has happened. 

@PerKurowski ©

FT, when will you stop lying about “a light-touch oversight of financial markets before the 2008 crash”?

Sir, you write Brussels played no part…in the light-touch oversight of financial markets before the 2008 crash” “Pooled sovereignty has advanced national goals” June 13.

When are you going to stop advancing that notion of a light-touch oversight of financial markets?

In 1988, with the Basel Accord, Basel I, the regulators decided that for the purpose of calculating the risk weighted capital requirements for banks, the risk weight of some friendly sovereigns was zero percent, while the risk weight for supposedly equally friendly citizens, was 100 percent.

With that they started the most heavy-handed statist interventions of financial markets ever.

Banks needed no capital when lending to the infallible sovereign, but 8 percent when lending to citizens.

Banks could leverage equity infinitely when lending to the infallible sovereign, but only 12.5 to 1 when lending to the citizens, those from which the sovereign derives all its strength.

And then, with Basel II, in 2004, the regulators topped up their heavy-handedness by declaring that the risk weights for a private rated AAA to AA was 20 percent while the risk weight of a speculative and worse below BB- rated, one of those banks would never ever dream of building up excessive exposures to, was 150 percent.

And things have not changed significantly. In fact, on the margin, the intervention has become worse.

Was it a light-touch intervention that caused the 2008 crisis to result from excessive exposures to assets allowed being held, against specially little capital? Like with AAA rated securities, or with loans to sovereigns as Greece! No way José!

So FT, when are you to stop lying? It is sure way over time for it. 

@PerKurowski ©