How much transparency can democracy handle?

Sir, Martin Wolf writes: “The more com­plete the set of rights, the more potent will be the con­straints: there will then also be open debate, free­dom to protest, free media and independent insti­tu­tions.” “Democracy is still bet­ter than auto­cracy” FT April 3.

Twenty-five years ago, when my homeland Venezuela was launched into discussions about a new Constitution, in several Op-Eds, I opined the following:

“It is said that Democracy with hunger is not Democracy, but if this is true, Democracy without information is even much less Democracy. In the constitution I want, I consider a citizen's right to information about government management to be of vital importance.”

Sadly, nothing came out of it. But, last year, I sat down to chat with ChatGPT about how artificial intelligence A.I. could empower us citizens to enjoy a more significant democracy. It answered positively in many ways.

So, e.g., what if A.I. was able to report real time – 24/7 the earmarks are handed out by US Congressmen?

Sir, I ask, can democracy handle such transparency?

Risk weighted capital requirements for banks expresses a venomous lack of confidence in the future

Sir, Martin Wolf writes “the financial crises that destroyed globalisation in the 1930s and damaged it after 2008 led to poverty, insecurity and anger. Such feelings are not conducive to the trust necessary for a healthy democracy. At the very least, democracy requires confidence that winners will not use their temporary power to destroy the losers. If trust disappears, politics becomes poisonous” “Capitalism and democracy are the odd couple” September 20.

No! Free flowing not encumbered by crony statism capitalism is about as democratic it can be.

But one of the pillars of current bank regulations is that when banks lend to or invest in something perceived as safe they are allowed to leverage more their equity than if that is done with something perceived as more risky. That means banks can obtain much higher risk adjusted returns on equity financing the safer present than financing the riskier future.

The 2008 crisis resulted from too much exposure against too little capital to “safe” AAA rated securities, or to sovereigns decreed safe, like Greece.

The minimal response of the real economy to all stimuli, like QEs, is in much the result of “risky” SMEs and entrepreneurs not having a competitive access to bank credit.

To top it up a zero risk-weight of governments with one of 100% of citizens has nothing to do with democracy and all to do with statism brought in through backdoors.

“Democracy says all citizens have a voice; capitalism gives the rich by far the loudest.” Indeed but self appointed besserwisser regulators gave “the safe” more voice than “the risky.”

Wolf’s article ends with “After the crisis, hostility to free-flowing global finance is strong on both right and left”.

Mr. Wolf, that hostility was preceded, and caused, by that insane regulatory hostility against free-flowing bank credit, about which you have decided to keep mum on.

@PerKurowski

When there is no contestability whatsoever, perhaps a disrupting referendum is the citizens' only option

Sir, as a Venezuelan it is with great interest I read Martin Wolf’s “Appeals to the will of the people threaten parliamentary democracy” December 9.

In my homeland, the majority of the vote established a de facto dictatorship but now, when that same dictatorship has lost its majority, it fights back against a recall referendum right, even though that right is imbedded in our Constitution.

But forget crazy Venezuela and let’s consider slightly less crazy countries. Does not parliamentary democracy also require a very high degree of contestability?

Sir, for more than a decade now, I have tried to get anyone even remotely related to bank regulations to answer some very basic questions, to no avail. Even influential columnists like Martin Wolf do seemingly not dare to pose those questions either.

In cases like this, what are “We the People” to do. Perhaps a referendum to recall all bank regulators is our only option? Otherwise…must we go on a hunger strike?

PS. Is it so impossible to have parliamentary dictatorships?

@PerKurowski

Are risk weights of: Sovereign 0%, We the People 100%, imposed arbitrarily by regulators, compatible with democracy?

Sir, David Pilling refers to a recent paper by Roberto Foa and Yascha Mounk, that cites findings in the World Values Survey, asking Americans whether they approve of the idea of “having the army ‘take over’. In 1995, one in 16 agreed. Since then, that number has risen steadily to one in six.”, “A continent where the democratic dream lives on” December 8.

I come from a country, Venezuela, in which each day more and more people are toying with the idea of calling in a “new” military, not to have less democracy, but to have more.

And so perhaps the American’s desilusion with democracy that the survey hints at might also reflect that democracy has failed being democracy.

For instance, is the decision process going on in Brussels really compatible with the European democracies? Those voting for Brexit seems to have answered NO!.

And in America, the regulators, for the purpose of setting the capital requirements for banks, surreptitiously set risk weights of 0$% for the Sovereign and 100% for We the People. And that, which is something that clearly reads like a slap in the face of its Founder Fathers, seems as big failure of democracy as they can come. 

So in America, supposedly the world’s prime capitalistic society, statism was imposed. Democratically? No way Jose! 

@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 ©

Niall Ferguson, watch it, the technocrats can be as populists, and as violent, as any other populists can be.

Sir, Niall Ferguson writes: “Politically, most of the world has never been more boring. Instead of the alarms and excursions of the past, we now have technocrats versus populists. Any violence is verbal and the technocrats nearly always win.” “The nasty Greek outcomes that democracy precludes” July 4.

Hold it there! The technocrats can be as populists, and as violent, as any other populists can be. It is hard to visualize the possibility of any Congress or Parliament proposing to favor with regulations bank lending to the government, or to those perceived as “safe”, and thereby create a violent regulatory discrimination against the fair access to bank credit of those perceived as risky, like SMEs and entrepreneurs.

That is what the technocrats of the Basel Committee did with their credit risk-weighted capital requirements for banks. With hubris and populism, they convinced some they could distort credit allocations to the real economy with no downside risks.

@PerKurowski

PS. Europe, remember, between 2004 and 2009, ECB’s technocrat Mario Draghi was OK with banks leveraging more than 60 to 1 lending to Greece.

Democracy goes way beyond the 1% vs. the 99% debate.

Sir, I agree in much with what Edward Luce puts forward in his “America’s democracy is fit for the 1 percent” March 31 but, the issue of undue influence in a democracy, goes much further than the simplistic 1% vs. the 99% debate.

For instance I hold the view that corporate taxes should be zero, since only citizens should be able to wield the influence of paying government bureaucrats their salaries.

And also that 1% too often seems to imply that all those in the 1%, like in the 99%, are alike which we know they aren’t. For instance you would not want to tax the wealthy in order to further benefit the oligarchy, or do you?

Was the Basel Committee, and the Financial Stability Board, created in order to bypass democracies?

Sir, what would be the possibilities of passing a law, in any European parliament, which would dramatically increase banks expected risk-adjusted returns on equity when lending to a sovereign or triple-A rated borrowers, and thereby stop banks from lending to those perceived as more risky, like small and medium businesses and entrepreneurs, or having these pay higher interest rates to make up for a regulatory competitive disadvantage; and all justified with the argument of making banks safer? None I would say… especially if a parliamentarian reminded law makers of the fact that no bank crisis ever has resulted from excessive lending to those perceived as risky, they have all resulted from excessive lending to what was wrongly perceived as absolutely safe.

But that is exactly what the Basel Committee has achieved by imposing their capital requirements for banks based on perceived risk. And this is why I do not agree much with Philip Stephens’ “Do not blame democracy for the rise of the populists” May 10, since democracies should never have allowed their power to be diffused in such a way. Governments and democracies are now in many ways kept hostages by their own creations... and suffering their own Stockholm-syndrome 

Was the Basel Committee and the  created on purpose in order to bypass democracies? I have no answer to that question… sometimes shit just happens. But, who have benefitted from it? Not “the risky”, that’s one thing for sure.

Mr. Anders Borg, what democratic legitimacy has bank regulators to distort and discriminate, and to be so dumb?

Sir, Richard Milne, in “Sweden attacks bloc fiscal union”, February 20, quotes the Swedish finance minister Anders Borg opining with respect to the European Union, “I do think that you’re overstretching the democracy legitimacy when you’re pushing more resources and more powers to Brussels”.

This is a concern I could identify myself with, but, in that respect, much more worrisome is how the bank regulators in the Basel Committee, and the Financial Stability Board, have adjudicated themselves so much powers so as to decide who our banks should lend to. Let me explain.

In a world free of bank regulators, banks and markets would lend to those borrowers who offered them the highest expected net margins of return, after adjusting for differences in perceived risks and transaction costs. That way they maximize the returns of their shareholder’s capital, simultaneously helping to allocate the financial resources in the most equitable an efficient way, so as to help the real economy grow.

But, that is in an ideal world, because now, in this world, loony bank regulators have told banks that if they lend to those qualified as “The Infallible”, then they are allowed to leverage those net expected margins many many times more than what they can do if they lend to “The Risky. And of course, that completely distorts the resource allocation mechanism.

And it is also highly inequitable, because one dollar or one euro paid in interest by a borrower belonging to “The Infallible” will, as it can be leveraged so many times more, then be worth much more than a dollar or an euro paid in interest by a borrower perceived as “risky”.

Mr. Anders Borg, who authorized the regulators to do such thing, you and your ministers of finance colleagues? Do your other Swedish minister colleagues now that? Does your parliament know that? Do the citizens know that?

PS. By the way, besides distorting and being inequitable, those regulations are plain silly. Never ever have “The Risky” detonated a major bank crisis, that dubious honor belongs exclusively to those falsely perceived as members of “The Infallible”, precisely like in the case of the current crisis; and also because those who operate on the margins of the real economy, and might be best suited to get us out of the crisis, and get our young ones their jobs, are quite often “The Risky”.

Allow the citizens, not the State, to do the sowing of the natural resource revenues

Sir, Sylvia Pfeifer, tackles the issue of how “Africa’s new oil nations grapple with the ‘curse’ of wealth” November 12 and, in it, refers to South Sudan where oil represents 98 per cent of state revenues. In my country, Venezuela, because of high oil prices and a prolonged period of economic de-diversification, oil revenues currently represent over 97 percent of all exports, and these are also managed by a “small staff”, in Venezuela´s case by only one.

Having been named the first diversification manager in the Venezuela Investment Fund set up in 1974 to manage the explosion in oil revenues, and resigning from my post after less than two weeks because of political pressures to have a mega project approved, I know a bit on the subject of oil and its governance. The first think I would recommend Sylvia Pfeifer and her readers, is to sit down and reflect for a while, on what such a concentration of power would mean in their own country. Would they be able to have some type of meaningful democracy? No way José! 

Our much loved and famed Venezuelan intellectual Arturo Uslar Pietri wrote about the need for “Sowing the Oil”. Unfortunately, Pietri left out the vital issue about who was going to do the sowing. At this moment, having accumulated all type of experiences I am absolutely sure that had oil revenues been distributed directly to the citizens in Venezuela, so that they had had the chance to learn how to sow it, we would live in a much better country. As is, all our citizens´ prime concern, from cradle to grave, is to how position themselves in order to get the most of those resources, which are really theirs, back from the sort of elected Great Distributor. 

When a nation begins receiving significant natural resource revenues, there is one very important question it needs to answer, namely: What is more important, that its government learns to manage those revenues or that its citizens do? I myself have no doubt, good citizens are much more important than good governments.

http://theoilcurse.blogspot.com/

Venezuela must stop being a nation so amenable to Goliaths

Sir, I refer to Moisés Naím’s“Goliath wins, but Venezuela is at a turning point”, October 10. 

In Venezuela, the central government, meaning the president, receives and decides now over 97 percent of all the nations export revenues. Clearly that makes a mockery out of any democracy, and there is no constitution able to generate the checks and balances that could reign in an oil autocrat willing to exercise his powers to the fullest extent. 

In this respect I have always wondered why intelligent fellow Venezuelan citizens like Moises Naím, spend so much efforts trying to change who is to be the democratically elect oil autocrat and basically none on trying to change the system so that we could have a regular president, for instance by promoting oil revenue sharing among all Venezuelan citizens. 

Could it be that for all the Davids the possibility of becoming a Goliath, or one of his ministers, is something too tempting to abandon?

When the oil curse is just too potent

Sir, Edward Luce in “The ghoul of half truths is not America’s real problem”, October 7, referred to a scholar opining that “[Poland’s electorate is divided between people who feel morally superior and people who fell intellectually superior”. 

But, making reference to your “Chávez challenge”, and John Paul Rathbone´s and Benedict Mander’s “Chávez hails election results as a perfectvictory” October 9, in the case of Venezuela, that division is better described as being between people who feel morally and intellectually superior, and those who do not care one iota about that, since they are too busy keeping their eyes fixed on the checkbook in the hands of the chief of turn which contains the oil revenues, and, quite often, they do so, only out of sheer imperative necessity. 

To understand what is happening in Venezuela just try to think about what would happen in your own country if 98 percent of all the nations export revenues were received by a centralized government. There is no Constitution anywhere that can provide for the sufficiently powerful societal checks and balance to handle something like that. 

And if you really want to get upset, just think about the missed opportunity to install in Iraq an oil revenue sharing with the Iraq citizens. Not only would that have set an example for the rest of oil cursed nations, but it could also help to avoid that a future neo Saddam Hussein could be receiving 3 times or more oil revenues as Saddam Hussein ever received.

Mr. Draghi is just naturally scared, shooting into the dark night.

Sir, “Why has Mr. Draghi done it?” asks Gideon Rachman with respect to ECB’s announcement of “unlimited” purchases of bonds, “Democracy is the loser in the struggle to save the euro” September 11. 

The real answer is of course Mr. Draghi is scared, as we all should be of course, but, because he does not really understands what is happening, he has no other option than to massively and blindly shoot into in the dark night. 

Again, I repeat anyone who does not understand the extent of distortion and damages produced by the capital requirements based on perceived risk does not know how we got here or how we get out of it. 

 And yes, if democracy is going down the tube, so is transparency. Article 32 of the Regulations of the European Financial Stabilisation Mechanism, ESM, states: “The archives of the ESM and all documents belonging to the ESM or held by it, shall be inviolable.” 

Does Europe really have to step back into the dark ages in order to go forward in the 21st Century?

What a great letter!

Sir, I am not at all sure I grasped the whole meaning of Simon Schama’s “A letter from America to beatific Olympic Britain”, August 11, but, intuitively, I know that I love it… and that is not only because I find the concept of “democracy has become the catspaw of plutocrats” to be so right on the dot.

You need some warning labels on the transparency pills offered

Sir it is not “when citizens do not know how much the governments are paid” in resource revenues that lies behind the real resource curse… it is much more when governments get paid too much, like more than 5% of GDP, 15% of its exports, or 25% of all tax revenues received from the citizens, “Stop digging deep for the kleptocrats” March 7.

In those cases of evident lack of balance of the societal powers, those transparency pills that the Extractive Industries Transparency Initiative offers, will in the best of cases act as placebos, and it the worst, be feeding on those illusions of a better tomorrow that help maintain petrocrats and oiligarchs in power.

Breaking up the oligopoly on credit risk information means returning powers to the banks

Sir John Dizard in “For fast relief of the credit markets democratise them” December 30 requests that “Rating agencies and banks should not retain their oligopoly on inside information”. He is right on the rating agencies but not on the banks. To be precise, the only ones who have had an oligopoly in credit risk information are the credit rating agencies. In fact the democratisation process should start by allowing the banks to fully recover their role as credit analysts and which was so diminished when the bank regulators empowered the credit rating agencies to act as their most trustworthy outsourced risk-surveyors.

There is indeed a case for a league of “real” democracies

Sir Robert Kagan writes about “The case for a league of democracies” May 14, and of course there is such a case, as long as we are talking about real democracies. Many citizens around the world pray for the existence of a club where only governments that show their own people their utmost respect could be members, and where not belonging to it, helps to send an unequivocal shaming message.

Now for this to be a true example-setting club, it should not be possible to become a member by sheer political wheeling and dealing, but only by meeting a set of very strict criteria that go much further than just having a popular vote.

For instance Venezuela though presumably having a popular elected government, should not be able to be a member of such club since though it is a very polarized country it yet has a Congress that includes 167 members who are in favour of him who wishes to be called ‘Commander’, and none, zero, zilch, of those many who are not the least in agreement with that. Additionally Venezuela, as an oil cursed country that by centralizing the revenues from the oil in the State has a government that is wealthy and powerful independently of its citizens, should obviously not be admitted to a club of real democratic leaders.

Speaker’s Corner revisited

In 1872, the British Parliament decreed Speaker’s Corner in Hyde Park of London as a place reserved for free expression, and initially it attracted all those extremists who, although qualifying as nuts, still had the right to vent their opinions. Lately, we have all witnessed how the original Speaker’s Corner speakers moved into Speaker’s Studios and now radicalism, anarchy, or fundamentalism is voiced on prime-time television. All of us others considered as boring in-betweens, have now to settle gratefully for slots in after-midnight cable television, or Speaker’s Corner, (or FT when they published us).

Sir Cass Sunstein discusses the fundamental issue of “How the rise of the Daily Me threatens democracy” January 11, and he should be commended for it since indeed the most dangerous weapon for mass-self destruction in any society is divisiveness; as a columnist in Venezuela I should know; there I write in green but my readers can only read me in yellow or in blue.

The current sheer overload of information forces many to use a very simple though also very dangerous initial classification system that uses some basic common denominators. The one of these most recently used is of course Bush, and which has otherwise clear-minded people thinking: “Hugo Chavez speaks against Bush? Then he must be good!”

How do you fight it? The only way I know is by always pointing out the many shameful similarities of the extremes and trying to make life in the middle seem interesting, fun and chic. But, it still takes guts to swim in the middle of the river and not crawl up on an extreme safe shore!

Odious debt revisited

Sir, I must confess I was blown away when reading your editorial “Young, gifted, poor”, June 9, in which Junior, with reference “to the old saying that rather than inheriting the planet from our ancestors, each generation borrows it from the children” now wants to see “some collateral on the loan”. I mean, it sort of puts the whole issue of “odious debt” in a totally new and frightful light.

Honestly, the more I see what we are up to, the more certain I become that sooner or later our whole generation of baby-boomers could be kindly invited to take a field trip to an “ättestupa”, meaning those steep cliffs where supposedly elderly Scandinavians ages ago threw themselves from when they became useless to society.

I repeat again my argument for an urgent revision of our governmental system so as to align them with the true shareholder’s interest. If the average life is eighty years a new born should have 80 votes (exercised by his mother or older brother) someone like me would have 23 votes left, and someone over eighty should count his blessings and be glad if he is allowed to keep one as a memento. I do not want to owe the world too my children, I want to assure their rights as stakeholders and make it all a joint venture.

We only wish the first oil news from Iraq were different

Sir, FT’s front page on May 16 spells out “First crude oil pumped by a foreign group for 35 years to flow from Iraq” which reminds us of how much better it could have been with news like “First oil revenues to flow directly to the Iraqi citizens in their history”, since that could really have meant the possibility of turning Iraq into something so much better that their current only best options of ending as a third rate democracy in the hands of an democratically oil elected mogul. How sad it is seeing so many sacrifices made by so many and missing such an opportunity to make a real difference.