If AI systems were trained on using historical data that could sometimes help to avoid human biases.

Sir you write “Just as with any other computer system, the adage “garbage in, garbage out” applies to AI. If systems are trained using historical data, they will reproduce historical biases.”“Guidelines are a welcome step towards ethical AI” April 15.

Not necessarily so. Currently because human regulators suffer from something known as confirmation bias, they introduced risk weighted capital requirements for banks based on that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. The analysis of historical data about the origin of bank crises would clearly have shown this to be totally wrong. 

@PerKurowski

Goldman Sachs’ Lloyd Blankfein has also a big question to answer us Venezuelans.

Sir, Brooke Masters writes that when “Sued by the US Securities and Exchange Commission over allegations it had misled clients about mortgage-backed securities… Lloyd Blankfein… launched a top-to-bottom cultural review and spent 18 months visiting clients to reassure them that Goldman had got the message on ethics.” “Goldman Sachs has big questions to answer” November 7.

So Masters rightly asks so what happened as “Last week, the US Department of Justice revealed that two former senior Goldman bankers had been criminally charged with helping to loot 1MDB, a Malaysian state investment fund that authorities allege was victim of one of the biggest frauds of all time.”

Sir, I have my own question. After Mr Blankfein’s much-touted ethics revamp in 2011, what on earth was he doing lending, in May 2017, to a notoriously human rights violating odious regime, namely Venezuela’s Maduro’s?

In fact, as I see it, corrupting not some government official but the regime itself, by offering fresh money in return for the possibility of huge returns, sounds to me as something quite punishable by US’s Foreign Corrupt Practices Act (FCPA).

We are now in November 2018, and Mr Blankfein has not found it within himself to yet utter the smallest “Venezuelans, I am so sorry”

Sir, what kind of elite do we have when a Lloyd Blankfein still gets invited to all kind of academic and social engagements?

@PerKurowski

Should one want to have anything to do with an investment bank like Goldman Sachs that finances odious regimes?

Sir, I have no idea about what Robert Smith describes in “Goldman questioned on Verisure debt sale”, November 10; and, though it sure sounds a bit shady, I have not enough interest in pursuing the understanding of it.

That said, I would have to add though: Do you really want to have anything to do with an investment bank that finances odious regimes, like that of Venezuela?

If yes, where do you draw the line? North Korea?

PS. The vultures out there should not forget that between the case of Argentina and that of Venezuela there are some fundamental qualitative ethical differences.

And all this suffering while gas (petrol) is sold at less than US$ 1 cent per gallon

https://teawithft.blogspot.com/search?q=Goldman+Sachs+Venezuela

@PerKurowski

As an interested Venezuelan, when lending to a Zimbabwe, should there be no ethical considerations?

Sir, David Pilling and Andrew England report that “Zimbabwe is close to putting the final touches to a debt-arrears package that could see it receive an emergency injection of funds from the International Monetary Fund and other multilateral institutions”, “Cash-starved Zimbabwe closes in on deal to clear debt arrears” July 8.

And for that Zimbawe is receiving the advise of Lazard in order to arrange a seven years loan of $986m from the African Export-Import Bank (Afreximbank), in order to pay back arrears to the World Bank and IMF sin order to access more credit.

That sounds so rational, so hygienic, but should there not be a small question about whether if lending to Zimbabwe is ethical? I mean its government has not behaved too well, and there is no guarantee it will, and any new credit might just help to postpone any urgently needed change.

And so, independently of how juicy the risk premiums or the commissions might be, do the lenders really believe these loans will help Zimbabwe, and not only help some criminals, some technocrat or some bureaucrats?

Because if the lenders decide to bet on the government, and the government does not deliver, should they anyhow have the right to hold the citizens or any future government to repaying their non-earned winnings?

Sir, as a Venezuelan, I am naturally very interested in hearing your opinions on this.

And Sir, I have for decades argued that the world needs a Sovereign Debt Restructuring Mechanism but, for that SDRM to work in the best interests of us citizens, it needs to begin by identifying clearly what should be classified as odious credits or odious borrowings.

@PerKurowski ©

In sovereign debt should not moral and ethical issues be more important than collective and pari passu clauses?

Sir, Robin Wigglesworth discusses bond legalese, like collective and pari passu clauses, and rightly concludes “paying attention to the legal differences is [especially] important when a borrower runs into a brick wall.” “Venezuelan bond small print piques investors’ interest” June 18.

But we citizens would also appreciate that lenders gave some minimum minimorum considerations to what the funds they loaned out were going to be used for, whether the loans were being correctly and transparently contracted, and of the quality of the managers of the proceeds, the governments.

In many cases, like that of Venezuela, if creditors had done so they could easily have concluded they were giving odious credits, and that the government was contracting odious borrowings; and that they better refrain from giving the loans, no matter how juicy the risk premiums.

In a world were legislation against acts of corruption exists it is surprising how little consideration “connoisseurs” give to the moral and ethical aspects of sovereign debt. Very high interest rate risk premiums, is the currency in which the corrupter and the corrupted too often conclude their dirty dealings.

For instance, in Venezuela, though there are serious scarcities of food and medicines, the government sells petrol domestically for basically nothing; and blocks humanitarian international arguing that to allow it would infringe their sovereign right to have exclusive responsibility for the welfare of citizens. And besides the market is well aware of that there are Venezuelans imprisoned for political reasons.

In such circumstances should not lending to Venezuela qualify as odious credit? Should that not also be qualified as part of odious government borrowings?

Should not citizens have a collective clause rights with which they can authorize or not the payment of odious credits and borrowings?

What should a due diligence process for bond issues which proceeds might help finance human rights violations include?

If a corporation suspect of drug trafficking made a bond issue, who would begin by revising the clauses of its legal documentation?

@PerKurowski ©

If regulators insist on that any information gathered by banks must be doubly considered, that would be real dangerous.

Sir, Martin Wolf writes: “Finance is an information business. Indeed it already spends a higher share of its revenues on information technology than any other. It seems ripe for disruption by information technologies. Consider its three essential functions: payment; intermediation between savings and investment; and insurance. All these activities are information-intensive.” “Good news — fintech could disrupt finance” March 9.

Banks already perceived information about credit risks, and cleared for it with interest rates and the amounts of their exposures... and they were not doing that bad when it came to identify “the risky”, where they sometimes really failed, badly, was when they identified some as very safe.

But then came the regulators and told the banks they also had to consider the same perceived risks in the capital. And so banks did doubly stay away from the risky, and doubly fall into the traps tended by the false safes.

And so if all that information is going to be of value for the banks and for us, be sure to keep the regulators away from it.

Martin Wolf also quotes John Kay on that “parts of the financial sector today . . . demonstrate the lowest ethical standards of any legal industry”.

Not so. Compared to the ethical standards of regulators who abusing their powers distort the allocation of bank credit to the real economy; and by discriminating against the opportunities for fair access to bank credit of “The Risky” increase inequalities, one could argue that bankers are saints.

@PerKurowski ©

You in FT have more voice than most professors teaching finance, so who’s really more “responsible for teaching responsibility”?

Sir, I refer to John Authers’ “Who is responsible of teaching responsibility” June 23, FT’s special “Business Education: Financial Training”

There Authers writes “And yet biggest business schools find it hard to prepare their students to joust with regulations. One problem is practical: these days, the top schools are global, but regulation is country specific” Hey where has Auther’s been? Does he not know that on June 26, 2004, 10 years ago, the G10 signed up on Basel II which established that truly nutty concept of risk-weighted capital requirements?

Had these business schools, and FT journalists, been a little more responsible for what they were doing, they would most certainly informed the regulators in their ivory towers, that this was going to distort the allocation of bank credit in the real economy, with tragically consequences.

And Authers also refers to “the pre-crisis power of credit rating agencies. The Basel II bank regulations gave investors a big incentive to buy anything stamped triple A by agencies. That way lay disaster.” Come on Authers. How many borrowers are not any longer contracting credit ratings because of Basel III? And how did Basel III really change something? By banks being forced to take a tougher stance if they believe credit ratings were wrong? Whoa!

And then Authers writes that “ratings were only ever advertised as opinions on publicly available information”. Where does he get that from? The truth is that credit rating agencies quite often have access to much more information the public and bankers have.

And if we are to talk about ethics, let us be clear that it is highly unethical of regulators to discriminate against “the risky”, those already discriminated against precisely because they are perceived as risky, as unethical it is for financial journalists to shut up about that discrimination… and so John Authers and colleagues might be more in need of courses in ethics than students in business schools… though that admittedly leaves us with the problem of finding out who are going to teach you those ethics. Me?

And what about a revival of ethics in the bank regulatory establishment?

Sir, ‘Day of shame’ sparks call for a revival of ethics, writes George Parker, February 7, with respect to many loud and outspoken demands from politicians to hold the financial sector to higher standards.  

But though Andrew Tyrie, the Tory chairman of the Commons treasury committee rightly said "that high-quality regulation was not just morally right but would attract business to the UK”, there is not one single of them urging the bank regulators to come clean on their outright immoral (and dumb) concoctions.

Because it is indeed immoral to impose on the banks capital requirements which favor bank lending to those who already find themselves favored by banks and markets, “The Infallible”, while odiously discriminating against bank lending to those already discriminated against by banks and markets, The Risky”.

Because the regulators with those regulations have in fact, without having been authorized thereto, castrated the banks, and, with it, blocked the will of a nation to take the risks it needs in order to move forward, so as not to stall and fall… and that my friends, might not only be immoral, but it might even be an outright act of high treason, even if unwittingly committed

Oh please, don’t come with that never ending BS of banks taking excessive risks by creating excessive exposures to what was perceived ex ante as “risky” and which therefore required the banks to hold any substantial amount of capital against it. Give me just one example of that, or shut up!

Nothing as unethical as bank regulations that unethically discriminate against those perceived to be “risky”

Sir, Neil Barofsky lets his heart all out, when complaining about unethical behavior in banking, and most especially about the lenient judicial treatment of all those many banks and bankers involved in various unethical actions, like for instance in the Libor rate manipulation, “The Geithner doctrine lives on in the Libor scandal” February 8.

And I don’t want to argue against him, but also need to remind him that, when it comes to unethical behavior in banking, nothing is so unethically as when bank regulators decide to impose capital requirements for banks which favor those perceived as not risky, those already favored, and discriminate against those perceived as risky, those already discriminated against.

These besides odious so dumb regulations, helped to create the excessive bank exposures to what was believed to be safe but turned out not to be, which caused the crisis, and stops many of the most important actors in our real economy from having access to bank credit, which keeps us in crisis.

The truth is that the Libor rate manipulation, in terms of unethical behavior, is pure chicken shit when compared with the interest rate manipulations by bank regulators in favor of “The Infallible and against “The Risky”

What is the purpose of the financial institutions?

Sir Evelyn de Rothschild writes passionately that “Ethical standards must be restored in finance”, May 9 and we all agree. That should begin though by clarifying what is the purpose of the financial sector since without that ethical standards would indeed be hard to define.

In fact given that the current purpose of the financial institutions seems to be extracting as much profits and bonuses as possible from them, some could even argue that there has been quite a lot of ethical behaving lately.

If it was an entrapment that is almost irrelevant.

Sir, there are now some arguing that Mr Wolfowitz fell into an entrapment created by the World Bank's Ethics Committee and let me make it clear that whether this is true or not, it has nothing little to do with the real issue. Mr Wolfowitz, as the President of the World Bank should be able to know that just because an ethic committee says something might be ethical, that does not necessarily make it so. He should know that having the poverty fighting World Bank seconding someone at a foreseeable cost of US$ 2.700.000 (180.000 plus 50 % benefits times ten years) just to manage his conflict of interest is plainly wrong no matter who might say it is right.

The overwhelmingly good staff, management, board members and presidents, present or past of the World Bank, as well as a world that needs a respected multilateral institution where global challenges can be discussed, they all deserve that this issue should exclusively be about right or wrong and not just a banal pro or against Wolfowitz political row.

The World Bank, though in a hole, needs to dig deeper

Sir, as a former Executive Director of the World Bank (2002-2004) it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department” and that he should leave the Bank but, having said that, we need also to question the general idea of the World Bank seconding anyone, even on reasonable and non interfered terms, just to solve a conflict of interest… permitting someone to have the cake and eat it too.

In contrast I remember while an Executive Director how we spent millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses and frankly its good staff deserves it.