Will the many “General Data Protection Regulation” profiteers help or stand in the way of a better future for our grandchildren?

Sir, Richard Waters writes that “Europe’s new online privacy regime is a gravy train for lawyers and consultants, and it has kept IT departments and compliance officers working late for months [and] it is likely to take an onslaught…from privacy activists” “Brussels forces online reckoning by setting high bar on privacy” May 25.

That raises a question: Will that mean a better future for my grandchildren, or will it just extract value from what has been developed, making what’s to be developed more distant and expensive?

Waters also writes: “One Silicon Valley figure argues: if users were able to capitalise the future value of personal data like this that they will throw off over a lifetime, it would turn out to be one of their most valuable assets”. I have argued a similat the thing with letters sent to FT… but I have also indicated the possibility that all the web and social media added monetary value, could be used to fund a Universal Basic Income, a sort of Human Heritage Dividend.

Personally, scared of some “Big Brother Is Watching You” joint ventures between data gatherers and goverments coming into fruition, I prefer allowing development to run its full course to see where it takes us. 

Sir, I just do not feel sure enough about taking development limiting decisions on behalf of my grandchildren. Do you? 

https://teawithft.blogspot.se/2015/09/ad-blockers-do-not-allow-any.html

PS. If social media is to be fined, then have all the fines help to fund Universal Basic Income schemes. What we absolutely do not need, is to have social media (ambulance) chasers, redistribution profiteers, like a European Commission, or similar, capturing these.

@PerKurowski

Our need to concern ourselves about the use of our personal data goes much beyond what’s in the Facebook/Cambridge Analytica entanglement

Sir, I refer to Hannah Kuchler’s “The anti-social network” March 24 and all other reports that will pop up on the Facebook/Cambridge Analytica entanglement.

For a starter, why should we be so concerned with Facebook losing control of data to third-party developers, when Facebook has all that data and even more on us, and on which we have handed over the control to Facebook?

Then, if there is something that should be of the greatest concern to us citizens, that is the possibility of Facebook and similar teaming up with governments in “Big Brother is watching you, and makes profits on you all” joint ventures.

In fact that seems already to be happening as Brussels wants in on the ad-revenues.

I pray there are no secret negotiations going on between Venezuela’s Maduro and Facebook’s Mark Zuckerberg. I mean if Goldman Sachs’ Lloyd Blankfein could finance such an odious human rights violating regime, without any important social sanctioning of him, why should not Zuckerberg thinks about selling data to it too?

Sir, it is clear that we have need for independent entities such as central banks, then an ironclad independency of an Agency Supervising Our Personal Data Usage, seems to me to be the mother of the needs for independency.

Down with all "Big Brothers are watching you". And it does not matter whether these are Public, Private or PPPs (Public Private Partnerships)!

Of course the usage of our data supervisory agency must be managed by wise and common sense possessing individuals and not by dummies like those of the Basel Committee on Banking Supervision who are so not only convinced that what is perceived as risky is more dangerous to our bank system than what is perceived as safe, but also so easily manipulated by the banks.

PS. I forgot the first tweet I made on this, namely: How do we know this is not all fake news created in order to provide some polarization profiteers with new marketing material?

PS. Sir, I could be adding new comments to this post… so you might want to come back now and again to have a look at what’s in it.

PS. We must keep the ambulance chasers and the redistribution profiteers out of the business of fining the social media. All fines should go to fund a citizen’s Universal Basic Income

@PerKurowski

What the $150bn in US fines paid by banks has caused the real economy, can best be described as financial sadism

Sir, Kara Scannell writes: “Demands for accountability ushered in an era where the US government was willing to penalise financial institutions severely, yet most crisis-related actions were civil rather than criminal and few bankers went to prison” “Banks rack up $150bn in US fines since start of the financial crisis” July 7.

If we use Basel II’s basic capital requirement of 8%, that represents an authorized leverage of 12.5 to 1. If we multiply that number times the $150bn in fines paid by banks, we can see that the real economy might have obtained $1.9tn less access to credit.

And of course, punishing the shareholders of banks that way, must cause the cost of bank capital to increase and, as a result, borrowers having to pay more for loans.

And of course, banks tight on capital, will not lend to what requires them to hold more capital, which currently means those perceived as risky, like entrepreneurs and SMEs, something that can only reduce the dynamism of the economy.

Sir, that is pure and unabridged financial sadism. That amount of killed bank credit potential represents about 50% of the Fed’s current QE balance. Need we say more?

PS. I remember having written a similar comment about 3 years ago.

@PerKurowski

When will an Artificial Intelligence Agent declare humans too dangerous drivers and too dumb emission measurers?

Sir, I refer your “From diesel emissions to omitting the driver” January 15.

It is clear, not withstanding only one side will pay for it, that in the case of the failed carbon emission controls, both the measured and the measurers are to blame. Any regulation, if it fails in any shape or form, should bring on some consequences for the regulators… let us say a 50% salary reduction.

As is, just look at the case of bank regulators, those who set risk weights of 20% for what is AAA-rated, and 150% for what is below BB- rated. That evidenced they had (have) no clue about what they were doing; and so they caused the AAA rated securities backed with mortgages to the subprime sector crisis. But they are still going to Davos, flying business class the least, to lecture the world on what to do. 

It is also clear that one of the biggest challenges for the safety of driverless cars is that these might also encounter human drivers on the road. So either is the driverless-cars equipped with software that handles human-driving whims, or, sooner or later, some Artificial Intelligence Agent will take us humans off the road. Is that good or bad?

My answer to that question goes somewhat along this line. If absolutely all humanity is taken off the road, and so we all lose entirely the abilities needed to drive, so be it. But, if some humans were still allowed to drive, why would I want those to be somebody else’s grandchildren and not mine? 

PS. About driverless cars, the issue of how to tax these, so as not to lose out on the taxes we currently collect, for instance from PhDs driving taxes in New York, is also pending.

@PerKurowski

Regulators placed delicious cookies on the table and only banks are being punished for falling for the temptation

Sir, again, December 24, we read on your front page about banks being hit with penalties for the subprime mess, and still not a word about the responsibility of regulators creating the temptations they should have known that, sooner or later, some would not resist.

Here are four factors that explain the subprime mess, or at least 99.99% of it.

Securitization: The profits for those involved in securitization are a function of the betterment in risk perceptions and the duration of the underlying debts being securitized. The worse we put in the sausage – and the better it looks - the higher the profits. Packaging a $300.000, 11%, 30 year mortgage, and selling it off for US$ 510.000 yielding 6% produces and immediate profit of $210.000 to be shared among those involved in the process.

Credit ratings: Too much power to measure risks was concentrated in the hands of some very few human fallible credit rating agencies. The systemic risk with using credit ratings so much should have been anticipated by regulators.

Borrowers: As always there were many financially uneducated borrowers with needs and big dreams that were easy prey for strongly motivated salesmen, of the sort that can sell a lousy time-share to a very sophisticated banker. 

Capital requirements for banks: Basel II, June 2004, brought down the risk weight for residential mortgages from 50% to 35%. Additionally, it set a risk weight of only 20% for whatever was rated AAA to AA. The latter, given a basic 8%, translated into an effective 1.6% capital requirement, which meant bank equity could be leveraged 62.5 times to 1.

So, clearly the temptations became too much to resist for many of those involved.

The banks, like the Europeans, thinking that if they could make a 1% net margin they could obtain returns on equity of over 60% per year, went nuts demanding more and more of these securities; and the mortgage producers and packagers were more than happy to oblige, signing up lousier and lousier mortgages and increasing the pressure on credit rating agencies.

Of course it had to end bad... and it did… in sort of less than 3 years.

Financial Times, is this a version of the real truth that is not to be named?

PS. “DoJ penalties hit $58bn. If banks leverage 12 to 1, that means $696bn in credit capacity. Why do they not collect these fines in bank shares?

@PerKurowski

Banks, to get out of their dead-end street, must make a convincing case they can prosper holding much more capital.

Sir, James Shotter, Laura Noonan and Martin Arnold write: “At yesterday’s close, investors were implying that the biggest bank in Europe’s most stable economy [Deutsche Bank] is worth €17.7bn, just a quarter of the book value of its assets.” And then we read of efforts to better that by reducing operations and cutting down on risk weighted assets. In other words being placed in an Incredible Shrinking Machine. “Big Read: Deutsche Bank: Problems of scale” July 29.

Because of the risk weighted capital requirements, banks were set on a road of increasing returns on equity by diminishing the capital they needed. And, on that road they lost many opportunities, like lending to “risky” SMEs and entrepreneurs. And they also ended up in dangerously over-populated safe-havens that, when compared to the “risky”, suddenly offer lower real-risk adjusted returns. They now are in a dead-end street.

So, if it was me, I would try to make the strongest case possible to my shareholders that there are good and safe returns on equity to be obtained by ignoring Basel regulations. “Give us 12 percent in equity, against all assets, so as to allow us pursue the undistorted highest risk-adjusted returns out there.”

Sir, I have of course no idea if that is a viable strategy for any individual bank, such as Deutsche Bank. Most banks are caught between a rock and a hard place. They need to ask for much capital, but that much capital might be so much, that they could scare away everyone. Anyhow, I would not like to work in a bank that is going to stretch out the suffering by asking for more capital, again and again, little by little. To get it all and get over it would benefit everyone, including current shareholders.

Is that impossible? Not really, here “one of the bank’s top 20 investors” is quoted with “The problem for Deutsche is that it has got to the stage where if it continues to cut assets, it is going to lose a significant amount of revenues”.

And on a different issue, the litigations and fines banks face, I repeat what I said over the years. 

When we all know that for the banks’ good and for our economies’ good banks need more capital, to extract fines paid in cash is irresponsible and masochistic. All those fines should be paid in shares.

@PerKurowski ©

Martin Wolf blames squarely the elite. I agree, but, in the elite to be blamed, Martin Wolf is one.

Sir, you must understand why, as a Venezuelan, suffering the real life impacts from leftwing populism, I find it so hard to identify with Martin Wolf’s “How to defeat rightwing populism” May 25.

Wolf writes: “Many seem to think that things could not get worse. Oh yes, they could. Things could get far worse, not just in the US, but across the world”. In that Wolf is absolutely right.

But when he then adds: “Mr Trump… has no notion of the foundations of US success” I must react.

Because Trump, as one of those go get it risk it all entrepreneur, is so much more the reflection of the foundations of the US success, than, for instance, those sissy bank regulators who decree that banks must hold more capital against what is perceived as risky… as if being perceived as risky is not bad enough.

Do I believe Trump is a rightwing populist? Yes I do! And do I think he would be good for America as a president? No I don’t!

But, just like Wolf writes: “If rightwing populism is to be defeated, one must offer alternatives”, one of those alternatives is telling it like it is! And Wolf does not!

When Wolf writes: “US banks have paid more than $200bn in fines” the question should be: what would have happened if those fines, as so many times I had written to FT about had, instead of in cash, been paid in voting shares of the banks? Then we would at least not be suffering the bank credit austerity that results from higher capital requirements when bank capital is scarce.

Martin Wolf blames squarely the elite. Again I agree, but, in that elite, I also include Martin Wolf. How the heck can he defend capital requirements for banks that set a risk weight of zero for the sovereign, and one of 100 percent or more for the citizens on which the sovereign’s strength depends?

Wolf writes: “Populists despise institutions and reject expertise. They offer, instead, charisma and ignorance”. Does he mean like that populist ignorance which has offered to make our banks safe, by putting a risk weight of 20% on the AAA to AA rated and 150% on the below BB- rated, those that the banks would, ex ante, not even touch with a ten feet pole?

@PerKurowski ©

Is it not dumb to kill the goose that lays the golden eggs just because it laid a bad one?

Sir, John Kay asks correctly: What purpose is achieved when taxpayers, by fining state-funded hospitals, in effect fine themselves? “It is natural but wrong to blame executives” October 21.

I would go further still by asking: What is the reason to fine corporation that generate jobs in such a way that it weakens them? Instead of in cash, is it not better to have those fines paid in shares… the current shareholders may not like to get diluted, but it is always better to dilute the wealth of the owner of the goose that lays golden eggs than the goose itself.

And of course, if you need clarification, the goose here stands for banks and for Volkswagen.

@PerKurowski ©

To avoid collateral damages, the fines of those who create and finance jobs should be paid in new shares and not in cash.

Sir, I refer to Henry Foy’s and James Politi’s “Volkswagen scandal fuels fears for jobs across Europe” October 13.

Again it points to reasons why the world should not impose fines payable in cash on those who misbehave and deserve punishment, but who generate jobs, or credit. That would only weaken them and thereby cause many casualties among the civilians who are not responsible.

Have them instead to pay all fines by issuing new shares to be delivered to whomever a judge feels should get these.

The dilution of existent shareholders is more than enough punishment to guarantee that management will be more careful.

And this is especially valid when regulators, by their incompetence or any other reasons, have helped to induce the misbehavior. 

http://teawithft.blogspot.com/2015/10/vw-emissions-controls-fines-for.html

http://teawithft.blogspot.com/2015/10/bank-fines-should-be-paid-with-bank.html

@PerKurowski © J

VW & emissions & controls: Fines for allowing itself to be tricked, should not become a revenue source for governments

The more I read about the Volkswagen affair the more convinced I become of that, what really does not bring anything to the table in terms of justice, economic efficiency or even sustainability, is having VW to pay huge fines to a government that hosted such inefficient emission controllers who allowed themselves to be tricked by clearly immoral but also quite ingenious engineering tricks.

On reading Richard Milne’s “Wolfsburg fears fallout from VW scandal” October 12 this is what I would suggest:

Decide on a substantial amount to fine Volkswagen for their misbehavior, but make it pay all that fine by issuing (green) shares in Volkswagen, to all who bought its diesel cars and to all of its employees. That way you do not weaken a company, or a city, while at the same time, presumably, you introduce among VW’s shareholders a wish for a better corporate behavior, so as not having their shareholder participation further diluted.

And then, just how you use hackers to assist you in building safety features for increased cyber-security condemn, all the Volkswagen engineers responsible for the misdeeds, to social work, by developing emission controls that work.

PS. This is somewhat similar to the fines on banks, which directly hurts their lending capacity, precisely when we need it the most.

@PerKurowski ©  J

World/Germany: Don’t fine Volkswagen for the benefit of those who should have controlled emissions better. Be smarter.

Sir, I refer to Chris Bryant’s “New VW chief signals cost cuts to pay for emissions bill” October 7.

If I were Volkswagen’s new chief executive, I would not accept, laying down, to “slash costs to help to foot the bill for the diesel emission scandal” No way! I would strengthen Volkswagen by making a counteroffer the world could not resists… because of its implications.

I would offer the authorities, in lieu of any fines related to The Scandal, to give to each of VW’s 600.000 employees, and to each of 11.000.000 of VW’s diesel car buyers, for example €1.000 in Volkswagen preferred "green" shares, convertible into ordinary VW shares.

And, if the offer was accepted, I would not waste one € correcting wrongdoings on the past, but instead duplicate the € 11,5bn research budget of last year.  But, that’s just me.

I dare you to find one environmentally concerned, who is not a statist, who would not agree with me.

PS. Volkswagen, don't delay your answer... the faster the better.

@PerKurowski ©  J

When Volkswagen is fined, as it should be, let all its diesel car buyers get some VW shares, instead of cash.

Sir, Wolfgang Münchau writes about “Volkswagen’s threat to the German model” October 5. Of course, that would be the case, if Volkswagen is forced to “a fire sale of assets in order to pay damages and fines [that] could easily add up to more than €100bn.”

But that would just be a typical stupidity of our days, like when our banks are fined, and then we find their lending capacity utterly diminished.

I am not a German, but if I were, I would urge the government to see that each Euro Volkswagen had to pay in fines because of its truly shameful “manipulation of emission tests”, was to be paid in shares issued at current market prices to the owners of diesel cars... those concerned about pollution. 

That would not weaken Volkswagen, much the contrary it could strengthen it. If our successful companies do wrong, there’s nothing in it for us to be vengeful, on the contrary there is a great opportunity to be constructive. Never weaken the strong to make them work better… strengthen them… but, then again, that’s just little me thinking.

@PerKurowski ©

Bank fines should be paid with bank equity, not with cash, unless we are masochists and want to be cruel to the economy.

Increasing the capital requirements for banks in the midst of a slow economy, while at the same time eroding bank capital with fines, is sheer economic cruelty… pure masochism. And especially so against those who for which cruel regulators decided, for no other reason that they think that to be a great idea to keep banks safe, that banks need to hold especially much capital when lending to them, like the SMEs and the entrepreneurs.

Sir, with respect to the reimbursement of claims for mis-sold insurance, you write that “As of this year, banks have already paid out about £20bn” and at long last take notice of that “The consequent erosion of banking equity can hinder credit provision in ways that damage the economy as much as the stimulus has helped” “UK banking’s sorry tale draws slowly to a close” October 3.

At long last FT! £20bn times a prudent level of 12 to 1 leverage gives you £240bn less lending capacity… at current imprudent sort of 30 to 1 leverage that would signify £600bn less lending capacity.

I hold “At long last FT!” because I have written you several letters on this problem but that, as usual, for your own internal reasons decided to ignore.

But I repeat. We must find a new way of imposing fines on banks. I have suggested that instead of cash banks pay in new shares issued at current market value. These shares if paid to the State could be non-voting and if paid to persons, like in this case, could include preferred dividends for some years.

PS. Having those mistreated by banks become their shareholders, seems like a innovative way of educating banks  J 

PS. Allowing authorities decide at each moment in what proportion of cash or equity these fines should be paid, would give them a new countercyclical tool  J

PS. The payment in bank shares should apply, of course, to all legal fees too J

PS. How come so many that loudly complain about government austerity loudly support bank credit austerity… do they all carry the virus of statism in their hearts? L

@PerKurowski

Capital requirements, non-performing loans, down-ratings and fines are causing severe bank credit austerity.

Sir, Henny Sender writes: “A world awash with dollars is rapidly being replaced by a dollar-scarce world” “Pain for those most in debt looks certain to become more severe” August 26.

Yes, and that dollar scarcity will, as is, primarily generate a contraction of bank credit. Consider what is happening:

Regulators are increasing capital requirements, which put banks lending capacity under pressure.

More non-performing loans and credit down-ratings of borrowers put additional strain on the banks.

And to top it up there are the fines. The recently reported fines of $260bn for the largest 25 banks, when calculated for a leverage of 15 to 1 results in about 4 trillions less bank-credit availability.

But when Sender writes: “It is still not sure how the pain will be distributed though”, I would tend do disagree.

If bank regulations keep the risk-weighted capital requirement component, there is no doubt of who are going to suffer the most; that will be those who generate the highest needs of capital, namely “the risky”, like SMEs, entrepreneurs and the downgraded.

Since those risky already are perceived to generate much expected losses, they will generate much less “unexpected losses”, and so we should lower the capital requirements for banks when holding these assets.

Sir, if austerity has to be imposed, I much prefer that to be government spending austerity than bank credit austerity. Banks have to put up at least some capital (equity) while government bureaucrats need not to risk a dime of their own.

@PerKurowski

$260bn in bank fines results in about 4 trillions less bank-credit availability.

Sir, Laura Noonan, with respect to the 25 largest banks, reports “Banks fine tally since crisis hits $260bn” August 24.

And I do some multiplication $260bn times let us say a 15 to 1 leverage, results in $3.9 trillions less in bank lending capacity. So many scream bloody murder about government austerity, while not caring one iota about bank-credit austerity… how come?

Can you imagine if this $260bn in fines had been paid in fresh issued non-voting bank equity to be held by governments for about a decade?

@PerKurowski

If you fine a bank, request payment in shares, not in cash against their equity, which is societal masochism.

Sir, you write: “The modern dependence upon credit for growth is too great for the capital that supports it to be treated casually”, “Shareholders punished for the sins of the trader” May 22. I am glad to see that you now at long last warn about the negative should-be-expected-unexpected consequences that fines can have. I have written to you several letters on this but, as usual, as your policy, these have been ignored.

I hope you now recommend what I have been recommending for quite sometime, namely the option for the authorities to collect those fines in newly issued bank shares, and which could then be resold some years later to the markets.

To collect fines from banks, in cash, against their equity, is basically societal masochism.

http://teawithft.blogspot.com/search?q=fines

@PerKurowski

Who’s going to fine bank regulators for manipulating credit markets?

Sir, Caroline Binham quotes Martin Wheatley, head of the Financial Conduct Authority with opining that fines are working in order to stop foreign exchange manipulations, “Bank fines credited for culture shift”, May 22.

We will see if that’s so, cross your fingers. But, much more important though, for all of us, is to stop bank regulators from manipulating the credit markets with their credit-risk-weighted capital (equity) requirements for banks.

With that they distort the allocation of bank credit to the real economy, for absolutely no reason… since major bank crises never result from excessive bank exposure to what is ex ante perceived as risky.

@PerKurowski

JP Morgan Chase, Jamie Dimon, welcome to the club! Small businesses and entrepreneurs have been attacked for years!

Sir Tom Braithwaite reports that, because of proliferation of regulators and legal bills, “Dimon says banks ‘under assault’” January 15

Indeed, no question about it, Dimon is absolutely right, but, as I see it, he has to stand in line with his compliant; at least until all those perceived as “risky” have been able to voice theirs, because they have in fact been under attack for much longer.

In those old days when regulators were very chummy with banks, days of Basel II, banks were allowed to hold very little equity against assets perceived as absolutely safe. And that allowed banks to make risk-adjusted returns on equity, on “safe” exposures, we normal citizens could never even dream of. And, in doing so, the regulators de facto removed all incentives for banks to give credit to “risky” small businesses and entrepreneurs. I can almost hear Jamie Dimon asking his Board “Why should we give loans to a “risky” when doing so we can only leverage JPMorgan Chase’s equity 12 to 1, when giving loans to the AAArisktocracy we can leverage 60 times or even more?”

But, that said, the “risky” and the banks do have a mutual complaint they can raise with respect to the fines or the penalties for bank’s misdeeds. Because, were it not for these, banks could have more equity available that could be leveraged with loans to the risky.

Perhaps judges should listen to them and force all bank fines to be placed in special bank equity accounts, available exclusively to be leveraged lending to small businesses and entrepreneurs… and I am sure all unemployed would also support that motion.

$56bn in bank fines equals $1.1tn less in bank lending…minimum

If you take that 5% capital (equity) leverage ratio they want to impose on banks in the US (in Europe only 3%) that signifies an allowed leverage of 20 to 1.

In this respect when Martin Arnold reports on December 27 “Penalties for lenders leap to record $56bn”, and as these penalties go against equity, I read $1.1tn less in bank lending… minimum... and this 2014 only... judicial masochism!

With all the QEs and other stimulus efforts going on; and all the increase of capital requirements for banks going on, the question remains: why on earth were these fines not forced to be paid out in fully paid in voting shares to be resold to the market?

Bank fines, if not paid with new voting shares issued, seems societal masochism

Sir, I refer to Gillian Tett’s “Regulatory revenge risks scaring investors away” August 29. In it Tett indicates the possibility that the 10 largest western banks will end up 2014 paying £200bn in bank fines. Let me translate that for you.

In terms of the Basel III US leverage ratio of 5%, that signifies £4.000bn less in lending capacity or, with the European leverage ratio of 3%, £6.666bn less in lending capacity… and that is paid by the economy as a whole… in other words it seems pure societal masochism.

And that does not even consider that if any of these banks run into problems, and is undercapitalized, then tax payers might also end up paying the fines.

That is why I have for quite some time suggested that we should think about forcing the banks to pay their fines with voting shares issued at their current market price. Government could then resell those shares in the market.

That would dilute the value of a bank's current shareholder's investment, but not reduce the assets the fined bank has to manage any unexpected events and to give credit.

Are not bank regulators there to see to our banks are strong and well capitalized? Have we heard them protest these fines?

If regulators can stop banks from paying out dividends in cash... how come they cannot ask the courts to extract shares and not cash from banks?

PS. FT, dare to question the sanity of current regulations.