What would the Milton Friedman of 50 years ago, have thought of the Martin Wolf of today?

Sir, I refer to Martin Wolf ‘s “Friedman was wrong on the corporation” December 9.

Wolf writes that among his contributions to the ebook Milton Friedman 50 Years Later, and in relation to what a “good game” would look like, that this is “one in which companies would not kill hundreds of thousands of people, by promoting addiction to opiates; one in which companies would not lobby for tax systems that let them park vast proportions of their profits in tax havens; [and] one in which the financial sector would not lobby for the inadequate capitalisation that causes huge crises”.

Really? Would Friedman have promoted “addiction to opiates”?

Really? What is parked in tax havens? Profits, or titles to assets that are for the most, 99.99%, not parked in these tax havens?

But yes, the financial sector certainly lobbied for a low capitalization, but why should this sector be more blamed than those regulators who, based on the nonsense that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe, allowed it?

Wolf quoted Friedman with “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Yes, that’s true. But what should not be allowed though are for instance regulators setting much lower bank capital requirements when lending to the government than when lending to citizens, something which de facto implies bureaucrats know better what to do with credit they’re not personally responsible for than e.g. entrepreneurs.

Wolf writes about "unbridled corporate power has been a factor behind the rise of populism, especially rightwing populism". For me worse is much more unbridled technocracy power. What's more populists than a Basel Committee telling the world: "We know all there is to know about what's to our bank systems, so we have decreed credit risk weighted bank capital requirements".

Sir, Wolf says he used to believe Friedman, but that he was wrong. I just wonder what Milton Friedman would have thought of the Martin Wolf of today

A final question, Martin Wolf, what if corporations taking upon themselves to act in a “corporate socially responsible way” generated less employment and had less profits, and therefore paid less taxes?

@PerKurowski

Free markets were set up to go bad, because of bad bank regulations.

John Thornhill writes: “The global financial crisis of 2008 exploded the ideology that markets always deliver the goods” “Three game-changing ideas to shape the post-pandemic world” Life and Arts, May 30.

Sir, that is the problem, because that is exactly what all those against free markets want us to believe. 

The 2008 crisis resulted from huge exposures to securities collateralized with mortgages to the subprime sector in the USA, turning out risky. 

And those huge exposures were a direct result of: Regulators allowing European banks and US investment banks to hold these securities, if these were rated AAA to AA, which they were, against only 1.6% in capital; meaning banks could leverage their equity an amazing 62.5 times. 

Securitization, just like making sausages, is the most profitable when you pack the worst and are able to sell it of as the best. If you can sell someone a $300.000 mortgage at 11 percent for 30 years, which was a typical mortgage to the subprime sector, and then package it in a security that you could get rated a AAA to AA, so that someone would want to buy it if it offered a six percent return, then you would pocket an immediate profit of $210.000. 

The combination of those two temptations proved irresistible.

Risk weighted bank capital requirements are anathema to neoliberalism

Sir, Rana Foroohar writes “we have spent decades of living in the old reality — the post-Bretton Woods, neoliberal one.” "Markets are adjusting to a turbulent world" August 19.

There are many definitions of neoliberal policies out there but they always include a large role for the hands of the free market and the reduction in government spending in order to increase the role of the private sector in the economy.

In 1988, for the banking sector, one of the most important economic agents, credit risk capital requirements were introduced by means of the Basel Accord. It gave incentives that distorted the allocation of bank credit to the real economy. For instance lower risk weights for the sovereign (0%) and for residential mortgages (35%) signifies subsidizing the sovereign and the safer present, by taxing the access to credit for the riskier future, like to entrepreneurs (100%). So I do not know what neoliberalism Ms. Foroohar refers to.

Ms. Foroohar, speculating on the possible “impact of an Elizabeth Warren or Bernie Sanders victory in the US primaries?” mentions a 13D Global Strategy and Research note that holds that such event would “fit perfectly into the cycle from wealth accumulation to wealth distribution”, something that Foroohar also believes “will be the biggest economic shift of our lifetimes.”

Sir, at the very moment income, through the purchase of assets, is transformed into accumulated wealth; there cannot be any significant redistribution of it, which means having to sell many of those same assets, without any significant destruction of wealth. If you’re scared of a deep recession, as we all should indeed be, then the last think you’d want to do is to deepen it with a wealth redistribution cycle.

So we cannot redistribute? Yes, we can, but that’s best done getting hold of the income before it is converted into assets, and then, preferably, sharing it out equally to all, by means of an unconditional universal basic income.

@PerKurowski

FT, Western liberalism might not be obsolete but it sure isn’t what it was a couple of decades ago.

Sir, with respect to Vladimir Putin’s recent claim — “that liberalism is obsolete” you opine his “triumphalism is misplaced. Not all of liberalism is under threat. The superiority of private enterprise and free markets — at least within individual nations — in creating wealth is no longer seriously challenged.” “No, Mr Putin, western liberalism is not obsolete” June 29.

You are only partly right, because nowadays-Western liberalism is not what it was. 

When regulators allow those that are perceived, decreed or concocted as safe, to be able to offer their risk-adjusted interest rates to banks leveraged many times more than those perceived as risky, as has been the case since 1988, that has absolutely nothing to do with free markets.

And assigning for the risk weighted bank capital requirements a 0% risk weight to sovereigns, and one of 100% to citizens, has nothing to do with “superiority of private enterprise” either. Those risk weights de facto imply that bureaucrats know better what to do with bank credit they are not personally liable for, than private sector entrepreneurs, and that has much more to do with statist a la Putin regimes.

@PerKurowski

To stand a real chance, Venezuela needs a solution that inspires at least a million of its emigrants, to immediately return to their homeland.

Sir, Ricardo Hausmann writes that for Venezuela “there is no road to recovery without the freedoms that underpin the market mechanism and without international financial assistance to kick-start imports and output. That will only happen after Mr Maduro leaves and this regime ends” “Maduro will not reverse an unprecedented economic collapse” August 24.

Indeed, but since so many of our landsmen are dying because of hunger and medicines, and the country is losing so much of its educated youth and that might find opportunities in other nations and never return, we need something much faster, much more drastic.

Hausmann states “by over-borrowing during the [oil] boom years: at over 600 per cent, Venezuela has the largest foreign public debt to export ratio in the world." If we include all the accounts payable hanging around it could even be much worse than that. 

My proposal is to capitalize on our creditors weaknesses. After excluding all those who clearly have no legal enforceable claims, and there are many of them, I would call all Venezuela’s creditors and tell them:

“Here, take all Venezuela’s oil extraction and refinery assets. Put these to work as fast as you can, so you have a chance to collect something of your credits, as fast as you can; and pay out all royalties that will be due for any oil extracted, directly, in equal parts, to all Venezuelans living in Venezuela, as fast as these can be deposited in their respective debit cards.

Then the Venezuelans would, with that money demand what they most want and need, and the market forces, in a country so blessed with so many other resources than oil, and freed from the interference of its odious redistribution profiteers, would respond, almost instantaneously.

A dream? Perhaps, but also the last thing I want for my country is a bailout a la Greece, one that leaves all our youth indebted forever.

And who knows, perhaps then even Ricardo Hausmann would leave Harvard Kennedy School and return home. I sure would!

http://theoilcurse.blogspot.com

http://unsustainabledebtsustainability.blogspot.com

http://petropolitan.blogspot.com

@PerKurowski

Cutting taxes by means of inflation adjustment vs. reducing regulatory subsidies to state borrowings?

Sir, Sam Fleming reports “The Treasury has been examining the merits of adjusting capital gains taxes for inflation” “White House push to cut taxes for rich faces thorny obstacles” August 3. 

Fleming points out that the “initiative could cost $100bn or more over 10 years” and “Estimates from the Congressional Research Service suggest as much as 90 per cent of the benefits would go to the top 1 per cent of households.

Steve Moore, a visiting fellow at the Heritage Foundation opines: “It would be good for the economy. This is something we as free market people have been talking about for a long time.”

I am for free-markets, and I defended with great enthusiasm even more extensive inflations adjustments when they were introduced in Venezuela some decades ago, clearly before its current anti-free market regime came to power.

That said I would now use this occasion to ask, are such inflation adjustments, which reduces tax income, really compatible with the 0% risk weight assigned to the quite sizable US debt for the purpose of the capital requirements for banks?

That 0% risk weighting, de facto subsidizes US public debt, and which, on the tune of some 21 trillion in debt, could easily represent $100bn or more over 10 years.

If I were to choose, both from fairness and a free market perspective, I would much rather cut the bank credit distortions in favor of the sovereign than the inflation adjustment.

Just for a starter that would allow all to see better what the real unsubsidized interest rate on government debt is, and that should be useful, except fro those who do not want that to be known. 

PS. With a 0% interest rate, a 2% inflation target, how can regulators argue a 0% risk weight for a sovereign? That is of course unless they are from Venezuela or Zimbabwe, and only think of honoring public debts in nominal terms with the printing machine.

@PerKurowski

A Universal Basic Income is a prime free market oriented “instrument of national togetherness”

Sir, Janan Ganesh writes about how the fact that “America has a large, complex and redistributive state…with some public assent”, has moved the floor for many traditional republicans, and has favored Trump”, “The end of the Republican free-market ticket”, August 2.

If you are a democrat or a republican who do not belong to the establishment, and who do not like the idea of having to court bureaucrats for any assistance that might be needed more and more, how do you deal with that?

As a Venezuelan, nauseated from seeing how its government has handled centralized oil revenues, I pray for all citizens to be in their own hands, using the free markets to decide what to do, than for them to be in the hands of odious redistribution profiteers. And so I do favor a Universal Basic Income.

And I believe an UBI could also signify a very important unifying bridge sorely needed in a world with so much polarization.

Of course since redistribution profiteering or the exploitation of crony statism exist in all political camps, we should expect all its enemies to circle their wagons and do what they can to stop UBI from reducing the value of their franchise. One of their first lines of defense, is helping to push an UBI into promising way too much, so that it clearly become fiscally unsustainable. Another one is arguing that would exacerbate social laziness.

I have no idea where long-term a UBI would lead us, but I wish we could start with one small enough to help everyone to get out of bed, but not so large so as to allow anyone to stay in bed. Around the corner, or probably in many ways even here, we will need decent and worthy unemployments, and UBI must surely be part of the toolbox for that. 

As a UBI does in fact represent a Societal Dividend, it should appeal to both those who want more free markets and those who focus more on social responsibilities. That sounds very much like an instrument for the centre-left-right to embrace the free market and “the state as an instrument of national togetherness”.

http://myubi.blogspot.com/2017/01/my-universal-basic-income.html

@PerKurowski

Could BoE’s bank regulation risk weights for the infallible UK sovereign also have to go negative; from 0% to -20%?

Sir, Martin Wolf writes that “The government will learn about the limits of sovereignty in an open economy” “The markets teach May a harsh lesson” October 12.

What a surprise? I thought that someone like Wolf, who seems to agree with the concept expressed by the Basel Committee of a 0% risk weight for the sovereign, and a 100% risk weight for We the People, would not doubt the powers of the infallible sovereign this way.

Jest aside, an “Open Market” does not currently exist. In such market regulators would not be able to distort the allocation of bank credit as they do.

A very nervous Wolf writes: If “the inflows of capital needed to finance the UK's huge external deficit… ceased… Then the currency might collapse. Yields on gilts might also jump”

Calm! Take it easy Mr Wolf. The neo-independent BoE could then declare that the risk weight for the infallible sovereign of UK should also turn negative, and so be lowered from 0% to minus 20%. See… problem fixed!

To discuss economy, in a world in which bank credit is being so distorted, and so few care about it, makes me sometimes feel as I have fallen down Alice’s Rabbit-Hole. I hope, for my grandchildren’s sake, I wake up to find its all been a nightmare.

@PerKurowski ©

It is way overdue FT stops thinking of Brexit solely as a disastrous defeat, and starts exploring its opportunities

Sir, I refer to Wolfgang Münchau’s “The shock that will shift a nation’s business model” October 10.

Indeed it is long way overdue that at least some of you in FT stop the crying and begin thinking about Brexit not as an unqualified defeat/disaster, but as an opportunity.

But let me be clear. When Münchau mentions the need for “a shift in the direction of the UK economy away from transactional capitalism towards a more inclusive version of a free-market economy”, that begins precisely by throwing out the Basel Committee’s risk weighted capital requirements for banks.

That single piece of regulation, which turned banks away from maximizing returns on equity by means of banking, into doing so by means of capital (equity) minimization; and all based on avoiding ex ante perceived, decreed or concocted risks, has been about as damaging to the real economy as anything I can think of.

But Sir, to recognize that after ignoring the literally thousands of letter I have sent you on that subject, would of course require FT to eat loads of humble pie. Are you without fear and without favour enough to do that?

@PerKurowski ©

Free market capitalism with regulatory controls on the free flow of bank credit, is an oxymoron

Sir, I am not discussing here Margrethe Vestager’s, the European Commission’s competition chief decision to order Apple to pay €13bn in back taxes to the Irish government. But, titling as Philip Stephens does his September 16 article, “How to save capitalism from capitalists” seems to me topsy-turvy.

What now most hinders free-market capitalism from delivering its full potential, is not capitalists, but inept and statist bank regulators.

Currently, for the purposes of the risk weighted capital requirements for banks, “The Risky”, like SMEs and entrepreneurs, those who cannot even afford a credit rating, are given a risk weight of 100%, while the government bureaucrats who are going to spend the tax revenues, or the public indebtedness, are risk weighted at 0%.

That translates into that government borrowings are subsidized, a fiscal revenue, with the subsidies, the taxes, paid by those “risky” that as a result have less access to bank credit.

So the real question should be: how to save free-market capitalism from state capitalists.

As is we really need a Robin Hood to come and rescue us from Sheriffs of Nottingham disguised as expert bank regulators.

But it is even worse, because those yet unpaid €13bn of Apple are not allowed to flow freely as bank credit even within the private sector; and that is because “The Safe”, the AAArisktocracy, have also been given a much lower risk weight, one of only 20%.

Sir, and if only those who rightly pressure taxpayers to correctly pay up, would also try to pressure with the same vehemence, the tax revenue spenders to correctly spend.

@PerKurowski ©

Nowadays they are much more sophisticated

PS.Basel Committee’s risk weighted bank capital requirements with decreed risk weights of 0% governments - 100% citizens have, since 1988, empowered a Bureaucracy Autocracy.

Only by getting rid of all regulatory subsidies to negative rate yielding debt, would we have free-market real rates

Sir, I refer to Gillian Tett’s discussion of “The bizarre world of negative rates”, August 12. As Ms. Tett does not refer to the obvious distortions in the allocation of credit to the real economy risk weighted capital requirements for banks and other regulations cause, I can only assume she is following some standing instruction of not to do so.

Because she must know that, if a bank wanted to “move funds from low-yielding assets, such as [sovereign or highly rated private] bonds or cash, into more productive investments that could produce better returns and growth”, then it is required to hold more of that equity that expects high returns, or then it can pay out less dividends... or bonuses.

And it will get even worse, since statism imposed via regulations is rampant. Only yesterday Robin Wigglesworth in Short View wrote: “New rules slapped on the US money market fund industry… are set to come fully into effect in October. The changes have spurred a gradual investor exodus from the funds, and the conversion of ‘prime’ MMFs which invest into corporate debt into ones that invest only in Treasuries (which are less affected by the new regulations).”

@PerKurowski ©

To manage risks our bankers are always better free, in God’s hands, than in hands of some hubristic sophisticated besserwissers

Sir, Martin Wolf writes: “Market liquidity is likely to disappear when one needs it most. Building our hopes on its durability is risky. That is correct, but when he argues: “the absence of regulation exacerbated the liquidity boom and subsequent bust”, his implicit message is… that regulators should do something about it. “Beware the liquidity delusion” October 7.

I on the other hand have always worried about that bank regulators, when they act on their own perceptions of credit and liquidity risk, in any sort of complex form, introduce distortions, systemic risks, which can make everything so much worse. 

What feeds our credulity to believe something is more safe just because we perceive that something to be more safe? Is it not so that the safer an asset is perceived, the more we can run the risk of everyone demanding it excessively, and thereby make that asset really risky?

What feeds our credulity to believe something is more liquid just because we perceive that something to be more liquid? Is it not so that the more liquid an asset is perceived, the more we can run the risk of everyone demanding it excessively, and thereby at one point make that asset absolutely illiquid… at absolutely the worst moment?

Wolf suggests: “It would be better if investors appreciated the risks of a freeze in market liquidity in riskier financial assets”. Yes, but one must also argue the importance for regulators to appreciate the risks of a freeze in market liquidity for “safe” financial assets. A freeze of those assets would obviously hurt much more. (Like what happened with the AAA rated securities collateralized with mortgages to the subprime sector)

Wolf suggests: “markets characterized more by longer-term commitments, and less by hopes of finding ‘greater fools’ willing to buy at all times, might be better for most of us. This will not be true for all assets — notably government bonds. But it will be true for many private instruments”. Indeed, more long-term commitments could be good, but why does Martin Wolf believe that government bonds could never become a dangerously overpopulated safe haven in which we all got stuck gasping for oxygen? Is it ideology?

Of course dangers surround us, our financial markets and our banks, all the times; many more than credit and lack of liquidity risks. To manage those risks I am convinced we are better of being free, in God’s hands, than in the hands of some sophisticated besserwissers suffering immense hubris. But that’s just me.

Does this mean I don’t want any regulations? Of course not! But keeping those simple, and essentially considering the unexpected instead of the expected, would go a long way. The expected always finds a way to take care of itself… though I must admit that sometimes that takes strangers going strange ways and using strange tools.

@PerKurowski ©  J

Both leftwingers and free-marketeers got lost in the world of finance, banks and regulations

Sir, Paul Marshall identifies himself as one of “those of us who want free markets to retain their legitimacy” and reacts against that “monetary policy has already extended well beyond its technocratic bounds into the realms of wealth distribution” … because of course that is what Mario Draghi, president of the European Central Bank… is doing [with quantitative easing when] “artificially distorting the bond markets so that the debt-ridden governments of peripheral Europe can continue to enjoy a low cost of capital (the eurozone’s very own Ponzi scheme)”, “Central banks have made the rich richer” September 23.

I agree, but central bankers are assisted in this scheming, by regulators who have allowed banks to hold loans to The Safe, like governments and the AAArisktocracy, against much less capital that what they need to hold when lending to The Risky, for instance SMEs and entrepreneurs.

Paul Marshall also writes: “Quantitative easing, as this policy is known, has bailed out bonus-happy banks and made the rich richer. It is a surprise that the UK opposition party and other leftwingers have not made more of this.” That is correct but in response I would also ask, where were those free-market believers like Paul Marshall when in 1988 the Basel Accord assigned risk weights of zero to sovereigns and 100 percent to the private sector… and completely distorted the free market allocation of bank credit?

As food for thought let me quote from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.” 

With current regulations banks become "bad banks" from lending excessively to the good risks... and that does not sound too egalitarian to me.

PS. Bank regulators need an App to do their job for them. An App developer would at least have asked what is the purpose of a bank and so not have ignored their function of allocating bank credit efficiently to the real economy. An App developer would also know that what is dangerous for the banking system is what is perceived safe... never what is ex ante perceived as risky

@PerKurowski

Analyzing infrastructure procurement difficulties is more important than opening another public vs. private debate

Sir, it is hard to follow Keith Burnett’s, the vice-chancellor of the University of Sheffield’s logic, as expressed in his “Free markets are a flawed way to plan and fund infrastructure” September 15.

On one hand he mentions free markets cannot deliver essential infrastructure, but on the other he explains this with “lobby groups have the power to halt essential schemes. The result is a tendency to delay procurement of desperately needed infrastructure projects.” If lobby groups have such powers, are we really talking about free markets? “No!” must be the answer. And by the way, who allow themselves most to be influenced by lobbying groups?

And Burnett adds to the confusion by stating “Long-range planning has been replaced by the short-termism that typifies the markets”. I have no idea were he gets to state as a fact that short-termism typifies markets but, if its only to argue that governments are better at taking the long view, he needs to be reminded of the fact that very short term political interests unfortunately drives too much of most governments actions.

There might indeed be many needs for governments having to intervene in infrastructure projects… but if these projects are urgent and not getting due attention or being extremely inefficiently developed, the causes might very well reside in other factors that affect governments and private sector alike.

For instance when I see the slow pace of so many infrastructure projects in the US I always scratch my head and ask myself… is this the same country that in 1940-45 was able to create almost from scratch an incredible war machinery?

Arthur Herman, the author of “Freedom's forge” of 2012, a book that describes how that war machine was built, was asked by Mark Thompson during a discussion of the book: “What’s the most important lesson from World War II for today’s military-industrial complex?”

Herman’s answer: “More military and industry, and less complexity!

Today we have a military-acquisition system that’s way too expensive, way too slow, too bureaucratic, and highly unproductive. There’s a lot today’s Pentagon could learn from their 1940-1945 predecessors.”

In the same way I believe Professor Burnett, though he began doing so, should delve much deeper into the whole problematic of infrastructure procurement. That should prove more useful for all of us, than just opening another private vs. public debate.

@PerKurowski

Risk weights of 0% government and 100% private sector… in “The Land of the Free and the Home of the Brave”?

Sir, Gillian Tett writes: “Every nation needs a unifying idea. Americans love to see themselves as champions of free markets and entrepreneurial zeal — and have long been more welcoming to entrepreneurs than has most of the western world”, “The land of free markets, tied down by red tape”, July 31.

And Tett gives some examples business regulations that show how “champions of free markets and entrepreneurial zeal” might not be completely applicable to the America of today. I have a much more extreme example:

In 1988 the US signed up the Basel Accord, which for the purpose of setting the capital requirements for banks, defined the risk-weights to be zero percent for the government, because it is considered safe, and 100 percent when lending for the private sector, because it is considered risky. That clearly distorts the allocation of bank credit in favor of the government and against the private sector.

So could Gillian Tett, or anyone else, please explain to me how that fits the notion of “The Land of the Free and the Home of the Brave”?

@PerKurowski

Was Alan Greenspan just a mole planted in the capitalistic system by statist ideologists?

Sir, I refer to Daniel Ben-Ami’s review of David M. Kotz’ “The rise and fall of neoliberalism capitalism” FT-Wealth, Spring 2015.

It states: “It is richly ironic that the Fed chairman from 1987 to 2006 was Alan Greenspan, an ardent devotee of Ayn Rand, an arch free marketer”.

Hold it there!

Put that in the perspective of the Basel Accord having approved, in 1988, that the risk-weights for determining the equity banks needed to hold when lending to central governments was to be zero percent, while the risk-weight when lending to an SME, or to an entrepreneur, or to an ordinary citizen were set to be 100 percent.

Put that in the perspective of that with Basel II, in 2004, the regulators determined that the same risk weight for a member of the private AAArisktocracy was to be only 20 percent, while the risk-weight applicable to an SME, or to an entrepreneur, meaning to an ordinary citizen was to remain 100 percent.

If anything distorted free markets, that was it!

And in 2007-08 the AAA-bomb detonated and short after "infallible sovereigns" like Greece ran into big troubles

And so what conclusions can we have to reach? Could it perhaps be that Alan Greenspan was just one of many moles, planted by statist or anti-capitalist ideologists, in the heart of the capitalistic system, meaning its banks?

If only an “intellectual vacuum”, but, sadly, it is worse than that Professor Michael Ignatieff.

Sir, Michael Ignatieff writes about “the waning power of ideas” and begs “Free polarized politics from its intellectual vacuum”, January 10. Although, as a self described “radical of the middle”, or “extremist of the center”, I do agree with most of what he writes, I must still confess feeling that the absence of ideas would at least be better that the presence of some really bad ideas.

And a truly bad idea currently present, are the risk-weighted capital requirements for banks, and which allow these to earn much higher risk adjusted returns on equity on exposures deemed as “absolutely safe”, than on exposures deemed as “risky”.

And that makes it of course impossible for banks to allocate credit efficiently to the real economy. And that guarantees that the chances of any major bank crisis, those usually caused by dangerously overpopulating some safe-haven, have been exponentially increased.

Technically the mistake is explained by the fact that regulators estimate the “unexpected losses”, those for which you mainly require banks to hold capital, based on the same perceptions used by the banks to estimate “expected losses”.

And here we have all the free market believers not complaining about that horrible interference with the market that risk-weighting causes … and here we have all progressives not saying a word about the odious discrimination in favor of the AAAristocracy and against the “risky” that risk-weighting causes.

And meanwhile the chances for our youth to find employment in their lifetime are evaporating, thanks to this nonsense of banishing risk-taking from our banks.

More than market forces government intervention forces need to be tempered

Sir, Ian Buruma writes "If the new elites in the global economy want to stave off the storm of destructive hatred, they had better to come up with some ideas of their own on how to temper the market forces", "Global forces are uniting populists against the elites", December 14.

I do not presume forming part of any elite but yet I need to question that our current problems are derived from allowing too much market forces to reign. I suggest there is plenty of evidence which points in the opposite direction.

For instance, our banks are now subject to risk weighted capital requirements, which translates directly into allowing these to earn much higher risk adjusted returns on equity on assets deemed as “safe”, than on assets deemed as risky. It beats me to know what this has to do with markets.

And then we have the whole TARP and Quantitative Easing affairs, and which in all truth might point to an urgent need to temper the intervention by governments in the markets.

Any country declines if it starts taxing risk-taking

Sir, congressman Paul Ryan writes many truths in “Republicans must return to free-market principles” July 20, the truest in my opinion being that of “the defeatism of those seeking to manage the west’s decline. 

But if the congressman would just pick up his phone and call a banker in his constituency, to ask him how much capital the bank needed to hold in order to lend to an unrated a more fuller understanding about the urgency of returning to free-market principles. 

With immense hubris bank regulators, thinking themselves to be the risk-managers of the world, started to allot risk-weights which determines how much capital a bank needs for any specific asset. And, that translates into extraordinary interest rate subsidies to what is officially perceived as not-risky and extraordinary interest rate taxes on what is officially perceived as risky. 

What drives a country forward is its willingness to take risk. If bank regulators skew the access to bank credit in favor of the not-risky, those already favored by risk-adverse bankers, then the country will stall, decline, and finally fall drowning in obese bank exposures to what is officially deemed as absolutely not risky.

But freedom does not require formality and survives even in prisons

Sir Russell Napier holds that “Tower of debt will force a roll back of the free markets” April 14. I do not understand where he gets such an outlandish idea… if anything the markets, whether free or controlled, will topple the growing public tower of debt.

He also says “Commercial bank’s new capital adequacy ratios already require banks to hold higher levels of government debt”. Well no, the already quite old capital “inadequacy ratios”, allow banks to hold higher levels of debt if these debts are without risk and bank capitals are right now under enormous pressure because these public debts are being downgraded.

In fact that public debt has received such an unjustified preferential treatment by the financial regulators was just their pay-back to governments for giving them their independence and leaving them alone in their secluded quarters in Basel.

And so when Napier writes that “Western governments are left with no option but to restrict and corral markets and force capital private sector capital into action is support of public debt markets” what he is describing is not necessarily an exit plan but how we got into the mess to begin with.

Yes governments might be tempted to impose “capital controls”… perhaps like those China has and which allows it to keep an undervalued currency… but, as I see it, that could just lead to accelerate the rate by which the world goes informal, illicit and illegal, in order to survive their respective governments. The more capital controls the more are the havens worth… ask China… whose government does not even dare to spend its own money in China.