The not globalized football world, should it not get more out of any Fifa/Uefa deals?

Sir, I refer to Arash Aassoudi’s and Murad Ahmed’s “Fifa’s $25bn shake-up sets up clash with Uefa” May 17.

Out of this $25bn Fifa proposal we read that $2.4bn (4x $600m) will be given “in support to football confederations, national organisations and smaller clubs.” 

That’s less than 10%! In these days in which so much of the richness derived from globalization gets to be concentrated in fewer and fewer hands, should that support of the excluded not be… at least 51%?

@PerKurowski

Has Brexit and Trump just been too much for Martin Wolf to handle?

Sir, on December 30, 2009 Martin Wolf wrote: “the civilisation we pray survives for our descendants is indeed at stake”, "The challenges of managing our post-crisis world", December 30.

As a father, then not yet even a grandfather, I shared entirely that concern: "The monsters that thrive on hardships haunt my dreams"

But now it would seem that Wolf has given up all hope, as when he seemingly in panic writes: “As a species, our power is now too great to afford today’s essentially uncontrollable competition among myopic states. I do not expect us to achieve a world government. But that is also why I expect humanity to do unimaginable damage to itself and the planet over the coming centuries”, “What’s the big — and the bad — idea?” September 16.

And to avoid those “unimaginable damages to” humans, Wolf would now “like to see a world government. It would be a confederation, with a governing council, no president. Maybe three consuls.”

What on earth as gone into Wolf’s mind, what would that guarantee us?

In April 2003, when as an Executive Director of the World Bank I commented on the World Bank's Strategic Framework 04-06, I opined: "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind."

So Sir, for me to substitute with some three besserwisser the wisdom of all us individual humans, is sort of the last thought that enters my mind.

On the contrary, what we must do is to increase the changes for the most insignificant of citizens, like me, to question the wisdom of any self or network appointed consuls of the world.

For instance Wolf could do much good by helping me ask bank regulators why on earth they decided to assign a risk weight of only 20% to what is AAA rated and which therefore could provoke the creation of dangerously high bank exposures; while giving the below BB- rated, those so innocuous because bankers won’t touch them with a ten feet pole, a whopping risk weight of 150%.

Sir, I do feel sorry for Martin Wolf, I suspect Brexit and Trump has been too much for him, it has short-circuited his great mind.

@PerKurowski

Martin Wolf, I totally agree it is not nice where we find ourselves, but you’re part of how we got here… I am not!

Sir, Martin Wolf writes: “Who would have imagined that primitive mercantilism would seize the policymaking machinery of the world’s most powerful market economy and issuer of the world’s principal reserve currency? The frightening fact is that the people who seem closest to Mr Trump believe things that are almost entirely false… Protection just helps some businesses at the expense of others… The rhetoric of “America First” reads like a declaration of economic warfare.”"Trump and Xi battle over globalization" January 25.

Indeed but then again: “Who would have imagined that primitive statist technocrats would seize the regulatory machinery of banks of the world? And the frightening fact is that the people who seem close to the Basel Committee, like Martin Wolf, also believe things that are entirely false, like that what is perceived as very risky is very risky to our banking system… which only helps to protect the access to bank credit of “the safe”, at the expense of “the risky”…The rhetoric of “We Regulators must make our banks safe” reads like a declaration of economic warfare.”

Sir, I am sure that had the world not silently accepted the risk weighted capital requirements for banks in 1988, which introduced such obnoxious statist concepts of assigning a risk weight of 0% to the Sovereign and 100% to We the People; and then in 2004 going on to assign a such a meager risk weight of 20% to what was AAA rated… the subprime crisis would not have happened… Greece would not have received so much in loans, and Trump would still busy himself with hotels and casinos.

Martin Wolf, I understand you are also a victim of that confirmation bias that have swept the regulatory circle, but your silence on the distortion in the allocation of bank credit to the real economy, makes you, ever so little, an accomplice of Trump’s rise to the presidency of America… so don’t just wash your hands like any Pilate.

PS. “rules-based trade” is not really “open markets”

PS. I did what I could.

@PerKurowski

To parade badly failed global bank regulators wearing dunce caps, is one right way to silence dangerous nationalism

Sir, I am all for globalization. My father a polish soldier saved from Buchenwald by the Americans; I was born in Venezuela; with high school and university (economist) in Sweden; an MBA in Venezuela, spent over a year as an intern in a British Merchant Bank in London (and LSE and LBS); also a Polish citizen; a financial and strategic consultant in Venezuela; a representative in Caracas for a Chilean bank; having worked for corporations and investors from and in many places; a former Executive Director of the World Bank who wanted migrants to have a seat at its Board so that the world at large would have more representation; since 15 years living in Washington; and now happily with a grandfather of two Canadians, I am, de facto, probably as globalized as you can be.

But, if what’s put on my plate is dumb and dangerous globalism, then I swear I have no problem whatsoever going very local, in order to defend to my very best, my many diverse national interests, of course, primarily, those of my grandchildren.

So now, when I see Martin Wolf, in “The economic perils of nationalism” January 18, writing that those (Davos/Basel Committee) globalizers who created a “financial crisis” have seen “their reputation for probity and competence… devastated” I cannot but say: “My oh my, what a lie!”

There all still there. Those who retired might have written well-reviewed books, or had positive books written about them, and those who have not retired, have actually been promoted.

I am totally for trade, and so I fully agree with Martin Wolf in that “one might gain more from foreigners than fellow citizens”. But that does not have to mean you give foreign citizens the opportunities you deny your own.

When bank regulators introduced their risk weighted capital requirements for banks, they gave banks more incentives to finance “The Safe”, like sovereigns and AAArisktocracy, no matter where these found themselves on the globe, than to finance “The Risky” of their localities, like SMEs and entrepreneurs. And that was wrong, and that did not serve any purpose. If I am going to have to suffer a bank crisis, I prefer a thousand times that to be the result of banks having financed my locals too much, than for instance, in the case of European banks, these having financed the US residential subprime sector too much.

Sir, what’s our real problem? It is that there is more accountability on the local level than on the globalized one, and that of course, opens up the door for any misguided populism.

To for instance start parading bad global bank regulators down our avenues, wearing dunce caps, instead of giving them a red carpet treatment in Davos, would be a good way to begin silencing dangerous nationalism.

PS. That parade would perhaps also have to include all those who have so much favored regulators by keeping so mum about their failures. Mi capisci?

@PerKurowski

Basel’s risk weighted capital requirements for banks, a de facto capital control, blocked bank credit globalization

Sir, Martin Wolf writes: “The financial crisis brought with it regulatory measures, many of which are bound to slow cross-border financial flows”, “The tide of globalization is turning” September 7.

Again Wolf ignores what was there before the financial crisis, namely the risk weighted capital requirements for banks. That piece of regulation favored awarding bank credit to the “safe”, the rich, houses, the developed, the government or anything else that could be perceived, decreed and concocted as safe; and thereby de facto disfavored awarding bank credit to the “risky”, the poor, job creation, the undeveloped and the non AAArisktocratic private sector.

That is an effective capital control that was bound to slow cross-border financial flows.

Before I became a sort of pariah to FT, in a published letter of November 2004, I wrote, “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world.”

And in 2007, at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document titled “Are the Basel regulations good for development?” and which touches a lot on how the risky are discriminated.

So no Mr. Wolf, 28 years after Basel I and 12 years after Basel II, don’t try to put the blame on the crisis and Basel III.

“Globalization’s future depends on better management. Will that happen?” Alas, with media empowered opinion forming dominators like Martin Wolf, I am not optimistic.

@PerKurowski ©

Gordon Brown, in order to defend globalization, you need to stand up against dumb rulers of it, like the Basel Committee

Sir, Gordon Brown writes: “Leaders must make the case for globalisation” July 17. Absolutely, but in the same vein, leaders must make the case against dumb globalization, and nothing so dumb has been globalized as the pillar of the Basel Committee’s regulations, the risk weighted capital requirements for banks.

Sir, what’s more to say, you clearly do not agree with my assessment, or there is some other factor in play. Anyhow, I refer you again to a brief memo on what I consider to be so mind-blowing wrong.

PS. I just discovered a Deutsche Bundesbank paper in which they now try to deduct from research some self-evident conclusions. 

@PerKurowski

The globalization of idiotic bank regulations caused globalization to go astray

Sir, Wolfgang Münchau writes: “Another shock has been the global financial crisis — a consequence of globalization — and its permanent impact on long-term economic growth.”, “The revenge of globalization’s losers” April 25.

Yes that is the result of idiotic global bank regulations that:

1. Allowed banks to leverage more with assets perceived, decreed or concocted as safe; and thereby make banks earn higher expected risk adjusted returns on equity with these “safe” assets; and thereby gave the incentives that by generating excessive exposures against too little capital, caused the crisis.

2. Require banks to hold more capital against what is perceived as risky, like SMEs and entrepreneurs, and thereby earn less risk-adjusted returns on equity that what they can earn with “the safe”. And obviously such distortion must impact long-term economic growth.

But Wolfgang Münchau seemingly insists in thinking these risk weighted capital requirements are great. Could it be because he sees himself as a soon to be retiree? I say this because the risk aversion implicit in the risk weighing is precisely what a financial advisor would recommend to someone with a much shorter life expectation than young professionals’. 

@PerKurowski ©

Bank credit should flow to where it most benefits the economy, but regulators only care about avoiding credit risks

Sir, Minouche Shafik, a deputy governor of the Bank of England writes: “We need to make sure the parts that are growing are safe and sustainable so that globalization evolves in ways that direct capital to where it has the most benefit for the world economy” “Globalization is changing, not going into reverse” April 15.

Of course she is right. The question though is why then do regulators insist with their risk weighted capital requirements for banks? These have absolutely nothing to do with directing credit to where it has the most benefit for the economies. These have only to do with having banks avoid lending to those ex ante perceived as risky. And of course that distortion of credit allocation does nothing to promote financial stability, as it only guarantees that those perceived, decreed or concocted as “safe” will get too much credit, while those perceived as risky, like SMEs and entrepreneurs, will get too little.

Worse yet, since major financial crisis never ever detonate because of excessive exposures to something perceived as risky, but always because of excessive exposures to something erroneously perceived as safe, that regulation just makes it all worse, since the banks, when suddenly caught with their pants down, will then have especially little capital to cover up with.

Bank regulations need a complete overhaul. And that begins with asking regulators what is the purpose of banks, to see if we agree.

PS. When will finance ministers dare to ask the regulators The Question?

@PerKurowski ©

A world obsessed with Best Practices may calcify its structure and break with any small wind

In reference to Mr. Flash Crash’s supposedly malevolent disruption of the market in 2010, John Plender writes interestingly about globalization, regulations and fragility “Global financial regulation meets a cul-de-sac” April 23.

In this respect I would like to recall a written statement that I delivered as an Executive Director of the World Bank on April 2, 2003, while discussing its Stategic Framework 04-06. In it I wrote:

“Ages ago, when information was less available and moved at a slower pace, the market consisted of a myriad of individual agents acting on limited information basis. Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg.

A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

http://subprimeregulations.blogspot.com/2003/03/my-comments-on-world-banks-strategic.html

@PerKurowski

In these globalized times, would you not want your flag to be a flag of convenience, flagged by many?

Sir, what extraordinary interesting questions and suggestion of answers those of Janan Ganesh in “Fly the flag for the liberal values that define Britain” June 17.

I have often proposed that in these days of social media with circles of friends and known and unknown acquaintances, we should always be able have a fast reference to where on earth we all find ourselves, what flags we feel we live under, and perhaps what flags we would like to live under… because, just as ships can carry a convenience flag, why should not a Venezuelan-Polish citizen, in Sweden educated and in Washington living individual like me not be able to carry a British flag if that was the flag I best liked.

And in this respect I do not think that asking what is the flag Britain should flag to rouse the nationalistic sentiments of the locals, is half as good as asking what flag should Britain flag to rouse the globals to want to align behind “the liberal values that define Britain”. In these days we must never forget that you do not need an Armada to conquer, nor do others need an Armada to conquer you.

Or, as Violet Crawley might have admonished, “Do not be so parochial. It is so middle class”.

And with respect to flagging and signalization let us never forget that the order is vital. For instance if you flag the ex-ante maximization of opportunities flag long before the ex-post redistribution of wealth flag, I am certain you will get much better results than flagging in the order that Thomas Piketty sort of seems to imply.

When restructuring the World Bank you might want to start even higher than its presidency.

Sir, I refer to your editorial “Restructuring hell at the World Bank”, April 10.

You end it stating “If there is a silver lining to the bank’s turmoil, it is this: the Bretton Woods Institutions belong to the world. From now on, they must be headed by the best people available”

Not so fast! When presenting my book Voice and Noise, May 2006, in which I reflected on my experiences as an Executive Director of the World Bank, 2002-2004 this is what I said:

“Although we proudly name ourselves the World Bank, the fact is that we are more of a “Pieces of the World Bank”, with 24 Executive Director representing parochial interests. As a consequence I sadly had to conclude in that the World itself, call it Mother earth if you want, in these times of globalization, is in fact the Bank’s most underrepresented constituency.

This needs to be fixed, urgently, as we need to be able to stimulate a profoundly shared ownership for the long-term needs of our planet; that is if we want to survive as a truly civilized society worthy of the term civilization. As I see it, adding a couple of truly independent seven-year-term Executive Directors, whose role would be to think about the world of our grandchildren, way beyond the 2015 of the Millennium Development Goals—could be what the World Bank most needs now.”

And Sir, I still stand by that. 

The way the World Bank’s Executive Directors are nominated by ministries, does not guarantee the existence of sufficient intellectual and independent diversity at the Board. And that is the number one condition that needs to be satisfied in order for any international finance institution, to become something more than a well intended mutual admiration club, run by an also well intended management in natural pursuit of their own and perhaps even more parochial objectives.

PS. I have been asked by a representative of the civil society, whatever that now means, to add some additional straight to the point explanations of what I mean, and so here it is:

1. I guarantee that if one Joe the Plumber or one Nancy the Nurse, selected through lottery from 25 plumbers or 25 nurses, substituted for one of the 25 current executive directors, chosen also by lottery, we would have a 75% chance of ending up with a more commonsense and wise Board of Executive Directors at the World Bank, and less than a 1% chance to end up with something meaningfully worse.

2. If the Basel Committee for Banking Supervision (or perhaps the IMF) had counted with one biologist or an expert in the contagion of diseases, they would never ever have introduced something as dumb as the risk-weighted capital requirements for banks which, besides distorting the allocation of bank credit, amplify dramatically the consequences of any insufficient or any excessive ex ante perception of risk. And the world would have been saved from the current crisis. The ongoing intellectual incest is so bad that even 7 years after the outburst of the crisis they still do not realize what they have done.”

3. With reference to William Easterly’s 'The tyranny of experts', the real nightmare is to be in the hands of a group of similar experts on the same subject.

4. One of the best ways to control for the dangers of group-think, is to subject the group to the authority of some who is guaranteed not to belong to the group, and has no reason for wanting to belong to the group.

PS. Whenever you click on to social media, say this little prayer: “Please God, save me from becoming a victim of intellectual incest”

Sometimes there is even more homeland business going on outside the borders than within.

Sir, Tim Harford writes “The world economy is far more integrated now. Some of this globalization is independent of national borders…”, “The Business of borders” March 15.

Indeed, in 2007 I estimated the earnings of the emigrants of El Salvador working in the USA, to be 67 percent higher than the GDP produced in El Salvador by those who remained in their country.

Avoiding producing global bads is a must for a good globalization.

Sir, between mid 2004 and end of 2007, about a trillion dollars of European savings, flowed into triple-A rated securities guaranteed with mortgages in the subprime sector of the USA. This was primarily the result of absurd capital requirements which allowed European banks to hold or to lend against these securities rated AAA holding only 1.6 percent in capital, which meant being able to leverage their equity 62.5 times to 1. And, of course, disaster ensued.

And all that happened because some bureaucrats, in this case those of the Basel Committee for Banking Supervision, were allowed to concoct regulations in splendid isolation without having to answer to anyone.

I mention this in reference to Martin Wolf´s “Globalisation in a time of transition” July 17, because, if we want globalization to produce global public goods we must find ways of decreasing the risks of producing global public bads.

Sorry, if I am a party pooper

Sir Mohamed El-Erian finds a silver lining for our current crisis in that “As the risks become clearer, a greater degree of international policy co-ordination may emerge”, “Era of policy activism opens door to global co-ordination” February 17.

I am sorry if I am something of a party pooper but may I remind him that this crisis was caused precisely by the international policy co-ordination in banking regulations that took place in Basel. Without the Basel Committee we would most certainly have had other bank crisis but none as systemic and severe as the current one.

Yes, it is awfully hard to have the cake and eat it too!

Let's face it, globalization is awfully hard to discuss when "like most of us do we try to have our cake and eat it too and Martin Wolf's "How to preserve the open economy at a time of stress", May 21, is but another example of it. I agree with it all, full-heartedly, yet I have not the faintest idea of what I really have agreed with. It might be that we need to simplify the whole globalization equation in more manageable pieces.

Martin Wolf mentions for instance "redistributing the spoils of globalization, not sacrificing them" and which sounds a quite sensible thing to do. But that would have to start by identifying the spoils and perhaps wake up to the fact that the spoils are not to be found in a faraway country but in your own neighbourhood, in your own friendly neighbours courtyard.

Trying to speculate about where the non-obvious spoils are to be found, as those arising from higher prices of commodities are easier to identify, I frequently end up making two questions that might indicate possible new direction, exactly the purpose of questioning.

The first is. Is it logical that profits made by competing nakedly cost to cost in an efficient market should be taxed at the same rates that profits derived from an activity to which society has provided special shelter, like intellectual property rights?

The second, much more mundane, is why should a sportsman that earns a fabulous amount because he plays in a franchise with global reach pay income taxes based on where he slugs or kicks it out? Should he not pay it to his homeland or proportionately to where his audiences are?

Americans, how sure are you it is not Mr. Jones that you should blame?

The fundamental driver of the unease with globalization is the reduction of the share of decent salaries paid in the gross global production (GGP) and since “decent salaries”, whatever that means, has almost exclusively to do with the developed world, there is a growing grumbling in the western world that this globalization thing might not have been such a bright idea after all.

Clearly, if an American holds that the world has to stop growing, immediately, so that he can go back to his 2 dollar per gallon of gas, he has a point, though he would also have to explain what to do with a paralyzed world.

Devesh Kapur, Pratap Mehta and Arvind Subramanian, “Is Larry Summers the canary in the mine?, May 14, worry that American liberal intellectuals might now team up with Lou Dobbs and produce a pure local US knee jerk reaction, which would be both dangerous and unproductive for the whole world, instead of teaming up with them in finding some valid solutions for all. They are very right about that.

Americans should know that when you build an isolation wall the worst part is how difficult it is to be 100% sure that you got stuck on the right side of it and so, before shutting themselves out, they would de well trying to get at the root of who are really capturing a larger share of the GGP, since besides from those obviously benefiting from the commodity boom, one of the culprit might even be their next door neighbour, Mr. Jones.

Who suckered who is the wrong debate

Sir George Soros writing about “The worst market crisis in 60 years” January 23, is right to say that resulting political tensions…may disrupt the global economy and plunge the world into recession or worse. Unfortunately he then adds coal to that fire when he speaks with venom about how “Globalization allowed the US to suck up the savings of the rest of the world”, knowing perfectly well this was mostly because of the immense reserve accumulations of dollars voluntarily made by governments, mostly to keep exchange rates artificially low in order to, in Soros phraseology, suck up jobs. Who suckered who is not the debate the world now needs.

That the US should have ignored the financing offers they received from the world and behaved with more discipline not one doubts, but neither would then other countries have been able to strengthen so much so that they now can perhaps take over some of the pulling responsibilities of a bit tired US economic locomotive. How that can best be done is what we should be debating.

There is more to be gained from a debate, even while speaking different tongues

Sir Jennifer Hughes does a very good and spirited defence for accountancy global unification in her “More to be gained from talking in the same tongue”, September 27 but although she is absolutely right in all what she says she is still wrong.

One of the reasons, or perhaps the only reasons why some of us feel happy about having US GAAP and IFRS living side by side is because that helps to sustain a debate among their respective Standard Boards on matters fraught with such intrinsic difficulties as accountancy. No, let us please hope that we will never have to face one solid cohesive block of standards since who knows what they could contain and there would be no one with sufficient strength to oppose it. For a living example of how much we lose out in benefits from diversity let us just consider all the risks that are beginning to surface as a consequence of having relegated so much of the world’s regulatory power over banks to a single single-minded group in Basel.

Some of God's greatest gifts are unanswered prayers

Sir we fully understand the plea of Eric Schmidt in “Global privacy standards are needed” September 19, since for a company like Google it must be nightmarish to manage the 50 different approaches to privacy of each state in the US.

Having said that it is not without some fear that we citizens would entrust a global agency with the development of any global privacy standards, and that is not simply because we could be scared that these regulations could turn out to be too relaxed but also because, just as well, they could turn too rigid for our own good. We are yet in the infancy of a global information revolution where access breeds its own needs and so perhaps, before letting bureaucrats lose, it would be nice see the industry come up and agree with some proposals of their own, just to see how they look.

Eric Schmidt himself clearly points to the benefits of self regulation The problems with regulations is that they normally entail choosing a path from where it is later hard to backtrack and as an example let us just look at how the banking regulators empowered the credit rating agencies and now do not really know what to do with them.

Clearly Eric Schmidt has his own commercial needs for regulations and we citizens have ours, and they might not be the same, but perhaps both of us could benefit from thinking about that phrase from a Garth Brooks song that goes ”Some of God's greatest gifts are unanswered prayers”

PS. We might need a Global Web Constitution

Yes we need a Peeping Tom free, free trade core

Sir, I could not be more in agreement with Mr Grant Aldonas’ suggestion for the first part of “A fresh free trade agenda for Doha”, July 13, namely that of a “plurilateral agreement among all WTO members willing to move directly to free trade on a global basis”. Just like in a nudist camp we need to separate the real nudists from the Peeping Toms, as only this would allow us to conform a true and honest free trade core

It is clear that many of those who profess a belief in free trade fake it, since how could you otherwise explain the sort of perverse satisfaction many show from entering into negotiating processes that hinders the free trade from really advancing. The true spirit of free trade does not stand a chance against these saboteurs and who are simply too scared of taking off their protections, but want to enjoy the view anyhow.