What America (and much of the rest of the world) needs is to free itself from the clutches of statist/communist bank regulators.

Sir, Martin Wolf, opines that “Joe Biden may be a last chance for US democracy” “Competency is Biden’s best strategy” January 27. 

Oh, if only all was that easy and in Biden’s hands. When compared to what some dark hands through bank regulations are doing to America (and to much of the world), both Donald Trump and Joe Biden are small fry.

Paul Volcker in his 2018 autography “Keeping at it” wrote: “The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits and home mortgages”. Volcker continued with “Ironically, losses on those two types of assets would fuel the global crisis in 2008 and a subsequent European crisis in 2011”. That compared to all other that has been said about and quoted from Paul Volcker, has been totally ignored, or outright censored. 

But what does it really mean?

Lower bank capital requirements when lending to the government than when lending to citizens, de facto implies bureaucrats know better what to do with credit they’re not personally responsible for than e.g. entrepreneurs. 

Lower bank capital requirements for banks when financing the central government than when financing local governments, de facto implies federal bureaucrats know much better what to do with credit than local bureaucrats.

Lower bank capital requirements for banks when financing residential mortgages, de facto implies that those buying a house are more important for the economy than, e.g. small businesses and entrepreneurs.

Lower bank capital requirements for banks when financing the “safer” present than when financing the “riskier” future, de facto implies placing a reverse mortgage on the current economy and giving up on our grandchildren’s future.

Sir, I just ask, would America have even remotely become the great land it is, if that kind of risk adverse bank regulations had welcomed the immigrants when arriving at Ellis Island / Liberty Island... to the Home of the Brave?

Wolf also uses new-confirmed Treasury secretary, Janet Yellen, to endorse what he himself have argued so many times namely: “With interest rates at historic lows, the smartest thing we can do is act big” Again, where would those historic low rated be without the Fed’s QEs and without the regulatory favors mentioned? Really? Historic lows or historical communist subsidies?

PS. Not the first time (nor probably the last) I've written to Martin Wolf on this.

@PerKurowski

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

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

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

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

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

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

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

@PerKurowski

How do you build a wall against the robots, the biggest threat for manufacturing workers here and there?

Sir, Martin Wolf quotes Richard Baldwin, author of the “The Great Convergence”, with that workers in South Carolina “are not competing with Mexican labour, Mexican capital and Mexican technology as they did in the 1970s. They are competing with a nearly unbeatable combination of US know-how and Mexican wages.” “Trump faces the reality of world trade” November 22.

That has an element to truth in it but, in many ways, the worst competition both Mexican and American manufacturing workers face in the future will come from technology, like robots.

How do you build a wall against job-stealing robots? No matter how that wall was built, your own consuming citizens would end up paying for it by paying higher prices.

One idea I have been toying with lately goes someway along the line of placing some type of payroll taxes on robots; first so as to permit us humans to be able to compete with these on a more level ground; and second so that with those revenues we could partially fund a Universal Basic Income, a Societal Dividend, which could provide us with a step-ladder to easier reach up to the growing gig-economy. 

That said, with respect to Trump and trade-deals I would just remind him of that no nation can be kept strong by cuddling up in comforting isolation and that probably the last legacy any President would want to leave behind him, is that of having weakened the Home of the Brave.

To top that up, quite gently, I would also point out to Trump that USA’s Declaration of Independence clearly states as one of its justifications, the need to stand up to “the present King of England… For cutting off our Trade with all Parts of the World”.

PS. In this context only as curiosa, the Declaration of Independence also mentions as a justification that “the present King of England…has endeavored to prevent the Population of these States… obstructing the Laws of naturalization of Foreigners; refusing to pass others to encourage their Migrations hither” 

@PerKurowski

It is time for America to ask bank regulation’s risk weights of 0% Sovereign and 100% We the People, to take a hike!

Sir, Martin Wolf, in reference to the United States writes: “In the country of the blind, the one-eyed man rules… the next administration will take over a country with mediocre growth of productivity, high inequality, a growing retreat from work and a declining rate of creation of new businesses and jobs… loss of dynamism… business fixed investment has been persistently weak… rise of new regulatory barriers is disturbing.” “An economic in-tray full of problems” November 9.

Of course, as usual, obsessively, Wolf says not a word about the possibility that the risk weights of 0% sovereign, 20% AAA rated, 35% residential housing and 100% SMEs, set for the purpose of defining the capital requirements for banks, are distorting the allocation of bank credit to the real economy, with disastrous consequences.

At least last week, during IMF’s Annual Research Conference, at the very end of the conference, none other than Olivier Blanchard, the former Chief Economist of the IMF, admitted that: indeed more research was needed to better understand the underlying factors for the trend to lower public debt interests that can be observed the last 30 years; and that this trend might very well be explained to a certain extent by current bank regulations.

When the truth about the risk weighted capital requirements for banks unravel, I wonder how Mr. Wolf is going to explain his and FT’s silence on my thousands of letters.

By the way, after yesterdays American election results, is it not high time for the Home of the Free and the Land of the Brave to ask those risk weights of 0% Sovereign and 100% We the People, to take a hike?

PS. What caused the unexpected election results? I really don’t know, I am not American so I did not have to vote (phew what a relief) but the irritating smugness of technocrat and media besserwissers, sure must have played an important role.

PS. I forgot, fairly recent I twitted: “As I see it there's one vote for the next 4 years, and then there’s one for the next 40. The latter could be for Gary Johnson”

@PerKurowski

Elizabeth Warren, as a member of United States Senate Committee on Banking, might not perform entirely her own duties

Sir, Barney Jopson reports that Senator Elizabeth Warren is requesting the replacement of Mary Jo White as Chair of the Security and Exchange Commission “Warren wants SEC head fired for ‘undermining’ administration” October 15.

I have no opinion on how Mary Jo White has been performing her duties at the SEC but, the United States Senate Committee on Banking, Housing, and Urban Affairs, of which Ms Warren is a standing member, is lacking carrying out in its own responsibilities.

I hold that since to this date I have not seen any effort on part of that committee to ascertain if, and if so how much, the risk weighted capital requirements distort the allocation of bank credit.

This is not a minor issue. For a starter it could ask bank regulators for a full explanation of the risk weights of 0% when financing the sovereign (the King), 20% the AAArisktocracy, 35% housing and 100% “We the People” like SMEs and entrepreneurs, those with the best chances of generating the future jobs our grandchildren need. That regulatory credit risk aversion, layered on top of whatever risk aversion the bankers’ themselves can harbor, sounds as anathema as can be to the whole notion of the Land of the Free and the Home of the Brave.

Besides, the discrimination in access to bank credit that those risk weights produce, violates directly the spirit of the Equal Credit Opportunity Act (Regulation B). In that respect the committee should also ask the Consumer Financial Protection Bureau, CFPB, what it is doing about this.

With regulations, to favor banks lending to the “safer” past and present, over lending to the “riskier” future, is a clear violation of that holy social inter-generational bond that Edmund Burke spoke about.

To top it up, those risk weighted capital requirements do not serve one iota for making the banking system safer. All major bank crises result either from unexpected events or from excessive exposures to something erroneously perceived as safe, never ever because of excessive exposures to something ex ante perceived as risky.

PS. Elizabeth Warren, in as much as she classifies herself as a progressive, could also be interested in how these regulations decree inequality.

@PerKurowski ©

A good slogan for any candidate would be: “Make the Land of the Free and the Home of the Brave, Free and Brave again”

Sir, I refer to Gillian Tett’s discussion on the importance in politics of good slogans “Make slogans great again” October 1.

I do not consider myself a slogan maker, but I sure know that the much more than a slogan slogan I would most like to see, is “Make the Land of the Free and the Home of the Brave, Free and Brave again”

That is because bank regulators, with their dangerously stupid risk weighted capital requirements for banks attacked the very core of the American spirit, namely the willingness to take risks and the equal access to opportunities for all.

Sir, after hundreds of letter on this I do not feel the need to expand more on it… some aide memoires should suffice.

@PerKurowski ©

Risk adverse bank regulation, anathema to a “Home of the Brave”, has imposed a curse of slow growth on the US economy

Sir, you write: “With every month that passes, the decision of the Fed’s open market committee (FOMC) to raise interest rates in December looks more like a mistake. The US economy clearly decelerated around the turn of the year” “The curse of slow growth afflicts the US economy” April 30.

That increase you refer to is was from 0.25% to 0.5%. Frankly, no matter what it could have signaled to the markets, to believe such minimum minimorum rate increase plays any major role in the difficulties the US has reigniting its economy without huge fiscal or monetary stimulus, seems, excuse me, quite dumb to me.

Much more importance play the risk weighted capital requirements for banks, which have introduced, in the Home of the Brave, a credit risk aversion that seriously distorts the allocation of bank credit to the real economy.

If you need an aide memoire about how idiotic that regulation concocted by the Basel Committee here is one

@PerKurowski ©

FDIC’s Thomas Hoenig is miscast in his current role. Standing up for “The Risky” he would achieve much more

Sir, I refer to: “Corporate person in the news: Thomas Hoenig: A US ‘sentinel on the front lines of the banking system’” April 16.

It states: “In 2010 Hoenig cast eight consecutive dissenting votes against the easy money policies of “quantitative easing”, arguing that they could pave the way for another crisis.”

That to me sounds like a man of character that would do much better if representing the totally unrepresented “risky” bank borrowers; like the SMEs and entrepreneurs.

If he did that, it would be easier for him to understand how absurd it is allowing banks to hold laughingly little capital against some assets, only because these have been perceived, decreed or concocted as safe. Representing The Risky he would be able to argue: “We have never ever caused a major bank crisis. That has been entirely the doings of those ex ante erroneously perceived as safe”

If he did that he would have understood that the strongest argument for banks holding more capital, is the discrimination the little capital required when lending to The Safe causes against The Risky’s access to bank credit.

And had he been able to get rid of the minimalistic capital requirements for the safe assets then, as a big bonus, he would have helped to get rid of the most important growth hormone for the too-big-to-fail banks.

And many, especially the young, would love him. By combating that credit risk aversion so anathema to the Home of the Brave and that is diminishing its economy, he would have helped to restore that risk taking that made America great… and so help create a new generation of jobs.

@PerKurowski ©

The sky might not fall on America, yet, but credit-risk phobia sucks the Home of the Brave’s vitality

Sir, you write “Cheer up, the sky is not falling on America’s head” January 2.

Sir, if bank regulators suddenly gave banks great incentives to avoid lending to those perceived as risky, like the SMEs and entrepreneurs, and to concentrate on lending to the sovereign and the AAA rated, would you still hold that all was fine and dandy in the Home of the Brave?

I ask because that is precisely what has been going on since1988 when regulators came down with a serious and dysfunctional credit risk-phobia that made them impose risk weighted capital requirements on banks.

In Basel I the risk weight of the sovereign (government) was set at zero percent, while America’s private sector was risk weighted at 100 percent. And then in 2004, with Basel II they split up the private sector in a range that went from a 20 percent risk weight for the AAAristocracy, and up to 150 percent for any borrower rated below BB-.

And that meant that banks now earn higher risk adjusted returns on what is perceived as safe than on what is perceived as risky. With such regulations that hinder the opportunities of the risky to have fair access to bank credit, it is clear that America would never have become the economic powerhouse it got to be. 

And similar things could be said about the entire Western world. Sir, it never stops to amaze me how determined you have been not to reference the distortions in the allocation of bank credit to the real economy that the Basel Committee has produced.

@PerKurowski ©

When regulators told banks: “Stop chancing on the future and just safeguard the past”, they doomed the middle class

Sir, I refer to Sam Fleming’s and Shawn Donnan’s FT’ Big Read. “America’s Middle-Class Meltdown: Changing fortunes” December 10.

To explain why the middle class and those who aspire to be middle class, those who are doing fine and growing when the economy grows in a balanced way are currently doomed, let me quote two passages from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975.

First: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]”

Second: “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.”

And so Sir, when bank regulators introduced credit risk weighted capital requirements for banks; which allow banks to leverage more their equity with the net risk adjusted margins provided by those perceived as safe, than with those provided by the “risky”; which allows banks to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky; then they effectively instructed banks not to take a chance on the more risky future, but to concentrate on safeguarding the safer past… and that was, and currently is, the beginning of the end of the middle class… and the increase of inequality.

Let us be clear, in the Home of the Brave, the Trojan Horse of the Basel Committee, helped cement a dangerous sissy aversion to credit risks.

​@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

Here is what the Primary Bank’s game changing Manifesto could state.

Sir, I read with much interest Ben McLannahan’s “Rare US bank launch targets ‘It’s a Wonderful Life’ values” May12.

And it came to me that the following could be The Primary Bank’s vey important and game changing Manifesto.

We, in the Home of the Brave, we refuse to hold less equity against those perceived as safe than against those perceived as risky. That discriminates against the fair access to bank credit of those SMEs and start-ups that build the foundations of our economy.

If we are required to hold 8 percent against a loan to a citizen, that is what we will hold if lending to the government, because we, in the Land of the Free, refuse to think of the American citizens as more risky than their government.

That means we will hold more equity than we are required to, and so risk-adjusted returns on equity will be somewhat lower than what other banks can generate.

But, our shareholders, and us the management, we are certain our way will, sooner or later, lead to much higher returns for all.

Reasoned audacity and pure crazy risk-taking is what brought us here and so, no matter how much regulators wants us to become risk-adverse, we refuse to deny our children and grandchildren the risk-taking that is necessary for them to have a good future with plenty of jobs.

God make us daring!

PS. We remit to “The Parable of the Talents” Matthew 25:14-30

@PerKurowski

In 1988, US bank regulators enlisted the “Home of the Brave” to the causes of risk aversion and communism.

Sir, Lawrence Summers writes: “we may be headed into a world where capital is abundant and deflationary pressures are substantial. Demand could be in short supply for some time… the priority must be promoting investment, not imposing austerity”, “It is time the US leadership woke up to a new economic era”, April 6.

That is correct, but, when Summers opines the remedy to be: “The present system places the onus of adjustment on ‘borrowing’ countries. The world now requires a symmetric system, with pressure also placed on ‘surplus’ countries”, I disagree. What the US most needs is to get rid of its regulatory asymmetry, that which is expressed by requiring banks to hold more equity against assets perceived as risky than against assets perceived as safe.

Summers mentions that because China is launching a development bank, and some of US’ allies will join it, that “This… may be remembered as the moment the United States lost its role as the underwriter of the global economic system”. Not true!

It was in 1988, when the US signed up on the Basel Accord that stated the risk weight which determined the equity requirement for banks was to be zero percent for sovereigns, and 100 percent for unrated citizens, that the ‘Home of the Brave’ gave up the willingness to take the risks that had allowed it to become the underwriter of the global economic system.

In essence that was also the date when the US went statist, or, in more direct terms, became communistic.

@PerKurowski

FT, here is an “innocent” question to Obama and his White House advisors.

Sir, Sam Fleming reports: “During the past 65 years, middle-class incomes have gone from doubling once a generation to showing almost no growth by some measures”, and quotes Obama with “we need to do more to restore the link between hard work and opportunities”, “White House warns on risk to growth” February 20.

And, as you know, I would innocently ask White House advisors the following: Don’t you think that it might have something to do with those recent bank regulations by which we allow banks to earn much higher risk-adjusted returns on equity when financing the extraction of value from the "safer" past, than when financing the "riskier" construction of the future?... In the Home of the Brave?

American Founding Fathers never suspected bank regulatory power to be delegated or outsourced to a Committee in Basel.

Sir, I refer to Gary Silverman’s “Wasting Dimon’s time is the way we do things” January 17.

With respect to the complaints of Dimon about having to cope with too many regulators, Silverman deems this to be “as American as apple pie”; argues that the founders “believed the survival of a popular government depended on keeping any particular faction from growing too powerful”; and quotes James Madison with: “The constant aim, is to divide and arrange the several offices in such a manner as that each may be a check on the other”.

So is the reason why they delegated or outsourced so much of the American bank regulatory discussions and powers into a Basel Committee for Banking Supervision, that some wanted to escape from such checking-on-each-other?

I say this because frankly, the credit risk weighted equity requirements for banks concocted by the Basel Committee, and which so much favors the bank borrowings of the sovereign and the AAArisktocracy, over the bank borrowings of its “risky” not-rated citizens… in the home of the brave seems to be as un-American as can be.

Should the founding fathers have been more aware of this possibility and been more explicit in prohibiting it?

PS. The day SEC delegated to the Basel Committee

Other related links:

http://subprimeregulations.blogspot.com/2010/04/please-explain.html

http://subprimeregulations.blogspot.com/2013/11/have-risk-weights-of-current-bank.html

http://subprimeregulations.blogspot.com/2012/07/complaint-i-presented-to-consumer.html

Fed’s Janet Yellen, as a leading equal opportunity killer, has no moral right to speak about inequality.

Sir, I refer to Robin Harding’s “Yellen risks backlash after remarks on inequality”, October 18.

There we read of “the high value Americans have traditionally placed on equality of opportunity”… that “Ms Yellen’s speech was about equality of opportunity”… about “the rise in inequality using recent Fed research and then laid out four “building blocks” for economic opportunity in the US: [among these] business ownership” … and that “owning a business [was an] important routes to economic mobility.

For over a decade I have argued that forcing those who are perceived as “risky”, and who therefore already have to pay higher interests and have lesser access to bank credit, to have to pay even higher interests and get even less access to bank credit, only because regulators think banks need to hold more capital when lending to them than when lending to the “absolutely safe”, is an odious discrimination and a great driver of inequality… a real killer of the equal opportunities the poor deserve in order to progress.

And of course, let us not even think of what the Fed’s QE’s have done in terms of un-leveling the playing fields. The fact is that had it not been for how the financial crisis management favored foremost those who had the most, Thomas Piketty’s "Capital in the Twenty-First Century”, would have remained a manuscript.

Sir, to hear someone who so favors regulatory risk-aversion, daring to speak about American values, in the “home of the brave”, in the land built up on the risk-taking of their daring immigrants… is just sad.

PS. To me it is amazing how bank regulators in America can so blitehly ignore the Equal Credit Opportunity Act (Regulation B)

Janet Yellen, “normality” in the US, has it any longer anything to do with the “home of the brave”?

Sir, you hold that “Yellen charts a smooth course to normality” September 19.

Well, if normality is to have anything to do with “the home of the brave” that must mean of course getting rid of those senselessly distorting credit-risk weighted capital requirements for banks.

But, since we have not heard Yellen mentioning anything about that, I guess “normality” here means the new risk-adverse normality of the US… that which has Americans suing soccer teams for being hurt while playing or that which forces me out of the pool every hour so that they can take water quality tests… that which allows banks to earn much much higher risk adjusted returns on equity when lending to its AAAristocracy or its “infallible” government, than when lending to a so "risky” American entrepreneur.

What a pity, the world was indeed much benefitted by having the US being “the home of the brave”… let us at least hope they keep up “the land of the free” part... cross your fingers.

What if an Eric Schneiderman dared to stand up against those causing the greatest unfairness in the financial markets?

Sir, Kara Scannell, James Shotter, Daniel Schäfer and Alice Ross report on how New York attorney-general Eric Schneiderman is investigating unfairness in the financial markets, “Banks hit by dark pools probe” July 30.

But Sir, you know that those perceived as “absolutely safe” from a credit risk point of view, and who are therefore already the beneficiaries of lower interest rates, larger loans and on softer terms, get even lower interests, even larger loans and on even softer terms, because regulators allow banks to hold less capital against assets deemed as absolutely safe.

And you also know that those perceived as risky from a credit risk point of view, and who are therefore already paying higher interest rates, getting smaller loans and must accept harsher terms, are charged even higher interests, get even smaller loans and must accept even harsher terms, only because regulators require banks to hold more capital against assets deemed as risky.

And so I ask you Sir, does not the regulatory distortion produced by the risk-weighted capital requirements cause more unfairness in the capital markets than all the dark pools, and all the high frequency trading, and all the Libor manipulation and all the other misdeeds currently scrutinized put together? Of course it does!

What a shame there are no Attorney Generals willing to stand up to bank regulators discriminating based on perceived risk (in the Home of the Brave) … even when equipped with such formidable tools as the Equal Credit Opportunity Act – Regulation B. and all other non-discrimination and non-profiling rulings.

PS. Yesterday I was also censored in my homeland :-)

What’s the use of splendid arteries in the US if its heart does not pump?

Sir, you again express concern about that “US infrastructure is crumbling” May 1, and that is very nice of you. But, considering you are the Financial Times, and not the Bridge Construction Times, should you not better concentrate on how the heart of the financial system, the banks, in “the land of the free and the home of the brave”, is pumping less and less of that true risk-taking needed in order to keep the economy moving forward, in order to have something to transport on those bridges?

Again, just as a reminder, in case you’ve forgotten: capital requirements for banks which allow banks to earn much higher risk-adjusted returns when lending to “the infallible” than when lending to “the risky” is pure bad heart attack provoking cholesterol.

PS. You refer to a bill drafted by John Delaney that would give US companies a tax break on any repatriated foreign earnings invested in US infrastructure… have you asked yourself in what assets those profits are currently invested and had to be liquidated in order to do that?

Yes, America, the Land of the Free and the Home of the Brave, is suffering some serious mutations.

Sir, Edward Luce is absolutely right writing about “America’s compulsive urge to regulate” April 28. It would suffice with reading all those mindboggling, never less than two dozen, of safety instructions stapled around those American swimming pools from which you are extracted, every half hour, for a water quality check.

And when it comes to incongruities with “The Land of the Free and the Home of the Brave” it suffices to know that in America too… by means of risk-weighted capital requirements banks are allowed to earn much higher risk-adjusted returns on shareholders capital, when lending to the “absolutely safe” than when lending to the “risky”