Martin Wolf. An essential component of an Edmund Burke intergenerational holy bond must be the willingness to take risks

Sir, Martin Wolf appeals to Edmund Burke when stating, “the value of tried and tested institutions ought to guide any Conservative government. The BBC is a great legacy from past generations. It must be passed on even stronger into the future.” “A public broadcaster is the property of the people not the elite” October 30.

Absolutely, BBC is to be defended and those who out in the world have heard it shine light on some very dark moments should be its staunchest defenders.

But that said, I do not think Martin Wolf has really earned the right to appeal to Edmund Burke’s assistance. Burke in his “Reflections on the French Revolution” wrote: 

“Society is indeed a contract…. It is to be looked on with other reverence; because it is not a partnership in things subservient only to the gross animal existence of a temporary and perishable nature. It is a partnership in all science; a partnership in all art; a partnership in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born. Each contract of each particular state is but a clause in the great primæval contract of eternal society, linking the lower with the higher natures, connecting the visible and invisible world, according to a fixed compact sanctioned by the inviolable oath which holds all physical and all moral natures, each in their appointed place. 

This law is not subject to the will of those, who by an obligation above them, and infinitely superior, are bound to submit their will to that law. The municipal corporations of that universal kingdom are not morally at liberty at their pleasure, and on their speculations of a contingent improvement, wholly to separate and tear asunder the bands of their subordinate community, and to dissolve it into an unsocial, uncivil, unconnected chaos of elementary principles.”

And one of the main components of such an intergenerational holy bond must be, no doubt, the willingness to take risks. That willingness that an immoral Basel Committee has seen fit to restrict, by imposing their absurd credit-risk-only weighted capital requirements for banks… those on which Martin Wolf keeps mum.

@PerKurowski ©

Jesus, though opposing the idle rich, clearly supported entrepreneurship, the heart and soul of good capitalism.

Sir, John Plender, when discussing the pro and cons of capitalism writes “Jesus… had no time for the rich”, “Morality and the money motive” July 18.

That is true but only with respect to the idle rich, and who in reality have also very little to do with capitalism. When it comes to entrepreneurs, as can be read in ‘The Parable of the Talents’, Jesus lends them his full support.

From Matthew 25:14-30 we extract the following: 

14 It will be like a man going on a journey, who called his servants and entrusted his wealth to them.

15 To one he gave five bags of gold, to another two bags, and to another one bag, each according to his ability. Then he went on his journey… 

24 Then the man who had received one bag of gold came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed.

25 So I was afraid and went out and hid your gold in the ground. See, here is what belongs to you.’

26 His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed?

27 Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.

28 “‘So take the bag of gold from him and give it to the one who has ten bags.

29 For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.

30 And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.’

Unfortunately the members of Basel Committee for Banking Supervision have clearly not understood the meaning of that parable. The risk aversion implied by their credit-risk-weighted capital requirements for banks, more-risk-more-capital and less-risk-less-capital, only promotes the immoral idleness of richness.

Plender also writes: “boom and bust, together with severe financial crises, are permanent features of the system”. Indeed, but Plender should never forget that busts, can be horrible or manageable, productive or useless, in much depending on whether it was risk-taking or risk aversion that ruled during the boom.

When true risk taking prevails, dangerous but possibly enormously productive bays will be explored. If instead risk aversion leads the way partner, then the safe havens will become dangerously populated… and, as Plender should know, the financial crisis of 2004 was a direct consequence of the latter.

Sir, the saddest part is that we ignore and still allow our bank regulators to apply unchristian immoral risk adverse principles. We should indeed throw out our worthless current bank regulating servants “outside, into the darkness, where there will be weeping and gnashing of teeth”

PS. Odious regulatory credit risk discrimination denies those perceived as risky fair access to bank credit, and is therefore also a great driver of inequality. 

@PerKurowski

There’s much more bank regulatory stupidity than what we should tolerate

Sir, Laura Noonan writes “The avalanche of post-crisis banking regulation is coming to an end and most of the uncertainties weighing on the financial industry will be dealt with in the next year, Basel Committee secretary-general William Coen has said”, “End in sight for post-crisis bank reform” March 30,

And she quotes Coen with: “There is light at the end of the tunnel, the big pieces are there and it’s really now about getting to the finish line”

Sorry, as I see it, they have not really started, there’s much more bank regulatory stupidity than what we should tolerate. For example:

Regulators should have no concern with individual banks failing, but with the banking system itself failing. In fact they should know that the failure of individual banks is needed in order to help to strengthening the bank system at large.

Regulators should foremost be concerned with how banks perceive credit risks, and with how they manage these. But they do also concern themselves with the perceived credit risks in order to set the equity requirements. Doubling down on the same basic perceptions can help no one.

Regulators should know the banks play an essential role in allocating credit to the real economy, and that they need to be extremely careful in not distorting that process. And yet they allow banks to leverage their equity, and the implicit support these receive from taxpayers, differently depending on perceived credit risks, something that of course distorts.

Most of us ordinary citizens are extremely risk-adverse. And that is why we as taxpayers agree to give support to banks so that they, on our behalf, take some of the risks we know the economy needs to go forward. So why on earth do regulators believe we taxpayers support the banks for these to be only safe mattresses in which to stash away our savings?

By the way, besides stupidity, there is immorality. To discriminate against the fair access to bank credit of the “risky” those who by being perceived as risky are already discriminated against by bankers, kills opportunities and promotes inequality.

Perhaps the Basel Committee is so blinded by its own mistake so that there’s no other way than to start from scratch… beginning with holding bank regulators accountable for their stupidity and immorality.

@PerKurowski

Dark forces keep Europe from correcting what is immoral and dumb, and which hurts its economies.

Sir, I refer to Nikolaus Blome’s “The quest for common ground between Greek morals and German maths” March 28.

Suppose only Greece had regulations that included the current credit risk-weighted equity requirements for banks; those which distort the allocation of credit by allowing banks to leverage their equity, and the support they receive from taxpayers, much more for exposures to something perceived as safe, than on exposures to “the risky”, like to SMEs and entrepreneurs.

In that case you can bet that the structural reforms Germany and Europe would request from Greece, would have included getting rid of such nonsense; on moral and on math grounds.

On moral, because it is immoral to discriminate against the fair access to bank credit of those who already, by being perceived as risky, have less access to it.

On math, because there is nothing that guarantees that those perceived as safe will in fact be safer for banks, quite the opposite; and there is absolutely nothing that states that “the safer” will allocate resources more efficiently to create supply demand and jobs in the real economy.

But that structural reform, of something that affects all in Europe (and many more countries), is not even on the table… and one really has to wonder what dark forces could be in play.

@PerKurowski

FT Do you suggest we leave it all in hands of an Easterly type tyranny of “experts” in thinking machines morality?

Sir, so you want some morality experts to begin thinking about “the morality of thinking machines”? June 16.

The same type of experts that came up with those utterly immoral (and stupid) capital requirements for banks based on perceived risks which discriminate against those already discriminated and favors those already favored?

The same morality possessed by those willing to finance any human rights violator around the world, as long as the risk premium is right?

No thanks the way it looks some of us might prefer betting on artificial intelligence coming up with its own morality… because at least it would most probably not be so dumb so as to think that bank crises arise from excessive much exposures to the ex ante risky.

At least I would not like to leave this in the hands of an Easterly type tyranny, of experts in thinking machines morality.

PS. Is it moral for FT to cover up the stupidity of experts?

If talking about the decline of morality of bankers, let us not forget that of their regulators... and of journalists.

Sir, John Plender referring to banks and bankers holds that “The crisis shows moral capital is in secular decline” June 10. And I am not going to argue about that, especially when I fully agree with his point of the need for retreating “from the obsession with punishing corporations rather than senior executives.

But when Plender writes about “the absence of an international regulator provided banks for ample opportunity for regulatory arbitrage”; and about how “banks shaped their business to minimise regulatory capital requirements”; and about the role of “lower capital requirements on mortgage backed securities relative to those on conventional mortgages” then he really ticks me off.

Mr. Plender if we are going to talk about morality in banking, those who have most breached it are the bank regulators who, with their capital requirements favored bank lending to “the infallible”, those who already were favored by bankers with higher loans at lower interest rates, and which translated into an outright discriminating against bank lending to “the risky”, those who already were being discriminated against by bankers with higher interest rates and smaller loans. That, in and on itself, was and is a truly immoral (and stupid thing to do)… as immoral it is for journalists and editors that should know better, to keep quiet about that.

Mr. Plender, it was the bank regulators of the Basel Committee, and no one else, who with their Basel II authorized banks to buy securities against only 1.6 percent in capital, if these were AAA to AA rated… and you should know that… or you should not be writing about these issues.

Bank regulators need also to reinvigorate urgently their moral mojos.

Sir, I cannot but express amazement with the abundant and detailed coverage given to of UBS and The Libor Affair by the Financial Times, for instance on December 20, when compared to the so little information given out on what the Basel II bank regulations really was about, The Basel Affair.

For instance, just the simple publication of the tables of risk weights corresponding to “Claims on sovereigns, page 19 and “Claims on corporates”, page 23 and that appears in the June 2006 document that compiles Basel II, with an explanation of what that entailed in authorized leverages to banks when holding different assets, would have enlightened your readers of a problem a thousand-fold more significant than the absolutely illegal Libor incident.

In fact Jonathan Guthrie’s assertion that “Big banks must reinvigorate their moral mojos” should apply as much or even more to the regulators. Here we have public servants deciding, for no other reason than to satisfy their boudoir dreams of a world with no bank failures, that those perceived as risky must pay even higher interest rates to the banks than they would ordinarily have to pay, and those perceived as absolutely safe less, and that, besides being plain stupid, is also plain immoral.

And when Caroline Binham reports on how “Lowball [Libor] tenders aimed to paint a rosy pictures of health [of UBS]” this seems so innocent when compared to the so low capital ratios reported by the banks, because of the risk-weighting of assets, and which really confounded all, including all FT’s experts.

Debt restructuring will not suffice to save the euro. The immoral, useless and dangerous bank regulations must also be repelled.

Sir, William Buiter opines that “Only widespread debt restructuring can save the euro”, October 16. 

I agree that is indeed indispensable in order to take care of the past. But, to also offer a better future, the immoral, useless and outright dangerous bank regulations coming out of Basel must also be repelled. And I specifically refer to capital requirements with risk-weights based on ex-ante perceived risk. 

The way those regulations favor the access to bank credit of “The Infallible”, those already favored by markets and banks, and discriminate against that of “The Risky”, those already discriminated against by banks and markets… is immoral 

Those regulations are also useless, as never ever have those, ex-ante, perceived as risky caused a major bank crisis. 

Those regulations are also outright dangerous, as these completely hinder the banks from performing an efficient economic resource allocation. 

What more does the Eurozone, Europe, America and the rest need in order to repel these regulations completely?