Why is it so hard to understand Basel I’s 1988 statist regulatory distortion of credit in favor of sovereigns?

Sir, I have written 59 letters to John Plender over the years, mostly about the distortions in the allocation of bank credit to the real economy the risk weighted capital requirements cause. These letters, as well as other 2500 to you, denouncing the serious and fundamental flaws with the Basel Committee’s risk weighted capital requirements, have been basically ignored… let us say censored.

For instance in May 2016 I wrote: “I am amazed John Plender leaves out the fact that… courtesy of the Basel Committee, banks currently need to hold especially little capital against that public debt... for which “the issue of solvency would resurface”

And all that because unilaterally the regulators, in 1988, with the Basel Accord suddenly decided that sovereigns posed no credit risk, and no one protested the statism that was thereby de facto introduced.

To workout our banks out of such bind, will take huge amounts of fresh bank capital and very specialized knowledge, or intuition on how to go about it, without disastrously affecting the bank lending to the rest of the economy.”

And in November 2004 FT did publish one letter in which I wrote: “I also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Now, John Plender writes: “The risk-weighted Basel capital adequacy regime, despite post-crisis tweaking, is fundamentally flawed. Sovereign debt enjoys excessively favourable treatment so eurozone banks stuff their balance sheets with the IOUs of seriously over-indebted governments”, “Lessons from the credit crunch” July 7.

Sir, when in a year or two I might publish a book on my impossibilities to communicate with FT, you or someone in FT will have some explanations to do.

In this world of fake news, shutting up someone who might be denouncing something that could be akin to financial sector terrorism is just as bad.

@PerKurowski

If bank regulators in Brussels imply for instance an AAA credit rating for Greece, should Esma not also fine them?

Sir, Nicholas Megaw and Chloe Cornish report that the European Securities and Markets Authority has fined Moody’s for “negligent breaches” of the credit rating agencies regulation “Brussels slaps €1.2m fine on Moody’s” June 2.

As Jim Brunsden and Guy Chazan reported on June 1, Brussels applies a zero risk weight to the European sovereigns. That of course can only be compatible, according to the standardized capital requirements of the Basel Committee, with the absolutely clearest AAA credit ratings.

AAA is clearly a nonsensical credit rating for many European sovereigns, like Greece, and so the question remains should Esma not fine also those European bank regulators in Brussels?

@PerKurowski

FT whoever replaces Mark Carney at BoE, pray he knows more about life on Main Street… and is a bit wiser.

Sir, you write: “Central bankers should not be above criticism. But the idea that a central bank governor should be vilified for warning about disruption that he then helped to prevent is absurd”, “Carney asserts his authority at the BoE” November 2.

Indeed, but when a central banker is also part of the regulatory technocracy, as Carney being the current chair of the Financial Stability Board is, then anyone should have the right to criticize him if it is clear he does not know what he’s up to.

I have denounced what I believe to be many serious mistakes/confusions with the current risk weighted capital requirements. Let me here just reference one.

Basel II set a capital requirement for banks of 12% when lending to anything below BB- rated, but only one of 1.6% for anything rated AAA to AA. That mean regulators allowed banks to only leverage about 8 times to 1 their equity when lending to the below BB- rated but 62 times to 1 with AAA to AA rated assets.

Sir, if you think that reflects the real risks of bank crises to occur, then I must hold that you have never walked on Main Street.

Also, there are so many, even in the Financial Times, who argue that governments should take advantage of the very low interests on public debt in order to finance for instance big investments in infrastructure. Sir, those low “real” rates might be the highest real rates ever. Basel regulations subsidizes infallible 0% risk weighted sovereigns, at the dangerously high cost of causing banks to finance less the riskier 100% risk weighted SMEs and entrepreneurs, those who could provide us with our future incomes, and governments with its future tax revenues.

Sir, pray you get central bankers that are not solely desk- or knowledge bound, but that have some Main-Street experience and some wisdom too.

PS. Of course the same applies to other too. Like Mario Draghi and Stefan Ingves.

@PerKurowski

Mario Draghi, explain to a German widget maker why you assign him a higher risk weight than to a French bureaucrat

Sir, Claire Jones’ quotes Adam Posen, a former member of the UK central bank’s Monetary Policy Committee with: “at the time after the financial crisis when lending to small businesses had fallen off a cliff. It was very compelling to hear from small businesses what credit rationing felt like in practice.” “Beer and bratwurst in Bavaria a missed opportunity for ECB” October 26, to ask one question.

Sir, how do you think Mario Draghi could explain to a German widget maker that his bank, when lending to him has to hold much more capital than if it lends to his government or to some other governments, like the French one?

I ask because in essence those risk weighted capital requirements, tilted in favor of the sovereign and against We the People, de facto implies that regulatory technocrats like Draghi, think bureaucrats are better able to decide what to do with bank credit than for instance German SMEs or entrepreneurs.

Come to think of it, Adam Posen was very lucky the “eight very small business owners” he recalls meeting then at the pub, had not the faintest idea about what was going on… they probably still do not.

PS: Again, here is an aide memoire on some of the monstrous mistakes of said regulations.

@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 ©

Is now OECD blaming central bankers? Has it no shame? OECD is just as guilty.

Sir, William White, the chair of the OECD’s economic and development review committee tells us “Only government action can resolve a global solvency crisis” September 26.

I don’t get it. Is now the OECD blaming central bankers? What? Since 1988, with the Basel Accord, Basel I, approved enthusiastically by the OECD, the sovereigns of the OECD, in other words OECD governments, for the purpose of the capital requirements for banks, have been risk weighted at 0%, while We the People have been assigned a risk weight of 0%. What good has that done us?

White writes: “The monetary stimulus provided repeatedly over the past eight years has failed to produce the expected expansion of aggregate demand.” Is expansion of aggregate demand by monetary stimulus the only thing that was expected to solve stagnation? If so, our grandchildren are screwed. What about the workings of the real economy, like the SMEs and the entrepreneurs, those that OECD and bank regulators don’t want to have access to bank credit, only on account of these being risky borrowers?

@PerKurowski ©

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 ©

Statism, by way of bank regulations, marches on! Thou shall not hold anything but the Infallible Sovereign’s debt

Sir, Robin Wigglesworth in Short View August 11 writes: “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).”

So clearly those statists that furthered their agenda by way of bank regulations, like in 1988 when the Basel Accord decreed a risk weight of zero percent for the government and 100% for We the People, keep marching on unabated.

And since Wigglesworth also refers to the Libor “Lie-bor” rate manipulation, let me also remind you that no private sector manipulation ever, has produced even a fraction of the costs for the society at large, as has the Basel Committee's outrageous manipulation of the allocation of bank credit to the real economy.

@PerKurowski ©

Monetary and fiscal policies, even though they live at different addresses, are very much married

Sir, you write “there are a few welcome signs that fiscal rather than monetary policy may finally be taking some of the strain of stimulating a sluggish global economy” and, again, that “With bond yields apparently grinding ever lower in advanced economies, the cost of a debt-financed expansion continues to fall.” "A quiet shift in focus for economic policymakers", August 6.

And one gets the impression you believe monetary and fiscal policies are independent, and live separates lives. That’s really not so, they are much married even if they don’t live at the same address.

They were very much married back in 1988 when regulators (central banks) with Basel I assigned the sovereign a risk weight of 0% while giving us We-The-People one of 100%.

In November 2004, in a letter published by the FT I wrote: “Our bank supervisors in Basel [central banks] are unwittingly controlling the capital flows in the world. How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector [sovereigns]?”

And here follows a brief storyline I recently gave you in another of the letters you feel to have the right to ignore, only because they verse repeatedly on the same theme.

Government issues bonds, the public buys these, and central banks, wanting the economy to grow, then buy these from the public by means of QEs

Then the public does not know what to do with that purchasing power given to them by the central banks and, wanting to play it “safe”, looks to buy government bonds, and so the interest rates on public debts goes further down.

And so then you and many others recommend to take advantage of these low borrowing rates, in order for governments to invest in infrastructure. And if government follows their advice, it will issue more bonds, and the public will buy these.

But since the economic punch from infrastructure investments vanishes quite fast if there are no one willing to use and pay the right price for it, the central banks will then (cheered on by FT) launch new rounds of QEs, and buy more government bonds from the public… and on and on it goes… until!

Sir, at what point do negative rates become absolutely incompatible with a 0% risk weight of sovereign debt? How much capital will banks then need to hold against government bonds? How do we get off this not at all merry merry-go-round?

And to top it up, meanwhile, SMEs or entrepreneurs, those who could perhaps best help to get the real economy going, if these want the opportunity to a bank credit, banks are told that “since these clients are risky you need to hold more capital against their borrowings”. And so banks do not lend these clients the money, or, in order to compensate for the higher equity requirements, charge them much higher interest rates, making thereby the “risky” riskier.

How the hell did we land in this hole? I know!

PS. With respect to their future pensions, are central bankers and regulators isolated from their decisions? Should they be?

@PerKurowski ©

Any central banker that distorts, just as he likes, the allocation of bank credit to the real economy, is not to be trusted

Sir, John Authers writes: “If I report that government bonds are selling for unprecedented low yields, because investors are looking for safe places for their money — both of which are undeniable and unexceptional propositions — abuse follows. Markets are fixed! Yields aren’t really that low!” “Central banks are not the enemy: Monetary policy has stayed too loose for too long: that is a failure of politicians” July 28.

In this context am I abusing when I hold that markets are to a very important extent fixed, only because banks are looking for places for their money that does not require them to hold much capital? I don’t think so!

And Authers writes: “Markets are not efficient, and are often wrong…But they are not part of a political process, and ignoring them is not an option. When they set the price at which we can borrow, or at which we can exchange currency, they create truths we have to live with”

Absolutely, but in this case bank regulators, most from central banks imposed their truths on the market.

Sir, though regulators would love you to do so, do not forget what assets caused the 2007-08 crisis.

Those were what was ex-ante perceived, decreed or concocted as very safe, and which, for that reason only, the regulators allowed banks to hold these assets against very, very little capital.

Assets perceived as risky do no set off major bank crises, that distinction belongs to what is perceived as safe, and that is what our dumb regulators ignored

And what has much stopped the economy from recovering in the face of enormous injections of liquidity? That the liquidity, because of bank regulations, central banks, are not allowed to flow freely by means of bank credit to the “risky”, the SMEs and entrepreneurs.

Of course I would love to trust central banks, but I just can’t. Anyone who comes up with an idiotic and statist idea like that of assigning a risk weight of 0% to the sovereign and 100% to us We The People, is not to be trusted.

@PerKurowski ©

FT, when will you stop lying about “a light-touch oversight of financial markets before the 2008 crash”?

Sir, you write Brussels played no part…in the light-touch oversight of financial markets before the 2008 crash” “Pooled sovereignty has advanced national goals” June 13.

When are you going to stop advancing that notion of a light-touch oversight of financial markets?

In 1988, with the Basel Accord, Basel I, the regulators decided that for the purpose of calculating the risk weighted capital requirements for banks, the risk weight of some friendly sovereigns was zero percent, while the risk weight for supposedly equally friendly citizens, was 100 percent.

With that they started the most heavy-handed statist interventions of financial markets ever.

Banks needed no capital when lending to the infallible sovereign, but 8 percent when lending to citizens.

Banks could leverage equity infinitely when lending to the infallible sovereign, but only 12.5 to 1 when lending to the citizens, those from which the sovereign derives all its strength.

And then, with Basel II, in 2004, the regulators topped up their heavy-handedness by declaring that the risk weights for a private rated AAA to AA was 20 percent while the risk weight of a speculative and worse below BB- rated, one of those banks would never ever dream of building up excessive exposures to, was 150 percent.

And things have not changed significantly. In fact, on the margin, the intervention has become worse.

Was it a light-touch intervention that caused the 2008 crisis to result from excessive exposures to assets allowed being held, against specially little capital? Like with AAA rated securities, or with loans to sovereigns as Greece! No way José!

So FT, when are you to stop lying? It is sure way over time for it. 

@PerKurowski ©

The problem with banks holding too much sovereign debt is that no one dares tackle the regulatory favoritism of it.

Sir, I refer to Reza Moghadam’s “A modest proposal on QE”, June 12

The problem: “With banks… is that their balance sheets are stuffed with government paper… banks’ sovereign holdings remain sharply skewed to their own sovereign.”

Moghadam’s proposal: “the ECB could buy the excess bonds as part of a new QE programme. It would do so not based on a country’s capital share at the ECB, as is now the practice, but according to the excess exposure in each country’s bonds”

His expected result: “By delinking national banking systems from their own sovereigns, banks would end up holding a more diversified portfolio of sovereign debt.”

Sir, bank balances are stuffed with government paper not because of QEs, but mostly because ever since Basel I in 1988, that is what requires the least capital from banks scarce of regulatory-capital. And what use is it really for the real economies of Europe that their banks end up holding a more diversified portfolio of sovereign debt? Absolutely none!

In November 2004 in a letter published by FT I wrote: How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector? In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

It is a problem that regulators do not dare tackle, mostly because its recognition points to the fact that the bank regulators were never really qualified to regulate.

Here is an aide memoire on the horrors of risk weighted capital requirements.

@PerKurowski ©

John Plender, unfortunately, we are caught in more than a double bind on public debt.

Sir, I agree with everything John Plender argues in “Why governments are caught in a double bind over public debt” of May 18. 

That said I am amazed he leaves out the fact that, on top of it all, courtesy of the Basel Committee, banks currently need to hold especially little capital against that public debt... for which “the issue of solvency would resurface”

And all that because unilaterally the regulators, in 1988, with the Basel Accord suddenly decided that sovereigns posed no credit risk, and no one protested the statism that was thereby de facto introduced.

To workout our banks out of such bind, will take huge amounts of fresh bank capital and very specialized knowledge, or intuition on how to go about it, without disastrously affecting the bank lending to the rest of the economy.

@PerKurowski ©

John Kay, how can you justify the risk weight of the sovereign being zero percent? Are you a runaway statist?

Sir, John Kay holds “When real interest rates on 50-year maturities for sovereign bonds are roughly zero, there is little reason to worry about the fresh debt this imposes on our children. I am sure they would rather have houses to live in and be able to cross bridges that will outlive their parents.” “Smoke, mirrors and helicopter money” May 17.

Of course the children would, but only if they had the jobs that give them the income needed to pay for the mortgages and utilities of those houses, and only if those bridges took them somewhere they wanted or needed to go to.

And besides that real interest rates at roughly zero, should make the children think about from where is that income to pay for the parents pensions going to come, and so that they won’t have to help their loved parents survive.

Again, for the umpteenth time, if we as a society are not willing to take the risks of opening up new roads for our economy, our children’s future and ours is blocked.

And that is why I fight against the risk weighted capital requirements for banks that de the facto block these from financing the riskier future and keep them solely refinancing the for the time being safer past.

And Kay refers to “the belief that central banks can never be insolvent because they can always print money and that bank notes are not exchangeable for anything but another bank note”, but accepts that “if the central bank prints enough of them they lose their value.”

And so again I ask: If so, how can you then justify regulators setting the risk weight for so many sovereigns at zero percent? That helps the real interest rates on sovereign bonds to be low! That is a regulatory subsidy for government debt! A subsidy paid by all the "risky" that because of that are denied fair access to bank credit.

Also assigning the government a risk weight that is lower than the one given to the citizens, those who give the government its final strength, signifies, de facto, a belief that government bureaucrats know better what to do with bank credit than citizens. That is pure and unabridged statism!

@PerKurowski ©

The 1988 Basel Accord decided on these risk weights: sovereign 0% and citizens 100%... and so bye, bye liberalism!

Sir, Tony Barber writes that “Illiberalism takes root in Europe’s fertile centre” May 14.

Forget it! True liberalism has been long gone in Europe, and in most of the western world.

That is because liberalism is totally incompatible with regulations that hold that for the purposes of setting the capital requirements for banks, the sovereign has a zero percent risk weight while the citizen, he who gives the sovereign its strength, has a 100 percent risk weight… that is unless he is are rated below BB-, because then his risk weight is 150 percent.

And that dangerously dumb bit of regulation, with its so single minded nanny like credit-risk aversion; which have banks no longer financing the risky future but only refinancing the “safer” past, little by little saps the strength of the real economy… little by little creates a climate in which anything can happen.

Just for a starter it provided all the incentives for banks lending too much to Greece, but that is not even discussed, we can’t have ordinary citizens doubting technocrats… can we?

@PerKurowski ©

Martin Wolf and I have three fundamental differences in opinions. Sir, dare decide, without favour, should I shut up?

Week after week I read Martin Wolf articles, and week after week, though I have clearly been blacklisted, I write letters to you commenting on these. Most of these letters refer to three issues on which I am obsessive, I confess, but on which Martin Wolf is equally obsessed, ignoring these, though he has not confessed. 

I insist in doing so because I truly believe these are issues of utter importance to the well being of my children and grandchildren, and indeed for the whole western society with its Judeo-Christian traditions to which I belong.

First: I know that, allowing banks to leverage equity differently with different assets depending on perceived credit risk, does seriously distort the allocation of bank credit to the real economy. As it permits banks to obtain higher expected risk adjusted returns on what is perceived safe than on what is perceived risky, it introduces a dangerous credit risk aversion that will do no one any good. Risk taking is the oxygen of any development.

Martin Wolf does not think so. In fact he has told me that even if, hypothetically, there were distortions, it is the responsibility of bankers to ignore these, to forget about maximizing shareholder’s returns and to do what is right for the society. Sir, sincerely, I truly doubt any banks and bankers doing so would survive for long in a competitive environment.

Second, Martin Wolf believes, like current bank regulators do, that those perceived as risky are far more dangerous to the banking system than those perceived as safe; and hence Basel II’s 150% risk weight for those rated below BB- and meager 20% risk weight for those rated AAA to AA, do seem logical to them. 

I on the contrary, having walked a lot on Main Street, know that what is perceived as safe, poses intrinsically a much larger threat to the banking system, than what is perceived as risky. To me the regulators are behaving like nannies telling the children to beware of those ugly and foul smelling who approaches them, but to embrace the nice looking gentleman who offers them candy.

Third: Basel I of 1988, by assigning a zero risk weight to sovereigns and a 100 percent risk weight to the citizens upon which the sovereign strength depends, introduced by means of bank regulations, through the back door, a for me unforgivable and hateful statism. Martin Wolf has not voiced any serious objection to the concept of an infallible monarch.

Sir, so what is your opinion, should I stop sending you letters commenting on Martin Wolf’s articles? Until now he has not given me one valid reason for me to believe I am wrong and he is right.

For instance this week Martin Wolf hits down (again) on Germany’s policies versus the Eurozone. “Germany is the eurozone’s biggest problem” May 11.

Had the regulatory distortions I complain about been removed, I might very well have agreed a lot with him. But while that has not happened, I feel sure that any German ECB or other Eurozone stimuli will be wasted, and might very well set Europe up to something worse. Frankly, when push comes to shove, it is always better to build solutions around at least someone being strong, and not based on a by all shared utter weakness. 

PS. Here the most recent aide memoire on what is wrong with Basel Committee’sregulations.

@PerKurowski ©

Sovereign debt risk weightings system, which assigns a zero risk weight, needs more than overhauling. Throw it out!

Sir, soon 30 years after regulators decided with Basel I in 1988 that the risk weights for the “infallible” sovereigns were to be zero percent, Patrick Jenkins now writes: “finding a way to overhaul the absurd assumption that all government debt carries zero risk, is pretty fundamental for the future health of European finance” “Sovereign debt risk weightings system needs overhauling” May 3.

Boy is he lost! The question is not whether “all” governments should carry a zero risk, but whether any government should carry a higher risk weight than those citizens that represent whatever strength the sovereign has, and that now are risk weighted at 100 percent.

Anyone who thinks that banks should be able to leverage more their equity when lending to sovereigns than when lending to citizens, must believe government bureaucrats know better what to do with other peoples’ money, than SMEs and entrepreneurs with their own money and with what they owe, and so they must therefore be statists.

Sir, I am amazed how many statists there seems to be at the Financial Times.

@PerKurowski ©

As a Venezuelan, it is hard to see too much difference between the Basel Committee’s statism and that of Hugo Chavez’.

Sir, Shahin Vallée, from what I read a fanatic central planning convert (so presumably a communist) writes: “if central banks are trying to expand the monetary base permanently, their natural ally is fiscal policy, which can direct spending to where it would have the most powerful effect”, “Fiscal and monetary policy can be uneasy bedfellows” May 2.

The Basel Committee, for the purpose of defining the capital requirements for banks, set the risk weights for the "Infallible Sovereign" at zero percent, while defining the risk weights for citizens, SMEs and entrepreneurs as being 100%. That is the kind of mindset of those who believe that technocrats can direct other people’s money better, than other people their own. It is amazing how this mindset still survives.

Vallée now suggests a debate on how central banks and governments can cooperate better. Holy Moly! I want a debate on how we citizens can fight the cooperation between central banks, the governments and some of their cozy friends, like some too big to fail banks and members of the AAArisktocracy, all so that we can save our economies for our children.

And of course, if I have misread Shahin Vallée, I have no problems retracting my opinions. On the contrary, I would be very happy to do so.

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

@PerKurowski ©

We are suffering from a well-disguised creative financial statism of monstrous proportions.

Sir, Dan McCrum writes: “it seems so inherently weird for about a third of debt issued by governments in the developed world to be bought and sold at negative yields” “Negative rates reverse assumptions about financial decisions” April 15.

Not weird at all: a) take away all central banks purchases of public debt with QEs, which helped to keep the saving glut intact or even increase it; b) get rid of regulations that assign the lowest risk weights and thereby the lowest capital requirements for banks to the borrowings of the sovereign monarch; c) stop what McRum mentions about “pension funds and insurers [having to] buy safe government debt irrespective of the price; and d) stop central banks from paying negative returns… and you would not see public debt bought and sold at negative rates.

What we are really suffering from is a well-disguised and utterly creative and non-transparent financial statism of montrous proportions.

The cost of all that is partly borne by savers and future pensioneers, but primarily by our children and grandchildren since the real economy will not grow as it could, consequence of all the credit opportunities denied “the risky” SMEs and entrepreneurs

@PerKurowski ©

Martin Wolf prefers government bureaucrat’s spending money that is not theirs over bankers making loans to SMEs

SMEs and entrepreneurs have less access to bank credit because banks are required to hold more of that scarce bank capital when lending to them, than when for instance lending to the sovereign or to members of the AAArisktocracy. And that is so because SMEs and entreprenuers have been deemed as risky by regulators, even when by being perceived ex ante as risky, de facto makes these borrowers safer for the bank system.

But Martin Wolf has clearly evidenced over the years he is not a slightest concerned with that distortion in the allocation of bank credit to the real economy, something which among other permits the supposedly "infallible" sovereign to have more than the usual preferential access to bank credit.

Now Wolf argues again, for the umpteenth time, that: “It is more important to create a robust financial sector. Yet pressure from the Treasury today seems to be to relax constraints. That may well be far riskier for the UK economy in the long run than modest fiscal deficits.” “Osborne’s desire to cut spending makes little sense” March 4.

I cannot but conclude that Martin Wolf, between bankers making loans to SMEs and entrepreneurs, or government bureaucrats spending money that is not theirs, much prefers the latter. I don’t!

@PerKurowski ©