More food for the hungry and less food for the less hungry sounds logical and decent, that is unless the hungry are obese and the less hungry anorexic.

Sir, Martin Wolf writes: “More equity capital would make banks less fragile.” “Fix the roof while the sun is shining” December 6.

That is only true as long as we get rid of the distorting risk weighted capital requirements for banks. Though “more risk more capital - less risk less capital” sounds logical, that is unless “The Safe” get too much credit and “The Risky” too little. If that happens, both banks and the economy will end up more fragile.

Wolf writes: “The world economy is enjoying a synchronised recovery. But it will prove unsustainable if investment does not pick up, especially in high-income economies. Debt mountains also threaten the recovery’s sustainability”. Let me comment on that this way:

First: “a synchronised recovery” is a way to generous description of what is mostly a QE high that has just helped kick the crisis can down the road.

Second: The investments most lacking in the “unsustainable if investment does not pick up” part, is that of entrepreneurs and SMEs, those which have seen their access to bank credit curtailed by regulators. It is high time we leave the safer but riskier present and get back to the riskier but safer future.

Third: The “Debt mountains [that] threaten” are either those for which regulators allow banks to hold much less capital against, like sovereigns and residential mortgages; or those consumer credits at high interest rates that dangerously anticipate consumption and leaves us open to future problems.

Sir, let me again make a comment on Wolf’s recurrent recommendation of “Public investment to improve infrastructure”. He usually argues this in order to take advantage of the very low interest rates. That ignores that those low rates are not real rates but regulatory subsidized rates. If banks had to hold the same capital against loans to sovereign than against loans to citizens, and if also central banks refrained from additional QEs, I guarantee that the interest rates on public debt would be much higher.

Besides, given the fast technological advances, we do not even know what infrastructure will be so much needed in the future so as to be able to repay the loans, instead of just burdening more our grandchildren.

@PerKurowski

Are taxes on petrol correctly used? Repatriation of what “cash”? End users/payers of infrastructure should be present

Sir, Gillian Tett, discussing the financing of president Trump’s plan for infrastructure writes: “One sensible, overdue step would be to raise the petrol tax to pay for infrastructure; another would be to use proceeds from repatriated overseas corporate cash.” “Private money might yet save Trump’s infrastructure plans” May 26.

First, more taxes on petrol just means that more money goes into the same fiscal pocket to be channeled in often quite non-transparent ways to uses that might or might not include the building of infrastructure. The best use of taxes, such as those on petrol, which by the way constitutes de facto a discriminatory import tax on gas, is to transparently help fund a Universal Basic Income scheme.

Second, “cash”, what cash? Could Ms. Tett believe that high denomination bills stored under corporate treasurers’ mattresses represent that cash? Before opining anything about what “cash” could do, I suggest she finds out how that “cash” is currently deployed. Who knows, it might all be invested in gilts.

Finally, I have witnessed decent privatizations and infrastructure PPPs in my life, but I have also seen those that are only ugly expressions of crony statism. In this respect at the negotiation and executions phases of any privatization, any public infrastructure project, or any PPP, future users, or otherwise payers for the projects or the services, should be present… and their names publicly recorded as having represented the citizens.

Too often most of us see something very wrong that makes us reflect: “This would not have been the case had my grandfather or grandmother overlooked what was going on.”

@PerKurowski

For governments to take advantage of current low rates in order to build infrastructure, is not a sure great thing.

Sir, Trevor Greetham argues that the government, taking advantage of current conditions, should take on debt and invest in infrastructure, all in order to stimulate nominal growth through government spending while suppressing interest rates; meaning that it should on purpose pursue a policy of transferring wealth from savers to borrowers.” “Hammond should not let the low gilt yields go to waste”. September 15.

Sir, I am not sure that is a constructive way of thinking. Greetham mentions that a big reason for the low interest rates on government bonds is “pension fund buying”. I assume he would not dare to complain if, when he retires, he does not get the pension he expected.

But worse, another reason for the low interest rates is the risk weighted capital requirements for banks; which diverts credit from 100% risk weighted SMEs and entrepreneurs, to the 0% risk weighted government. That sounds like a very doubtful way of how to build future.

And that’s even ignoring the possibilities of much infrastructure investments ending up in bridges to nowhere.

@PerKurowski ©

Martin Wolf, motorcycles are much riskier, and that’s precisely why more people die in car accidents

Sir, Martin Wolf writes: “The determinants of the secular decline in the real natural (or neutral) rate of interest are forces affecting the supply and demand for funds. These include ageing, slowing productivity growth, falling prices of investment goods, reductions in public investment, rising inequality, the “global savings glut” and shifting preferences for less risky assets” “Monetary policy in a low rate world”, September 14.

Not a word about the risk weighted capital requirements for banks. These have created regulatory incentives for banks to avoid, much more than usual, any riskier assets, like loans to SMEs and entrepreneurs, and to concentrate, much more that usual, on assets that are perceived, decreed or concocted as safe, like loans to the Sovereign and to the AAArisktocracy. And that has to slow the growth of productivity and cause the real economy to stall and fall.

That motorcycling is perceived as much more riskier, and that precisely because of that, more people die in car accidents, is a reality that neither our current bank regulators nor Martin Wolf can seem to understand, confused as they are by what is ex ante and what is ex post risks.

Like Lawrence Summers Wolf opines “Today’s remarkably low real interest rates mean that a big push on public investment has never been more opportune.”

Yeah, yeah trust more in government bureaucrats than in the “risky” private sector, and leave the bill to future generations.

@PerKurowski ©

Lawrence Summers wants to get the quality infrastructure jobs now, and leave the bill to future generations

Sir, Lawrence Summers writes “Infrastructure investment can create quality jobs [and] expand the economy’s capacity in the medium term and mitigate the huge maintenance burden we would otherwise pass on to the next generation” “Building the case for greater infrastructure investment” September 12. 

And since that is based on taking on more public debt that shamefully sounds like: “Dear lets go out tonight to enjoy that great restaurant. We can leave the bill to our grandchildren, as the interest rates they have to pay are so low.”

Summers backs up his proposal with some calculations that start with “The McKinsey Global Institute has estimated a 20 per cent rate of return on such investments.”

Well Professor Summers, and McKinsey, and so many other, because they do not know, or because they are pushing a statist agenda, completely ignore the fact that currently the sovereign, meaning the government represented by government bureaucrats, for the purpose of setting the capital requirements for banks, is risk weighted at 0%; while We the People, represented by SMEs and entrepreneurs have to carry a risk weight of 100%.

That subsidizes the borrowing costs of the government, by the taxing the possibilities of accessing bank credit of those who we need most to have access to bank credit.

Of course much infrastructure investment needs to be done, but, in order for there being an economy that could use such infrastructure, much more important is it to take down that odious regulatory wall.

Sir, again, banks are no longer financing our grandchildren’s future, they are only refinancing mine, yours, Professor Summers’s and all McKinsey’s safer past.

What a disgraceful way of giving the finger to that intergenerational social contract Edmund Burke wrote about.

@PerKurowski ©

If I was young and my pension fund was to invest in a bridge, I would want and need for it to lead to somewhere great!

Sir, John Authers with respect to future pensions holds that “if we have done our job properly, we should by now be scared out of our wits”, “There is still time to alter the script of the pensions crisis” August 27.

And just like in The Graduate Mr McGuire recommended Dustin Hoffman “plastics”, Authers recommends current kids “infrastructure”.

How did we get here? The answer is that regulators, with their risk weighted capital requirements, told the banks to go to where pension funds did much of their savings, basically in what was perceived as fairly safe.

Authers spends most of his article writing on how we should adapt to lower yields and longer life resulting in huge pension deficits. He argued for instance “There is no reason why young investors’ long-term savings should not go into funding infrastructure, or clean energy, or other beneficial investments for the future.”

That could be, clearly supposing the specific beneficial investments for the future, yield enough real returns for our retirement planning young investors. We have left them enough debts so as to complicate matters even more by sticking to them some bridges to nowhere!

But, before that, we must see to that our banks, again become banks making profits and returns on equity by taking risks, and not by just minimizing equity.

While concluding Authers writes: “it grows clear that the issue of pensions divides us, particularly along generational lines. Many view it in moral terms. This is all wrong. We are all in this together, whether we are generationally lucky or not.” Absolutely, for a starter, if the economy is not prosperous and employ the young, who is going to buy all the retirement investments at the price of a then decent purchasing power?

The only way to keep an economy moving forward, so that it does not stall and fall, is to ascertain that primary societal risk-takers, like banks should be, take the risks that are needed. Too much risk aversion is riskier than too much risk taking.

Of course, we all want and need for that risk-taking to be carried out with reasoned audacity. God make us daring! 

@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 ©

At what point do negative rates on government debt become absolutely incompatible with its zero % risk weight?

Sir, in reference to Dan McCrum’s “Fire up the printing presses for a useful jolt to the economy” August 5, this is what I have to say.

Government issues bonds, the public buy these, and central banks, wanting the economy to grow, then buy these from the public.

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 Martin Wolf and other recommend the government to take advantage of these low rates, in order 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 buy more government bonds from the public… and on and on it goes.

And, to top it up, banks and insurance companies are told by their regulators: “If you do not buy 0% risk-weighted government bonds, then you have to cough up with more equity”. And so banks (and insurance companies and alike) buy more government bonds, and the rates on these keep falling and falling… where does it end?

At what point do negative rates become absolutely incompatible with a 0% risk weight? 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, if SMEs or entrepreneurs, those who could perhaps best help to get the real economy going, 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 higher interest rates, making 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 ©

The current low interest rates on public debt are completely artificial.

Sir, again, for the umpteenth time, Martin Wolf finds it “hard to understand the obsession with limiting public debt when it is quite as cheap as it is today” “Negative rates are a symptom of our ills” April 13.

But again he refuses to delve into why public debt is “as cheap as it is today”. Where would interest rates on public debt be without central banks buying public debt; or without regulators allowing banks to hold much less capital against the debt of the monarch, than against all other debts?

Wolf also brings up a frequent ritornello of his, namely that “The world economy is suffering from a glut of savings relative to investment opportunities.” But he does not ask himself where that saving glut could be had it not been for QEs.

Wolf informs us that higher interest rates, “would force borrowers into bankruptcy”. Yes but is that not a natural and necessary element of how savings glut are reduced? In a letter titled “Long-term benefits of a hard landing” that FT published in 2006, I wrote: “the hard truth… gradualism could create the most accumulated pain… [do not] ignore the value of pruning or even, when urgently needed, of a timely amputation.”

Wolf’s standard suggestion for how to eliminate the savings glut is having government investing in infrastructure. Nothing’s wrong with that, good infrastructure is always useful, though any waste building it, is just that, waste.

But building bridges does not mean these will be used. And how are we to make sure we get the new investments that will use the infrastructure built, with risk weighted capital requirements that make banks stay away from what perceived as risky? What we now have is a banking system fully dedicated to solely financing what is perceived, decreed or concocted as safe.

For a government to take on public debt should be a delicate matter, knowing that it is our children and grandchildren who will have to service that debt. To do so based on some artificial current low rates is not something I can support.

PS. With a $2 per gallon gas tax the US could pay each American citizen about $900 per year. Good for the fight against climate change and inequality, and fairly decent for the economy. That would be a good start for a Universal Basic Income scheme, which I much prefer over Helicopter money, first because it is duly funded, and second since I do not fully trust the helicopter pilots  J     

@PerKurowski ©

Martin Wolf, the government’s favorable borrowing terms come at extremely high costs, especially for our young.

Sir, Martin Wolf insists again in that the government should take advantage of very “favourable terms” to borrow so as to invest [in infrastructure]. "The same destination but a gentler route" November 26.

Again Wolf simply cannot understand (or does and turns a blind eye to it) that those “favorable terms” do not come cheap. 

The low interest rates result much from favoring the government’s access to bank credit over that of the private sectors, and especially over that of those perceived as risky, like SMEs and entrepreneurs. Therefore its cost is a road littered by private initiatives that never got the bank credit these needed to be tried out. Our young, who forever will see their employment opportunities seriously diminished by this, will, when they discover what has been done, not look favorably on those responsible for it, and on those silencing it. 

To think, as Martin Wolf obviously must do, that a government bureaucrat is more capable of efficiently using bank credit that he is not personally responsible to repay than citizens, can only be explained from an ideological point of view. He surely must be a statist, one of those who want austerity to be imposed on banks, but decries it when it touches the government.

Does that mean I disapprove governments investing and financing infrastructure? No! But, when evaluating projects, governments should not use the currently subsidized public borrowing rate as their reference.

PS: http://teawithft.blogspot.com/2015/11/tim-harford-non-transparent-taxes.html

@PerKurowski ©

Lord Adonis, as your National Commissioner, could do more for UK’s infrastructure by going to Brussels and Basel than staying in London.

Sir, I refer to your “A commission for firing up Britain’s bulldozers” October 7.

You write: “In economic terms, more infrastructure ticks every box. It enhances productivity, while building it also creates jobs. With interest rates near to all-time lows, the financing costs are nothing to fear. Should prudence or ideology demand the use of private instead of public money, there are pension funds crying out for a stable return, if the state bears the construction risk.”

Not so fast! In infrastructure, what could and how it will be financed, in the UK, depends a lot on what the financial regulators think; as they express in their capital requirements for banks and insurance companies. These regulators are in so many ways the real Great Disrupters. 

In fact, your Lord Adonis would be well advised to take a little study trip to Brussels and Basel to learn about all this. In fact you’re your Lord Adonis could well be doing UK’s infrastructure sector much more favors staying there, helping to eliminate the distortions to infrastructure finance that regulators create, than what he could achieve by remaining in London leading the National Infrastructure Commission.

Per Kurowski

@PerKurowski ©  J

Insurance sector: Again loony regulators are trying to cover for unexpected losses by analyzing the expected ones.

Sir, I refer to Alistair Gray’s report on “the capital [insurance companies] must hold against unexpected losses” “Insurers face tough new safety rules” October 5.

In it Gray writes: “A paper to be published quantifies the higher capital requirements for the designated insurers. The size of the hit will depend on each company’s mix of business and how systemically important regulators deem them to be. So-called non-traditional and non-insurance (NTNI) activities carry the largest surcharges, of between 12 per cent and 25 per cent.”

So again we have regulators, like those of banks, who set capital requirements for unexpected losses based on the expected risks they perceive. Loony! Do regulators really think they can perceive risks better than the insurance companies? Is there not a huge risk that both the insurance companies and the regulators will perceive the same risks, and so that there therefore will be an overreaction to these risks, which obviously means a sub-consideration of other risks? And boy, are these regulations just screaming to be gamed?

Also, at a moment that so many want infrastructure projects to be started as a way of reactivating the economy, who of the regulators is thinking about the fact that many of the risky long term projects, often financed by insurance companies… could perhaps not happen only because of wrong and distorting capital requirements.

Where have all humble regulators that know of the importance of not interfering gone? When will they ever learn, when will they ever learn?

Why do they in order to cover for unexpected losses not just set for instance a 10% capital requirement on all assets? Are they scared they would then look like less sophisticated regulators to the general public? If so, God save us from regulators suffering an inferiority complex.

@PerKurowski ©

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

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

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

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

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

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

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

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

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

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

@PerKurowski

Mr. Regulator: Do we now need political risk weighted capital requirements for banks?

Sir, John Authers writes how “The Children’s Investment Fund (TCI)… is challenging the Spanish government’s move to reduce the tariffs that the Spanish airport operator Aena can charge, [because] that will reduce Aena’s value by more than $1bn… and TCI is the second stakeholder in Aena after the Spanish government itself.” “Political risk lowers the appetite for infrastructure deals” June 11.

Holy moly! It looks like we now could need political risk weighted capital requirements for banks. I wonder how that meshes with the current zero percent risk weighing of government debt?

@PerKurowski

Allow the SMEs and entrepreneurs to help build up the economy, and bridges to somewhere will follow.

Sir, Alan Beattie writes “The IMF, transformed from an agent of neoliberalism to a Gosplan-style advocate of public works, also supports a government investment push”, “The less appealing way to abolish boom and bust” April 11.

IMF, in Chapter IV of its recent World Economic Outlook of 2015, titled “Private investment: What’s the hold up” acknowledges: “Firms with financial constraints face difficulty expanding business investment because they lack funding resources to do so, regardless of their business perspectives” (page 11); “financially dependent sectors invest significantly less than-less dependent sectors during banking crisis” (page 15).

Yet the primary “Policy Implications” reached by the study is: “a strong case for increased public infrastructure investments…[and] for structural reforms…for example reforms to strengthen labor force participation and potential employment, given aging populations. By increasing the outlook for potential output, such measures could encourage private investments” (page 18). 

And only then, almost as an afterthought, is it that the IMF puts forward: “Finally, the evidence… suggests a role for policies aimed at relieving crisis-related financial constraints”.

What “suggests a role”?

How on earth can IMF consider public infrastructure investments more important for the economy than relieving financial constrains?

One explanation could be that the study includes only data that “cover public listed firms only” and not data about “unlisted small and medium sized enterprises” (page 13). Clearly, if you do not study those most in need of access to bank credit, then you will of course not be able to measure the real importance of relieving financial constrains.

The second explanation is that IMF’s professionals insist in covering up for the mistakes of colleagues, the bank regulators. That is because relieving the real financial constrains, requires exposing how the current credit-risk-weighted equity requirements for banks odiously discriminates against the fair access to bank credit of those who most need it, like the SMEs and entrepreneurs.

Sir, the most important thing to do is to get rid of the regulatory distortions so as to enable banks once again to allocate their credit more efficiently to the real economy. If that is done, then you might find places whereto bridges should be construed. Otherwise the risk of building too many bridges to nowhere, is just too big for any economy to manage.

@PerKurowski

IMF, Mme. Lagarde, Martin Wolf: Get it! Bank regulators have prescribed the “new mediocrity”.

Sir, I refer to Martin Wolf’s “How to do better than the new mediocrity” October 15.

Wolf writes: “It is important not to exaggerate the story of slowdown in the world economy. Yet it is also vital to avoid a progressive downward slide in growth. To address this risk it is necessary to launch well-crafted reforms in both emerging and high-income economies...”

Current capital requirements for banks direct banks to hold assets, not based on their pure economic returns, but based on those higher risk adjusted equity returns they can obtain by adjusting to the ex ante perceived credit risks, those which have already been cleared for in interest rates and size of exposure. And that IMF, Martin Wolf and so many others cannot understand that excessive credit-risk aversion can only lead to mediocrity, is a real mystery to me.

And so the number one reform the world needs is to abandon all credit risk weighing when setting the capital (equity) requirements for banks.

That would unfortunately not be an easy task because, while bank credit redirects itself to serve the needs of the real economy and not the wishes of the Basel Committee; and while banks are made to have stronger capital (equity) levels, it is important to make certain that the overall liquidity provided by banks does not shrink and become a recessionary factor.

In the absence of such reform, “more public investment in infrastructure” capitalizing on regulatory subsidies that makes public debt less expensive that it would otherwise be, and like what the IMF and Martin Wolf with so much gusto propose, could make it all so much worse… and, of course, so much more mediocre.

FT, you really believe Germany’s Wirtschaftswunder would be possible without the currently banned risk-taking by banks?

Sir, I refer to your “Germany needs to fix its economic model” October 11.

Therein you write: The International Monetary Fund this week rightly called for governments to take advantage of cheap longterm interest rates and borrow to invest in public infrastructure.

Frankly how can you say that when you must know that those low interests are partly the results of a regulatory subsidy derived from the fact that banks need to hold much much less capital (equity) when lending to the sovereigns than when lending to the risky like SMEs and entrepreneurs. Why would Germany not be better off getting rid of those hidden subsidies and let infrastructure compete for access to financing on equal footing as the rest of the economy?

Therein you write: “The World Bank says it takes nine procedures and nearly 15 days to start a business in Germany, respectively nearly twice and 50 per cent higher than the rich-country average.”

Frankly, don’t be silly, what is that compared to the difficulties for new risky businesses to have the fair access to bank credit that has been denied them by means of regulators credit risk weighted capital requirements for banks.

Therein you write “improving Germany’s economic policy would involve the government not turning its back on past success but returning to it. The Wirtschaftswunder (“economic miracle”) was based on high investment and productivity growth. Neither has been evident in Germany for many years.”

Frankly, do you think that Wirtschaftswunder only needed high investment and productivity growth, and not the kind of risk-taking that is currently being banned by dangerously sissy regulators?

No Sir, for Europe, and for Germany, what the first need to do in order to get their economies moving in a sturdy way, is to send the Basel Committee and their dumb ideas packing!

Lawrence Summers, if you tell governments there’s abundance, you guarantee your grandchildren much scarcity.

Sir, I refer Lawrence Summers’ “Why public investment really is a free lunch” October 7 and in which he writes: “Most notably, the IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves.”

I must ask, what is so notably about that? Though of course, jumping from that to the conclusion expressed in the title, which throws indispensible criteria of scarcity of resources out the window, seems indeed notable and horribly so. 

That would certainly guarantee the construction of not properly designed, too expensive and not really useful infrastructures… which would clearly negate his: “So infrastructure investment actually makes it possible to reduce burdens on future generations”.

Summers, quite similarly to what Martin Wolf does when he also preaches for public infrastructure investments, bases much of his argument on: “Real [public] interest costs, that is interest costs less inflation, are below 1 per cent in the US and much of the industrialised world over horizons of up to 30 years.” That is, by a long shot, not necessarily true.

We have no idea of what would be the real interest rates on sovereign debt, were regulators, as they should, eliminate that distorting regulation which establishes that banks need to hold much more capital (equity) when lending to a citizen or an SME, than when lending to what they have deemed as infallible sovereigns.

And, were these interest rates to change, someone would pay enormously, whether the government meaning taxpayers, or all those pension funds which will find the public debt they are holding worthless.

IMF must be very careful when sending out messages of this nature, as there are too many out there who when offered a hand, grab the whole arm… plus a leg or two.

Does Lawrence Summers really think risk adverse bureaucrats can deliver “bold reform”?

Sir the pillar of current bank regulations is, as you should know, the credit risk-weighted capital requirements, which allow bank to earn much higher credit risk adjusted returns on equity when lending to what is perceived, ex ante, as absolutely safe, than on what is perceived, ex ante, as risky. And that stops bank credit from flowing freely and fairly to all the medium and small business, entrepreneurs and start-ups. And anyone who does not understand that the economy cannot move forward without that type of credit has never walked on Main street.

And so you can understand how frustrating it is to read Lawrence Summers finding room to include “policies to promote family-friendly work” in his list of needed structural reforms essential to increase productivity, and not including the need of correcting the above mentioned regulatory distortion, “Bold reform is the only answer to secular stagnation” September 7.

“Bold reform” Ha! How can clearly overly risk-adverse bureaucrats carry out that? They only know about throwing money at problems.

PS. As Summers also refers to the need of “infrastructure investments” we should not forget that there is a prior need of making sure those “infrastructure investments” are done efficiently, in terms of costs.

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?