Is there no moral issue in Venezuela bondholders being paid as a result of people being denied food or medicines?

Sir, Jonathan Wheatley writes: “In a broad sense, Caracas is already a serial defaulter. It has defaulted on its people by denying them access to the dollars they need for essential imports…” “Only one of Venezuela’s creditors is being paid without fail, on the button, every time: its international bondholders” “Venezuela clutches at straws in desperation to avoid bond default” September 28.

Let me ask: What would be a correct description of he who collects from a debtor knowing that he is being paid by a government because it denies food and medicines to its people? Or is that a moral irrelevance?

And what if the international bondholder’s would all just turn up to be close affiliates to the current government? I mean “A PDVSA bond maturing in 2017, on which a $2.3bn payment is due on November 2, is trading at about 80 per cent of par — hardly a sign of panic” could be indicative of it. Would it then just be another case of corruption? Insider trading?

The world needs a Sovereign Debt Restructuring Mechanism (SDRM) but, for that to be of any service or at least not a disservice to We the People, it needs to start with clearly defining what should be considered as odious credits or odious borrowings. As a minimum all bonds should not be bearer bonds, as we citizens should always have the right to clearly be able to identify who are financing our governments, and in what conditions, so that if we are not able to hold our governments accountable, like in Venezuela, we are at least able to hold its (our) creditors accountable.

@PerKurowski ©

FCA, if bank regulators distort the allocation of credit to the real economy, is it good conduct or criminally stupid?

Sir, I refer to Caroline Binham’s interesting story on how FSA, later FCA, investigated at a cost of £14m, a case of insider trading that led to the conviction of five men, “Spectrum: Watching the ‘insiders’” May 21.

In it Binham quotes Mark Steward, the Australian who leads the enforcement team at the FCA with: “We need to look at the potential for our markets to be undermined by systemic and organized crime – people who organize themselves to commit this kind of crime. And we are doing exactly that.”

But what if technocrats that can only be accused of criminal stupidity, unwittingly undermine our markets?

If there is ever a FCA investigation that is really needed, urgently, that is the one about the validity of the risk weighted capital requirements for banks.

By allowing banks to leverage more with assets perceived as safe than with assets perceived as risky, banks were allowed to earn higher expected risk adjusted returns on equity on safe assets than on risky assets; and that obviously dangerously distorted the allocation of credit to the real economy.

And for no reason at all! Never are major bank crises caused by excessive exposures to something ex ante considered as risky. The regulators assigned a risk weight of 20% for the prime AAA rated, and one of 150% for what is highly speculative and worse below BB- rated. Is one as a regulator really allowed to know so little about banks and be so stupid? Not to me!

PS. Here is an aide mémoire that could be helpful for FCA in its investigations

@PerKurowski ©