Risk avoidance is an extremely risky business

Sir surprised I read Mr. Stuart M Turnbull´s and Mr. Lee M. Wakeman’s whishing that “the rating agencies published and kept current, term structures of survival probabilities [so that] investors would be able to compare directly the risk of default for various maturities across corporate and municipal bond markets”, “Investors value accuracy ahead of stability” October 8.

Since presumably the whole market, and not only these two gentlemen would have access to this information, have they not given a thought to what this would do to the risk-weighted returns they would receive? I will tell them. They would be condemned to absolute mediocre return rates, as the intermediaries will previously have sucked out any arbitrage profits there are… that is until the day the credit ratings get it wrong again, as they, being humanly fallible are doomed to, and that day they lose it all unless, they are again bailed out by their grandchildren picking up the tax tab.

Yes, the investor values accuracy and stability, but they also value the possibility of some special returns, just for them. If these two gentlemen believe there is even a remote possibility of regulating a financial market so that it will be just and fait to everyone, when all the rest is not just and fair, then they clearly belong among all the other naïve and gullible financial regulators out there.

Sorry, if I am a party pooper

Sir Mohamed El-Erian finds a silver lining for our current crisis in that “As the risks become clearer, a greater degree of international policy co-ordination may emerge”, “Era of policy activism opens door to global co-ordination” February 17.

I am sorry if I am something of a party pooper but may I remind him that this crisis was caused precisely by the international policy co-ordination in banking regulations that took place in Basel. Without the Basel Committee we would most certainly have had other bank crisis but none as systemic and severe as the current one.

Does winning but not getting the expected odds paid out really make it a loss?

Sir Prof Louis T. Wells commenting on March 14 on Alan Beattie’s article “Concern grows over global trade regulation” March 12 hints at what I have always found as one of the most intriguing questions in matters of foreign investments. If you require a high rate of return to invest in one country and thereafter you obtain a lower return but that is perfectly in accordance with your expectation of returns in lower risk countries should you be satisfied or should you feel let down because the risk did not materialize?

Having said that and returning to Mr Wells´ real issue, the validity of international arbitrary courts and proceedings, let us also never forget that those that in the long run are mostly hurt by closing down courts and proceedings are those that being weak most need them…and they should therefore be the ones most careful with not shooting the messengers.

Sovereign funds are not really that sovereign

Sir John Kay when arguing “Sovereign wealth investment is a force for stability” February 27 says “the lesson of history is that the problems are for the investor not the investee” and that “Investments across borders binds us together by creating actors with much to lose from political tension”. Both arguments clearly point to the fact that when push comes to shove, once committed to an investment, sovereign wealth funds are not really that sovereign.

These days the International Monetary Fund is drafting good conduct rules for the Sovereign Wealth Funds. I wonder if they should take the opportunity to include some good conduct rules about how the countries receiving the investments should behave… or would that infringe too much on someone’s sovereignty? There are arbitrage procedures to settle investor against country dispute but, do these apply in country against country cases?