By not asking all the questions that need to be asked, journalists also fail society.

Sir, Henry Manisty writes “financial journalism plays a vital role in upholding the integrity of financial markets”, “EU regulators have form on obstructing journalists” November 9.

Indeed, but in many respects, financial journalists have often failed society by not doing that. For instance, here are just three examples of questions that should have been posed directly to the regulators, long ago.

We know that those excessive bank exposures that can be dangerous to banks and bank systems are always created with assets perceived as safe, never ever with assets perceived as risky. Therefore, can you please explain your risk weighted bank capital requirements based on that what’s perceived as risky is more dangerous than what’s perceived as safe?

Before risk weighted bank capital requirements credit was allocated on the basis of risk adjusted interest net margins and a view on the portfolio. After that it is allocated based on risk adjusted returns on equity; which obviously those that banks can leverage less with, e.g. “risky” SMEs and entrepreneurs. Explain how this does not distort the allocation of bank credit?

Even though none of Eurozone sovereigns can print euros on their own, for your risk weighted bank capital requirements you decreed a zero-risk weight for all of their debts. What do you think would have happened in the USA if it had done the same with its 50 states?

Sir, paraphrasing Upton Sinclair one could say that “It's difficult to get a journalist to ask something, when his salary, or being invited to Davos, depends on his not asking it.”

PS. My 2019 letter to the Financial Stability Board (FSB)

Lie Detectors, many journalists would also benefit from lessons on fake news.

Sir, Simon Kuper describes the experiences of Belgian journalist Valentin Dauchot when dispatched to discuss fake news with classes of 10 and 11-years-old in Europe. Lie Detectors, a Brussels-based NGO that sends journalists to do that, finds that “children are often internet-savvier than teachers, and probably more so than old people”. “A lesson in fake news”, February 2.

Sir, I wonder how those children would classify the following information:

“Since your teachers have decided that dark forests are much more dangerous for all of you to enter, than staying out playing in an open field, anyone of you who enters the darkness of such forest, will be forced to eat broccoli and spinach for a full month. Anyone of you staying in the sunlight of the open field, will be rewarded with chocolate cake and ice cream each day for a whole month”. True or fake?

The children would respond: “Of course we wish it was true of course but, unfortunately, it has to be fake. Who would give us chocolate and ice cream for staying where we want to be, and spinach and broccoli for not entering what we already find to be scary?

Correspondingly, how would adults respond when they hear that regulators have risk weighted the capital requirements for banks, allowing these to hold much less of it against safe assets than against risky assets?

Most adults would say surely “True” “Great!”, and this even if anyone who has read anything about bank crises know well that the worst of these always result from excessive exposures to something ex ante perceived as very safe but that, ex post, turns out to be very risky, e.g. AAA rated securities.

Of course bankers, in this case being the children, cannot believe their luck with such fake regulations being decreed true by the Basel Committee. Imagine, earning the highest risk adjusted returns on equity on what’s perceived as safe! Imagine being able to hold much less equity against what we most love to hold, which of course leaves much more for bonuses to us!

Sir, how could Lie detectors help the adults, including of course journalists, like many in FT, to be more alert to the truthfulness of news and regulations? A good place to start would be with a full explanation of confirmation bias… that here resulting from most loving much too much the populist message of: “We have risk weighted the bank capital requirements for you so as to make these safer” 

@PerKurowski

What we have is not by a long shot economic liberalism, it is much more statism, and of the crony kind.

Sir, Martin Wolf refers to Yascha Mounk of Harvard University arguing “that undemocratic liberalism, notably economic liberalism, largely explains the rise of illiberal democracy: ‘vast swaths of policy have been cordoned off from democratic contestation’, [carried out] by international agreements created by secretive negotiations carried out inside remote institutions.” “Saving liberal democracy from the extremes” September 25.

Hold it there! The Basel Committee for Banking Regulations, with Basel I of 1998 decided, without any real public consultation, that the risk weights for those risk weighted capital requirements it itself concocted, were to be 0% the sovereign and 100% the citizens. What has to do with “economic liberalism”? Nothing! To me it is pure unabridged statism… that is unless it is derived from pure unabridged stupidity.

Ignoring that allows Wolf to opine, “What is true is that poorly managed economic liberalism helped destabilise politics… and to argue, “Elites must promote a little less liberalism” 

Again, no! Mr. Wolf (for the umpteenth time), we are not living a time of “poorly managed liberalism”, we are living thru times of expertly camouflaged statism, that which is so beneficial to the redistribution profiteers and to those of the private sector who love to engage in crony statism.

Sir, all journalists, even those considered its elite, have a duty to denounce that; less they might be accused of covering it up. I mean should not journalists be the citizens’ frontline for any “democratic contestation”? 

How many times have I asked Martin Wolf to use his influence to ask the regulators: “Why do you want bank to hold more capital against what’s perceived as risky and is therefore less dangerous to our bank system, than what is perceived as safe and that, precisely because of that, becomes so much more dangerous to it? Hundreds? Has he dared to ask it? Not that I know Sir. Though perhaps he just did not like the answer or the non-answer 

@PerKurowski

For better transparency should newspapers have a section of “Journalism” and one of “Political Activism”?

Sir, Rana Foroohar discussing the issue of ever growing student debt, ends her review of Devin Fergus’s book “Land of the Fee”, with: “Perhaps the new generation of millennial socialists rising in the US should make this the issue they tackle first”, "Slow bleed" August 18.’

What’s wrong with plain millennials? Do they have to be socialists? Or is Foroohar more than a journalist an activist?

Sir, since many years I have been arguing that higher education should be much more of a joint venture between the students and their Alma Maters; and that financing preferentially educational costs would just leave over-indebted students and enriched professors. Just as financing preferentially house purchases benefits those who have invested in houses, much more than those who want a house just to be their home.

Here below are two of my tweets that I think cut over political lines, but that therefore might not be of too much interest to redistribution or polarization profiteers.

1. “Instead of taking on debt, perhaps students should go for crowdfunding their study costs, offering to pay a percentage of their incomes during their first 15 after graduation years. If so would not investors want their professors to have some skin in the game too?”

2. “Would insurance companies be willing to invest in the future by financing students against a percentage of their first 15 after graduations years of income? Would IRS be willing to certificate the incomes of these students for the investors?”

I have now ordered, “Land of the Fee” and so I will keep my comments till after I read it. That said I am sure I will again have to ask: Where was FT when regulators risk weighted sovereigns 0% and citizens 100%? Where was FT when regulators allowed banks to leverage 62.5 times only because an AAA rating issued by human fallible rating agencies was present? Where is FT on that all the real benefits of securitization do not accrue those securitized, much the contrary securitization profits are maximized when hurting the most? 

@PerKurowski

When bank regulators allowed banks to earn higher returns on equity by avoiding the “risky”, they violated a fundamental social contract

Sir, you write “Unemployment rates are low in the UK and US, but many of the new jobs are more precarious than the old ones they replaced… [so] the US and EU need to do more to encourage investment, and to deter anti-competitive behaviour and, as important, encourage competitive pressure on complacent incumbents.” “A better deal between business and society” January 2.

If one allowed banks to leverage more, and thereby obtain higher risk adjusted returns on equity when lending to what is perceived safe, than when lending to what is perceived risky, it would require ignorance, or total lack of concern, to believe banks will finance as much as usual small unrated companies and new entreprenuers.

But that is what regulators with their risk weighted capital requirements did and so it should be no surprise that “Despite low financing costs, private investment — the vital seed for long-term growth — remains insipid.” I am not talking about an “out-of-date regulatory models” that could be reformed, but about a fundamentally mistaken regulatory model.

You want “A better social contract… built on the idea of a humane, mutually beneficial interdependence between” employers and employees. Sir, who could argue against that? There’s always room for that.

But, how many times have I begged you to put the weight of the Financial Times behind asking the regulators: “Why do you want banks to hold more capital against what has been made innocous by being perceived risky, than against what is dangerous because it is perceived safe?”

But for some internal reasons of your own, perhaps even a petty one, you have refused to do so. In my book, just like when regulators regulated banks without caring about the purpose of these violated a social contract, you also violate your social responsibility as journalists by not intermediating opinions between your readers and those officially responsible for the decisions being questioned.

@PerKurowski

Edward Luce, what do you mean, is Mark Zuckerberg not paying the taxes he should pay, or is he just no taxed enough?

Sir, I come from a nation, Venezuela, where those in power have wasted hundreds of times more fiscal revenues than the amount of taxes citizens might have evaded. So I am no fan of the redistribution profiteers.

Edward Luce writes: “America’s new economy elites tend to cloak their self-interest in righteous language. Talking about values has the collateral benefit of avoiding talking about wealth. If the rich are giving their money away to good causes, such as inner city schools and research into diseases, we should not dwell on taxes. Mr Zuckerberg is not funding any private wars in Africa. He is a good person. The fact that his company pays barely any tax is therefore irrelevant.” “The Zuckerberg delusion” November 16.

What does Luce mean? Is Zuckerberg not paying the taxes he should pay or is he not taxed sufficiently. If the first Zuckerberg should be fined or even go to jail, if the second Luce is close to being defamatory and should suffer some consequences. 

And Luce also holds “The next time Mr Zuckerberg wants to showcase Facebook, he should invest some of his money in an actual place.”

What on earth does Luce mean? That Zuckerberg does not have his money invested in an actual place? That Zuckerberg keeps his wealth all in cash stashed away under his mattress?

I am clearly against how much rents are derived from monopolistic positions, and would of course like to see that kind of rent capturing to be diminished. But I also believe that once wealth has been created, and that wealth has been allocated to different assets, one should not come to the conclusion that redistributing these would actually result in something better.

It is so typical for wealth-redistributors to suggest, like Luce does, that Zuckerberg would do better funding “a newspaper to make up for social media’s destruction of local journalism” without given a single thought to what would then have to be defunded.

What is most conspicuously absent in the aggressive let’s redistribute the wealthiest wealth proposals, is an explanation of how that is done and of what that implies.

For instance, let us assume Mr Zuckerberg has a $200 million dollar Picasso hanging on the wall. How do you convert that painting into food, health services, education or money for the poor, without having to find another wealthy buyer of that Picasso?

And, if you did cash in the $200 million, how much would reach the less wealthy and how much would just enrich the redistribution profiteers… perhaps making them the neo-wealthy?

The fact is that if Zuckerberg had a $200 million dollar Picasso he has, in a sort of voluntary tax, frozen alternative purchasing capacity on his wall. In this case leading for art to be seen as a good investment, and most probably down the line causing some artists down to get some more income for their art. 

But Sir you would also probably agree with Luce in that journalists are worthier than painters. And I don’t hold that against you… because that’s life. Let anyone not wanting to redistribute something more to himself, cash if you are poor and goodwill if you are Zuckerberg, throw the first stone.

PS. I am an ardent defender of a Universal Basic Income because I find that to be the most efficient way to finance, among others, the creation of decent and worthy unemployments. But that redistribution method also needs to be clear on the implications of what is being redistributed. How much would exist in the Frenchman Thomas Piketty’s Paris’ Museum of Louvre, had it not had been for the existence of the odiously wealthy?

@PerKurowski

Why would today’s journalist be more capable than others of teaching our children to spot and root out fake news?

Everyone who know something about banking, and bankers, would know that what is perceived as risky never poses the same dangers to the banking system as what is ex ante believed as very safe but the ex post turns out to be risky. Even 17th century’s Voltaire, with his “May God defend me from my friends, I can defend myself from my enemies”, would understand that.

But the pillar of something as important as bank regulation, the risk weighted capital requirements for banks, is currently based on some fake news, fake input, namely on the fake theory that what is perceived as safe is safe for the banks, while what is perceived as risky, and which is therefore in reality quite innocuous, is what poses the real dangers to the banking system.

Sir, on this monstrous regulatory mistake; one with disastrous implications for the so vital allocation of credit to the real economy, I have written you and your journalists about 2.5 k letters over the last decade… but you have decided to ignore these.

That is why I do not feel too optimistic about it all when Roula Khalaf reports that “journalists from Le Monde, the French daily that has developed a readers’ tool to weed out fake news [have] started volunteering at schools, teaching teenagers how to distinguish between responsible journalism and fabricated news” “Journalists enter the classroom to root out fake news in France” March 23.

Khalaf also writes that Tom Boll, an instructor at Syracuse University’s Newhouse school of journalism “argues that a literacy effort that warns against falling for fake news should become part of a civics course and every citizen should take it.”

Sir, FT’s lack of response could be a very valuable case study in those civic courses. That because failing to denounce fake news, is just as bad as propagating these.

@PerKurowski

Until now any excesses in the use of power by President Trump would pale when compared to those of bank regulators

Sir, Gillian Tett writes: “Trump has managed to make the US constitution a live topic of debate…. the White House’s immigration clampdown… has created a real-time lesson on the limits of presidential power… The concept of “checks and balances” is no longer something written about in a school exam but instead is being breathlessly discussed on breakfast television… It is one thing to squeal with fury about the actions of the White House but what is badly needed is for voters (and journalists) to exercise a similar scrutiny over the operations of Congress and the judiciary, not to mention the lobbyists. “Our teenagers stand to profit from their awakening” February 18.

Sir, someday perhaps some grown-up grandchildren will awake and say: “During decades the risk weighted capital requirements gave banks incentives to refinance the “safer” past and present, and not to finance the riskier future we sorely needed to be financed. As a consequence many millions of SMEs and entrepreneurs around the world were denied that bank credit that could have created a new generation of jobs for us. Granma, please tell us you did not know anything about this, and yet said nothing”

@PerKurowski

If they do not belong to her The Group, the tribe, Gillian Tett does not seem to read what her readers write to her.

Sir, Gillian Tett writes “Echoes of 2008 as danger signs are ignored ” and mentions the “Jackson Hole tribe barely mentioned these at all”. “We had all better hope that by the summer of 2017 a debate about finance gets a proper billing at Jackson Hole” September 2.

I invite you here to read the probably more than hundred letters I have sent Ms Tett over the years, but that she has decided to ignore, probably because I do not belong to her The Group.

Who am I? Just a former Executive Director of the World Bank who, in October 2004, in a formal statement delivered at the Board wrote:

“Phrases such as ‘absolute risk-free arbitrage income opportunities’ should be banned in our Knowledge Bank. We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”

In January 2003, in FT, I warned “that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”

Here are more of my documented early opinions (1997-2004) on bank regulations

So what would I like Ms Tett to do? To be more than a groupie and do her job asking those she might meet in Jackson Hole, Davos and similar The Group meetings, some of the too many questions that have gone unasked by journalists over the last soon 30 years, like:

How have you defined the purpose of banks before regulating these?

“A ship in harbor is safe, but that is not what ships are for.” John A Shedd, 1850-1926

Why do you base your capital requirements on the ex ante perceived risks?

“May God defend me from my friends. I can defend myself from my enemies” Voltaire.

Had Tett, or any other important financial journalist, like Martin Wolf, asked some of these questions much earlier, we might not have the need to even reference 2008.

The Basel Accord, Basel I, 1988, set the risk weight of the Sovereign at 0% and that of We the People at 100%... which de facto means that regulators believe government bureaucrats give better use to bank credit than the private sector… something that most of us on Main Street and who are not runaway statists, would find sort of questionable.

@PerKurowski ©