Martin Wolf, we sure don’t need a Basel Committee for Large Technological Companies Supervision

Sir, Martin Wolf ends his discussions about the monstrously large technological companies (Apple, Alphabet, Microsoft, Amazon and Facebook, Alibaba, Tencent and Samsung) with: “What are the implications? They are that our futures are too important to be left to the mercies of the technology industry alone. It has done magical things. Yet nobody elected it master of the universe. Policymakers must get an intellectual grip on what is happening.” “Taming the masters of the tech universe” November 15.

Does Wolf really believe some probably self appointed technocrats should be able and capable enough to stand in for the current masters of the tech universe, for all these to work more smoothly and safer without any unexpected consequences?

I am reminded of AEI’s Alex J. Pollock’s 2015 article “Martin Wolf’s childlike regulatory faith”. That article referred to Wolf’s “naïve faith in the future superior knowledge and future ability of central bankers and other bureaucrats successfully to tell other people what to do”.

Sir, just look at what those who appointed themselves as the Regulation Masters of the Universe of Banks have done:

They have allowed banks to leverage differently with different assets. As a consequence banks have different capability to obtain risk-adjusted returns on equity with different assets. This has dangerously distorted the allocation of bank credit to the real economy, in favor of what could be leveraged the most. Now instead of banks wanting savvy loan officers to maximize their ROE, they look mostly for equity minimizers to do that.

And, by considering the risk of the banks assets per se, and not the risk those assets represent to the banks, they got their whole risk-weighting totally wrong. A clear example of that is Basel II’s risk weight of only 20% for the dangerous AAA rated and of 150% for the so innocous below BB- rated. Sir, have you ever seen more inept Masters of the Universe?

Would the banks left alone to the markets be able to leverage 62.5 times to 1 only because an AAA to AA rating was present? No!

Would the banks left alone to the markets be able to lend to sovereigns without any capital at all as Basel II’s 0% risk weighting of sovereigns implies? No!

Would we have suffered to 2007-08 crisis had it not been for these regulations? No!

Do I suggest we should leave the tech monsters to do what they want? No, but I don’t think markets will allow them to reign alone and do what they want forever either… things do change, just look at GEs and Siemens.

For instance I can feel some ad-blockers around the corner that could help us users to charge Google and Facebook something for them using our own preferences to earn their advertising revenues.

And I can also smell additional taxes coming up in the future, like for instance a minuscule cost for each advertising connection in social media, which would make sure the marginal cost of exploiting our limited attention span is not zero. But these taxes will hopefully be shared out to all by means of universal basic income mechanisms instead of increasing the franchise value of the redistribution profiteers.

And to combat “people of ill” engaging in “deliberate dissemination of dangerous falsehoods”, much could be helped just by means of having an independent credible register that guarantees us who do not want to engage with unknown strangers, that behind a communication stands a correctly identified and not hacked real person.

PS. Here are some questions I have on tweets and tweeting etiquette that I tweeted.

If without any bad intentions I have re-tweeted a tweet that turns out to be fake news or fake and damning accusations, could I be sued?

If I re-tweet a tweet that I know or should know contains fake news or fake damning accusations, should I be sued?

Don’t we need a sort of ISO quality standard on tweeting that we can adhere to?

Don’t we need somebody to guarantee us that a tweeter is a real identifiable person that has not been hacked?

@PerKurowski

We’ve fallen into the dangerous and spooky hands of an inept bunch of amateurish masters of the universe.

Sir, I refer to Andrew Sentance’s “We expect too much of the new masters of the universe [central bankers]” February 28.

Sentence asks “Are we now too optimistic about the abilities of the financial system’s new overlords?” I would answer: Absolutely! We have landed in the hands of some very inept masters of the universe. And one very clear example of that is how they try to regulate banks by means of their credit-risk-weighted equity requirements and which, to top it up, are even portfolio invariant.

I just ask: What on earth has a regulator to do with the perceived risks of banks’ assets, when what he should be exclusively concerned with is with how bankers perceive those risks and manage these.

Our banks are currently like in a car with two steering wheels; the first one controlled by bankers, and the second by regulators who are responding, simultaneously, to basically the same risks the banker sees. And so of course we must crash either because banks embrace excessively what seems safe, or because of an excessive aversion to what seems risky.

And yes, to have central bankers inducing negative interest rates, and announcing inflation targets, and not realizing that this is a haircut like any other haircut, is something quite spooky to say the least.

@PerKurowski

As is, €400bn of cheap ECB Mario Draghi loans would only end up financing “infallible sovereigns”, not small businesses.

Sir, I refer to Claire Jones reporting and You and other opining about the announcements by Mario Draghi on lower ECB interest rates and of “up to €400bn of cheap loans for eurozone banks in an attempt to boost lending to the regions credit-starved small businesses”, June 6.

Again, for the umpteenth time, it is not money to lend European banks lack, it is capital… as in shareholders’ equity… since these are severely undercapitalized as a result of regulators like Mario Draghi, against all empirical evidence of what causes bank crises, having allowed them to hold almost no capital at all, when lending to the housing sector, to “infallible” sovereigns like Greece or investing in securities rated AAA.

And because of that the banks do now not have the shareholder’s capital required to lend to “the risky” small businesses, especially since regulators like Mario Draghi, again against all empirical evidence of what does not cause bank crises, decided banks need to hold much more capital when lending to these. And Sir, we do not need a ECB’s Asset Quality Review to know that!

And so to ignite lending to small businesses and other “risky”, so that the unemployed European youth is not doomed to become a lost generation, and so that all €400bn of cheap loans do not end up as more easy money for “the infallible”, requires getting rid of the bottleneck that the risk weighted capital requirements signify.

The problem with that though is that this requires a mea culpa from high fliers like Mario Draghi (Ex-FSB), Mark Carney (FSB) Stefan Ingves (BCBS) and others (perhaps of you too Sir) … something which is not likely to happen… since they clearly still believe they are the masters of the universe.

No! The real “masters of the universe”, those self-appointed, those full of hubris, are the bank regulators.

Sir, Jonathan Ford refers to the bosses of hedge funds who manage about 10 percent of investment funds worldwide as and that in reference to these “it is hard to avoid the impression that hubris is a factor”, “The master of the universe are playing a loser´s game", August 25. 

Forget it! If there are some who can be defined as masters of the universe full of hubris, that is the bank regulators who play risk managers for the world, and on their own, without consulting with anyone, dole out the risk-weights which determine the capital requirements for the banks. 

In doing so, the regulatory nannies have caused obese and dangerous bank exposures to whatever was considered officially as absolutely “not-risky”, and anorexic bank lending to whatever was considered officially as “risky” like unrated small businesses and entrepreneurs. 

If hedge fund bosses do wrong, their clients lose, but when bank regulators do wrong, massively, and on a massive global scale, as they have done, then everyone loses, starting with those who as a result will become unemployed and those who might never ever get an employment. 

PS. “The Challenge”