Statism, by way of bank regulations, marches on! Thou shall not hold anything but the Infallible Sovereign’s debt

Sir, Robin Wigglesworth in Short View August 11 writes: “New rules slapped on the US money market fund industry… are set to come fully into effect in October. The changes have spurred a gradual investor exodus from the funds, and the conversion of ‘prime’ MMFs which invest into corporate debt into ones that invest only in Treasuries (which are less affected by the new regulations).”

So clearly those statists that furthered their agenda by way of bank regulations, like in 1988 when the Basel Accord decreed a risk weight of zero percent for the government and 100% for We the People, keep marching on unabated.

And since Wigglesworth also refers to the Libor “Lie-bor” rate manipulation, let me also remind you that no private sector manipulation ever, has produced even a fraction of the costs for the society at large, as has the Basel Committee's outrageous manipulation of the allocation of bank credit to the real economy.

@PerKurowski ©

Our finance markets should not be regulated with a pro-statist ideology bias... that’s too dangerous.

Sir, Stephen Foley writes that “New [US money market fund industry] rules look set to reduce short-term borrowing costs for the US Treasury, at the expense of higher interest charges for corporate borrowers”, “Fund industry reform is a win for Uncle Sam”, May 6.

Foley should reflect on that in fact all regulations during the last decades have been a win for governments and a loss for citizens. In November 2004 in a letter that FT published (before I was send to Siberia) I wrote “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)? In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Just this week, during a conference at the Brooking Institute, I asked again, for the umpteenth time, whether higher capital requirements for banks when lending to businesses than when lending to sovereigns did not distort the allocation of bank credit. Mr. Jörg Decressin, the deputy director in the IMF’s European Department, the former deputy director in charge of IMF’s Research Department, gave me a surprisingly honest answer. Here follows its short version.

“Do you believe that governments have a stabilizing function in the economy? Do you believe that government is fundamentally something good to have around? If that is what you believe then it does not make sense necessarily to ask for capital requirements on purchases of government debt…

If on the other hand your view is that the government is the problem then you would want a capital requirement, so it depends on where you stand [ideologically]”

What a mess! Who authorize the regulators to regulate the finance sector applying their ideology? It is not a question whether the public or the private, it is a question of an adequate equilibrium between those two, and that has obviously been broken, to everyone’s peril.

And now, in the age of transparency, the European Commission is promoting blissful ignorance. Holy mo! Back to the Dark Ages!

Sir, I refer to Steve Johnson’s “Money market ratings ‘outlawed’” of September 9 in your FTfm.

There Johnson writes of a proposal by the European Commission to ban money market funds from soliciting or financing a rating from a credit rating agency” so as “to end the risk of sudden massive redemptions” from a fund in the wake of a rating downgrade, [thereby[] strengthening the financial stability”.

What can we say? Now the European Commission is promoting blissful ignorance. Holy mo! Back to the Dark Ages!

Why do they not just impose a little note after each credit rating stating who paid for it? And let the market take it from there?

Regulators´ occurrences often represent the most dangerous quicksand

I fully agree with John Gapper when he finds not “unreasonable” the proposal by Mary Chapiro, the SEC Chairman, that money market funds would have to, “either become more like investments funds by allowing their net asset value to float, or more like banks by raising a buffer capital”, “Don´t leave the financial system on quicksand” August 30. 

That said, with respect of that “buffer capital” I hope he, and Ms Chapiro, mean one same capital requirement for any type of assets. This because since most investors are currently convinced their buck is already broken, or will be broken, their main interest is it becoming broken as little as possible. 

And, as we should know by now, nothing guarantees a super-large breakage of the buck more, than when besserwisser regulators, full of hubris, believe themselves to be the risk managers of the world, and start interfering by mean of risk-weights, with the markets´ own risk assessments. 

And, so, when regulating the money market funds (and the banks) please never forget that regulatory occurrences can also often represent the most dangerous quicksand.

The buck is being broken everywhere and investors know it.

Sir, Gillian Tett discusses the money market funds’ issue of “break the buck”, the return of less than 100 percent of investors’ cash, “The Achilles heel of America’s financial system”, July 31. 

The truth though is that the buck is being broken everywhere, especially if it is a real term buck, and investors have no other choice but to accept it … just look at Treasuries. 

And so clearly, the faster all explicit or implicit artificial guarantees are dismantled, the lesser distortions are produced, and the faster we might be able to return to some market sanity. 

But that would of course also requires the removal of all the regulatory distortions introduced in bank lending based on perceived risk, and which was and is the real cause of so much buck breaking going on.