Progressives, is ECB’s Mario Draghi shamelessly insulting your intelligence, lying to your face, or just clueless?

Sir, Claire Jones writes: “Mario Draghi hit back on behalf of monetary global policymakers, dismissing growing criticism that their aggressive actions to support the economy had widened the gap between rich and poor”, Draghi said “We have every reason to believe that, with the impetus provided by our recent measures, monetary policy is working as expected: by boosting consumption and investment and creating jobs, which is always socially progressive” "Draghi denies QE hits poor hardest" October 27

Draghi is lying, that is unless he is dangerously clueless!

Besides being President of the European Central Bank, Mario Draghi is the former chair of the Financial Stability Board, and the current chair of the Group of Governors and Heads of Supervision of the Basel Committee for Banking Supervision.

Therefore Draghi must be perfectly aware of the odious discrimination against the riskier (including the riskier future) that, by favoring so much what is ex ante perceived as safe, is imbedded in the current capital requirements for banks. The sad truth is that bank regulators, the Basel Committee and FSB, have de facto decreed inequality in the access to the opportunities represented by bank credit.

The distortion that nefarious piece of regulation produces, impedes that any stimuli, like that of already tilted in favor of assets owners QEs, can reach where it best could help to create jobs. In other words regulators make banks finance “safe” basements where the young can live with their parents, not the new “risky” jobs they need for them to also become parents.

And Sir, for Draghi to boast his policies to be “socially progressive”, must be an insult to all those who like to define themselves as progressive… that is unless that term has a totally different meaning I am unaware of.

PS: Again, here is an aide memoire on some of the monstrous mistakes of said regulations.

@PerKurowski ©

There is already an unknown and hidden, odiously regressive, hugely distorting, levy on financial transactions

Sir, Gregory Meyer reports on levies on financial transactions that have been proposed in the US by Democratic politicians “US markets braced for trading tax grab” October 11.

One can easily understand the political appeal of such taxes, but also that all these could have unexpected consequences, many quite contrarian to the initial objectives.

That said, let me remind you of the financial sector’s “risk-weighted capital requirements for banks” tax; essentially based on assigning to the Sovereign a 0% risk weight and to We the People one of 100%.

That tax allows governments to collect revenues through the not so transparent channel of having more and cheaper access to bank credit. Unfortunately most of that tax is not paid by the rich and wealthy, but by the not wealthy SMEs and entrepreneurs, by means of lesser and more expensive access to bank credit.

Not only is it an immensely regressive tax, the AAArisktocracy is risk-weighted at only 20%, but, as an “unexpected that should have been expected consequence”, it also ends up causing stagnation that diminishes government ordinary tax revenues.

Even worse, that tax stimulates banks into creating excessive exposures to what has always been more dangerous to the stability of the sector, namely what has ex ante been perceived as very safe, but that ex post could turn out to be very risky.

Sir, compared to this tax, all other financial transactions taxes proposed, seems almost irrelevant.

@PerKurowski ©

As banks “pressure employees to hawk products”, regulators pressure banks to odiously discriminate against the risky

Sir, John Gapper writes about “the intense pressure Wells Fargo placed on employees to hawk products” “Wells Fargo reaches the end of its journey” September 22.

But, by means of the risk weighted capital requirements for banks, regulators have placed much pressure on banks to lend to what was perceived, decreed or concocted as safe; because that’s were they could leverage the most their equity; because that’s where they could earn the highest expected risk adjusted returns of equity; and so banks end up with excessive exposures to residential home financing, AAA rated securities, loans to sovereigns like Greece and other such fancy safe stuff.

That created also a de facto immoral regulatory discrimination against the access to bank credit of those who ex ante are perceived as “risky”, like SMEs and entrepreneurs. I place quotation marks around risky because in fact, by being perceived as that, they are never as dangerous to the bank system than what is perceived as “safe”.

Incentives are temptations, aren’t they? 

@PerKurowski

There’s a curious silence about the odious distortion the Basel Committees' credit-risk-weighted capital requirements produces

Sir, suppose Martin Wolf owned an unrated SME, and Per Kurowski was the CFO of an AAA rated corporation, and both wanted to obtain bank credit for their company. 

Traditionally, naturally, before the Basel Committee’s risk-weighted capital requirements existed, because of clear differences in the perceived credit risk, Per Kurowski would be able to negotiate much more credit, and at much lower interest rates for his AAA rated corporation, when compared to what Martin Wolf could do for his unrated SME.

But now, because regulators decided banks also need to hold more capital when lending to Wolf’s SME than when lending to Kurowski’s AAA corporation, the differences in the amounts of credit obtained and the interest rates charged would be even larger. In other words Wolf’s SME, relative to Kurowski’s AAA, would obtain even less credit, and would need to pay even higher interest rates, than in the absence of these credit risk-weighted capital requirements.

Of course Kurowski does not complain that his AAA rated corporation has access to even more credit at even cheaper rates, and consequentially he himself to larger bonuses.

And of course banks, as a consequence of having to hold little capital and therefore be able to leverage hugely when lending to Kurowski’s AAA rated corporation, do not complain about being able to earn higher risk-adjusted returns on equity when lending to Kurowski’s AAA rated corporation. In fact obtaining the highest risk adjusted returns on equity for what is perceived as safe, sounds like a banker’s dream come true.

But Martin Wolf should of course be furious that bank regulators deny his SME fair access to bank credit.

And of course anyone who calls himself a progressive should be furious against this odious regulatory discrimination that denies fair access to the opportunity of bank credit to those who already find it hard enough to obtain bank credit. That clearly promotes inequality.

And of course anyone who calls himself a free markets defender should be furious about this odious regulatory distortion of the allocation of bank credit to the real economy.

But curiously, Martin Wolf as a journalist, FT, progressives and free market defendants, they all keep mum about it. Is it not a strange world?

The “risky”, those who regulators deny fair access to bank credit, might welcome back Dominique Strauss-Kahn.

Sir, Anne-Sylvaine Chassany writes about the possibilities of Dominique Strauss-Kahn entering politics again “The discreet redemption of Strauss-Kahn” July 14.

On October 7 2010, during a Civil Society Town Hall Meeting, I asked the then Managing Director of the IMF Strauss Kahn the following:

“Right now, when a bank lends money to a small business or an entrepreneur it needs to put up 5 TIMES more capital than when lending to a triple-A rated clients. When is the World Bank and the IMF speak out against such odious discrimination that affects development and job creation, for no good particular reason since bank and financial crisis have never occurred because of excessive investments or lending to clients perceived as risky?”

And Strauss-Kahn answered: "Well, the question about requirements, a couple of requirements for banks. You know, it's a very technical question and a very difficult one, but the way you asked the question, which is why there any kind of discrimination against SMEs is an interesting way of looking at that. In fact, there is no reason to have any kind of discrimination. The right thing for the Bank is to know whether or not their borrower is reliable, but you can be as reliable being a small enterprise than not reliable when you're a big company. So this kind of systematic discrimination has, in our view, no reason to be.

I have not been able to publicly obtain such a clear answer on the issue of how those who by being perceived as “risky”, are already naturally discriminated against by bankers, are now also odiously discriminated against by regulators. And so at least all the ex-ante perceived risky borrowers could welcome Strauss-Kahn’s return… as he might speak up for their rights of having a fair access to bank credit.

In case you want to view it, here is the link to the video of the conference. My question is in minute 47:35 and Dominique Strauss-Kahn's answer minute 1:01:05

@PerKurowski

Gillian Tett would do better advising “the risky” on how to fend off bank regulators… pro-bono of course

Sir, Gillian Tett hands out her disinterested advice on “How savvy asset managers can fend off the regulators” May 15. Although most of them are grown up men who can take care of themselves, some of “Society’s lottery winners” might indeed appreciate her concerns about their wellbeing.

That said I believe that the small businesses and entrepreneurs would be much more appreciative of Ms. Tett’s efforts on how they can fend off the regulators. You see Sir, these borrowers have seen their access to bank credit drastically curtailed, as a result of regulators allowing banks to hold much less equity when lending to the infallible sovereign or to members of the AAArisktocracy than when lending to them.

Ms. Tett who has so much access to hotshots, could she perhaps put a word in for “the risky”, by reminding regulators that these borrowers, though they do suffer a lot from bank crises, they have never ever caused one? It could perhaps also be useful for Ms. Tett to remind regulators that the future health of the economy, that on which banks’ stability most depends on, is helped by “the risky” having fair access to bank credit.

Please Ms. Tett… look at is as a good pro-bono community service. 

@PerKurowski

In finance the structurally discriminated are those perceived as “risky”, the SMEs and entrepreneurs

Sir, Gillian Tett refers to an almost all female conference on economic and finance to ask: “whether it is time to organize an all-black or all-Hispanic financial policy-making event of this sort?” “The power of role models” May 9.

And referencing Simon Kuper’s article “How to tackle structural racism” she reflects: “And, if that occurred, would it help to combat that structural discrimination”.

That is off target. In matters of banking, financial reforms and the future of global finance and economics, the truly structurally discriminated, the “all-black or all-Hispanics”, are those perceived as “risky”, like SMEs and entrepreneurs, while the structurally favored, the “all white males”, are “the safe”, like sovereigns and AAArisktocrats.

So we need more a conference with large representation of those perceives as risky. It would be so interesting if Senator Elizabeth Warren who has exposed “constant criticism of Wall Street and of America’s wealthy elite” were also present there. Can you imagine a small entrepreneur asking Senator Warren the following?

“From a credit point of view I am perceived as risky. I therefore face many difficulties to borrow that umbrella from bankers they only want to lend out when the sun shines. I accept that as a natural fact of life. But why must the regulators make it even harder for me to access bank credit, by allowing banks to have much less equity when lending to “the infallible” than when lending to me?

That results in that banks can leverage their equity, and the implicit or explicit support taxpayers give them, much more with the risk-adjusted net margin dollars paid by “the infallible” than when those same dollars are paid by me.

We the “risky” entrepreneurs and SMEs, we hear we are good for the economy, that we generate growth and jobs and, as far as I know, lending to us has never detonated a major bank crisis… so Senator Warren, can you explain to me why is there such an odious regulatory discrimination against us?

There exists an Equal Credit Opportunity Act (Regulation B) and so I must also ask: Senator Warren why does its benefits not extend to us?

@PerKurowski

​

Margrethe Vestdager, Europe’s competition commissioner, dare to confront your technocrat colleagues in Basel Committee

Sir, Mario Monti raves about the policies imposed by the European Competition Commissioner Margrethe Vestdager, “The bold Brussels ‘eurocrats’ who command the world’s respect” April 25.

Indeed, taking on Goggle and Gazprom, is unquestionably a sign of great daring. Still I wonder if Commissionaire Vestdager has what it takes to stop her colleagues, other technocrats/bureaucrats , from hindering competition.

Banks are currently required by the Basel Committee to hold more equity against those perceived as risky than against those perceived as safe. And in doing so they odiously discriminate directly against those who anyhow have less access to bank credit, and anyhow need to pay higher interests, precisely because they are perceived as risky.

In other words the regulators have given those perceived as “safe”, an unfair huge competitive advantage when it comes to accessing bank credit.

@PerKurowski

Natural sources of inequalities are more than enough for us to carelessly layer manmade ones on top

Sir, Tim Harford writes that “Anthony Atkinson is right to say that the evidence doesn’t conclusively rule out… that a 65 percent top rate of tax is likely to be counterproductive”, “The Truth about inequality” April 25. 

For anyone trapped one way or another in the UK, that might be valid. But anyone with a fair or unfair capacity to generate earnings and who is thinking about living in England, that certainly gives him reasons to think again. That some have to pay higher taxes than other could be reasonable, but it is not really about equality either.

I consider that in discussions about inequality it is always important to try to classify its origins as natural or manmade. For instance those perceived as risky from a credit point of view will always have less access to bank credit and will always have to pay higher interest rates. And that is natural, because it is natural that banks should give the loans to those who pay them the best margins after all costs, including credit risk premiums.

But regulators have decided that a bank should also be allowed to leverage its equity, and the support its receive from taxpayers, much more with margins paid by those perceived as safe than with margins paid by those perceived as risky. And that signifies a manmade source of inequality. Those perceived as risky, like SMEs and entrepreneurs, consequentially face even less access to bank credit and even higher relative interest costs. Any society that believes that’s the way to go has clearly gone bonkers.

@PerKurowski

Sometimes good bumper stickers are the best way to begin paving the road to a better world.

Sir, Philip Stephens writes: “the US lacks the resources and political will for ‘generational’ projects to transform the Middle East” “Republicans want a bumper sticker world” April 24.

The US Congress Iraq Study Group Report of May 2006 stated: “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource"

If that idea would have been implemented, you can bet the Middle East would have seen much good transformation… and not only there, other places, like Venezuela, would have benefitted immensely from such example.

Unfortunately the same Report then wrote: “Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.”

As if that was any real excuse. Any of the big credit card company could have set up a program that could have reached 50 percent of the Iraqis in 1 year, with the ambition of covering 100 percent in five years. What a missed opportunity for a real silver bullet.

But the US has other strengths… for instance with respect to oil revenue sharing why not ask Hollywood to make an inspirational movie.

It could for instance depict how a hypothetical country, one like Venezuela in which 97 percent of all that nations exports go directly into government coffers, becomes fundamentally transformed for the better, when some a “Hayek platoon” manages to allow the power of oil resources to flow directly to the citizens.

Recently Marco Rubio stated: “More government isn’t going to help you get ahead. It’s going to hold you back. More government isn’t going to create more opportunities. It’s going to limit them. And more government isn’t going to inspire new ideas, new businesses and new private sector jobs. It’s going to create uncertainty.”

And so that idea would seem to fit the political platform of any Republican who aspires the presidency, and, hopefully, also that of some democrats.

And a good bumper sticker: “Citizen’s should not need to live in somebody else’s business – End Natural Resource Curses” could perhaps be a way to begin it all.

And Sir, you know of course that if there is one bumper sticker I would also like to see in the next elections, that is “Stop bank regulators’ odious discrimination… against the ‘risky’ SMEs and entrepreneurs… that is un-American… that does not belong in the Land of the Free nor in the Home of the Brave”.

@PerKurowski

To begin ending the too-big-to-fail banks, start by taking away the bowl of growth hormones.

Sir, I refer to your “Misbehaving banks must have their day in court” April 21

In November 1999 in an Op-Ed I wrote: “Currently market forces favors the larger the entity is, be it banks, law firms, auditing firms, brokers, etc. Perhaps one of the things that the authorities could do, in order to diversify risks, is to create a tax on size.”

And in May 2003, in a workshop for regulators at the World Bank, while Basel II was being discussed, I opined: “A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises. Knowing that “the larger they are, the harder they fall,” if I were regulator, I would be thinking about a progressive tax on size.

And so I guess I have been on the forefront of fighting the TBTF banks.

But, during that fight I have become convinced that the most important tool would be to take away from the banks that bowl of growth hormones that minimum equity requirement against assets perceived as safe signify.

And, talking about “a day in court”, I would also haul regulators in front of a judge in order to ask them: “Who gave you the right to discriminate against those perceived as risky, those who, precisely because of that perception, are already naturally discriminated against by banks?

@PerKurowski

FT, odious regulatory discrimination against “the risky” is described on you pages; yet you prefer to play dumb and ignore the issue.

Sir FT, amazingly, because it is not a good book, handed over the book of the year award to Thomas Piketty’s ‘Capital in the 21st century’, arguing “it provoked a debate over inequality”.

And yet not a word about regulators who, with their credit risk weighted equity requirements for banks, odiously discriminate the access to fair bank credit of those perceived as “risky”, those already disfavored by bankers, while favoring that of those perceived as “safe”, those already favored by bankers.

Today Ben McLannahan reports that ”Citi is gravitating towards wealthier customers to whom it can offer more products, while holding less capital against them”, "Citi shrinks ’bad bank’ with $4.3bn sale of subprime lender to Springleaf.”

Most probably, notwithstanding your motto, you will sweep this under the rug again.

“The Risky” Greeks and Germans, should ally to request from both of their governments, a vital structural reform.

Sir Tony Barber and Kerin Hope write that “Greek banks rely on the European Central Bank for favourable funding arrangements, which the ECB has warned it will halt without a new agreement between Athens and its creditors” “Greek leftists’ victory throws down challenge to euro establishment”, January 26.

And I just wanted to ask: “Who do small Greek businesses and entrepreneurs rely on for their funding arrangements, if Greek banks are precluded from lending to them, as a result of the credit-risk-weighted equity requirements imposed by the Basel Committee?

It is also reported that “Germany’s central bank president Jens Weidmann said last night he hoped the new Greek government would continue to tackle its structural problems”.

In this respect I can only hope that the “risky” Greeks form an alliance with the likewise perceived “risky” German small businesses and entrepreneurs, in order to require from both of their governments, the structural reform that ends the current odious discrimination against “The Risky” when accessing bank credit.

Fed’s Janet Yellen, as a leading equal opportunity killer, has no moral right to speak about inequality.

Sir, I refer to Robin Harding’s “Yellen risks backlash after remarks on inequality”, October 18.

There we read of “the high value Americans have traditionally placed on equality of opportunity”… that “Ms Yellen’s speech was about equality of opportunity”… about “the rise in inequality using recent Fed research and then laid out four “building blocks” for economic opportunity in the US: [among these] business ownership” … and that “owning a business [was an] important routes to economic mobility.

For over a decade I have argued that forcing those who are perceived as “risky”, and who therefore already have to pay higher interests and have lesser access to bank credit, to have to pay even higher interests and get even less access to bank credit, only because regulators think banks need to hold more capital when lending to them than when lending to the “absolutely safe”, is an odious discrimination and a great driver of inequality… a real killer of the equal opportunities the poor deserve in order to progress.

And of course, let us not even think of what the Fed’s QE’s have done in terms of un-leveling the playing fields. The fact is that had it not been for how the financial crisis management favored foremost those who had the most, Thomas Piketty’s "Capital in the Twenty-First Century”, would have remained a manuscript.

Sir, to hear someone who so favors regulatory risk-aversion, daring to speak about American values, in the “home of the brave”, in the land built up on the risk-taking of their daring immigrants… is just sad.

PS. To me it is amazing how bank regulators in America can so blitehly ignore the Equal Credit Opportunity Act (Regulation B)

When and if taxing the wealthy, because of inequality, remember that governments are part of the problem.

Sir, Thomas Piketty proposes to “Save capitalism from the capitalists by taxing wealth” March 29, and of course there’s nothing wrong with those having the most in society carrying the heaviest load… especially when it comes to finance opportunities.

But, as Piketty also admits, much of the reason for the growing unequal capital is that “the political process [is] so tightly captured by top earners”… and so governments are part of the problem, and can therefore not be trusted with efficiently distributing those revenues.

For instance, if the purpose is to fund education, I can think of many systems whereby funds from the wealthy can go directly to pay for the costs of less wealthy students, with no one getting their hand in the tilt for political or other purposes.

In other words, when redistributing economic wealth, we must make sure we are not increasing excessively the might of wealthy governments, since that can create and even worse sort of inequality, which could endanger capitalism even more.

Personally, before going after the wealthy, I would prefer to tax at a higher rate all those who benefit from special relations… be it monopolies, protected intellectual property or similar… because even in the case of wealth there are some which are better earned than others.

PS. And let me take the opportunity to remind of the need to get rid of that odious opportunity killer, and that odious inequality driver, that risk based bank capital requirements represent… and which of course has nothing to do with capitalism and all to do with regulatory foolishness.

In order to rein in inequality, bank regulations must change too.

Sir, I refer to Professor Robert H Wade’s letter “In order to rein in inequality, market need to change”, February 21. Therein Wade writes: “any serious attempt to rein in income and wealth inequality in the US, Britain and elsewhere has to change the institutional structure of markets so that they are less efficient at sluicing pre-tax income up towards the top”.

That is correct but let us not ignore that at the core of that “sluicing”, lies the number one source of damnable inequality politics, namely that which impedes equal opportunities for all. And in this respect, nothing is sluicing cheap and plentiful bank credit away from the “risky” medium and small businesses, entrepreneurs and start-ups, towards the “infallible sovereign and the AAAristocracy, than the current risk-weighted capital requirements for banks.

And that these capital requirements do by allowing banks to hold much less capital against assets deemed “safe”, than against assets deemed “risky”, which of course means that banks will earn much higher risk-adjusted returns on equity when lending to what is perceived as “safe”, than when lending to what is perceived as “risky”.

And all that odious regulatory discrimination for nothing, since never ever has a crisis of the bank system resulted from excessive exposures to what was ex ante perceived as “risky” these always have resulted from excessive exposures to what ex ante was perceived “absolutely safe” but that, ex post, turned out to be risky.

Sadly though, that regulatory discrimination seems to be of no concern whatsoever for most current “inequality fighters”… (like Professor Joseph Stiglitz)

If only an “intellectual vacuum”, but, sadly, it is worse than that Professor Michael Ignatieff.

Sir, Michael Ignatieff writes about “the waning power of ideas” and begs “Free polarized politics from its intellectual vacuum”, January 10. Although, as a self described “radical of the middle”, or “extremist of the center”, I do agree with most of what he writes, I must still confess feeling that the absence of ideas would at least be better that the presence of some really bad ideas.

And a truly bad idea currently present, are the risk-weighted capital requirements for banks, and which allow these to earn much higher risk adjusted returns on equity on exposures deemed as “absolutely safe”, than on exposures deemed as “risky”.

And that makes it of course impossible for banks to allocate credit efficiently to the real economy. And that guarantees that the chances of any major bank crisis, those usually caused by dangerously overpopulating some safe-haven, have been exponentially increased.

Technically the mistake is explained by the fact that regulators estimate the “unexpected losses”, those for which you mainly require banks to hold capital, based on the same perceptions used by the banks to estimate “expected losses”.

And here we have all the free market believers not complaining about that horrible interference with the market that risk-weighting causes … and here we have all progressives not saying a word about the odious discrimination in favor of the AAAristocracy and against the “risky” that risk-weighting causes.

And meanwhile the chances for our youth to find employment in their lifetime are evaporating, thanks to this nonsense of banishing risk-taking from our banks.

Brother you who do not have a dime, or a job, can you spare me a dime or a job, so that we can grow together?

Sir, I am not taking a position for or against a minimum wage but, when Edward Luce writes that increasing “it would inject a much-needed stimulus into the anemic recovery without involving a dollar of taxpayer money”, something definitely does not sound right, “Avoiding poverty pay is the tonic America needs”, December 2.

If the company ends up paying for it, then we might have less employment and that of course nobody wants. And so, if the taxpayer is not paying for it…who is going to pay for it? Could it perhaps be mostly those who are not taxpayers because they earn too little? And so, if a stimulus, is it not in fact a quite regressive one?

And then Luce mentions that these minimum wage increases will affect “sectors where the bulk of new jobs are being created” and which in fact would point to the plan as being somewhat suicidal.

Honestly I do not think America needs a recovery stimulated by an increase in the minimum wage and Luce would do himself a favor looking at how economies where there is no minimum wage are doing.

Do I have an alternative plan? No, but I would of course start by eliminating immediately the odious regulatory discrimination which makes it so much more difficult for those perceived as “risky” to access bank credit in competitive terms. The growth in America and in Europe has, as in their past, to be based upon risk-taking and not risk-avoidance.

God, make us daring!

PS. Sincerely it is also a bit surrealistic reading that Luce feels that the unions “have reasons to hate” Walmart, the largest employer in the USA, and all this operating on a 3 percent margin, in the poorer sectors of the real economy. Don't we wish we had such banks!

Mario Draghi has no moral right to speak about discrimination among Europeans

Stefan Wagstyl reports that Mario Draghi, reacted against “nationalistic undertones” and stated “We are not German, neither French nor Spaniards, nor Italian: We are Europeans”, “Draghi hits at rate policy critics”, November 22.

Sir, Mario Draghi has no moral right to speak about discrimination among Europeans. As the chairman for many years of the Financial Stability Board, he approved of that banks need to hold much much less capital when lending to an “infallible” European than when lending to a “risky” one.

That caused of course banks to avoid lending to those were they could leverage their equity much much less, and thereby not obtain the high expected risk-adjusted returns on their equity the “infallible” offered them.

Talk about exclusion! Talk about increasing inequality gaps! Go home Mario Draghi! Europe was not built upon risk-aversion!

Regulators, and FT journalists, suffer from cognitive overload and malfunctioning prefrontal cortex.

Sir, Christopher Coker’s “Technology is making humans the weakest link in warfare” May 10 is an extraordinarily enlightening article…among other for understanding why bank regulators are seemingly not able to correct what they should correct.

Coker writes “The digital world we have created may be outpacing our neurons’ processing capabilities [cognitive overload], forcing us to log off emotionally. The neurons associated with empathy, compassion and emotional stability are sited primarily in areas of the prefrontal cortex. In evolutionary terms, this is a recently developed part of the brain that is bypassed when we are stressed or overanxious. Emotions such as empathy and compassion emerge from neural processes that are inherently slow. It takes time to understand the moral dimension of a situation.”

Bank regulators, with the introduction of risk-weighted capital requirements for banks, which much favors access to bank credit for “The Infallible” caused, as collateral damage, that the access to bank credit for “The Risky”, like small and medium businesses and entrepreneurs became, in relative terms, much more expensive and harder to access. In other words the gap when accessing bank credit, between “The Infallible” and “The Risky”, increased dramatically.

And, since “The Risky” includes many or perhaps most of those potentially able to create the next generation of jobs, our young ones are paying dearly the consequences of such odious regulatory discrimination.

Having for years been protesting these regulations, I could never understand why bank regulators (or FT journalists for that matter) did not care one iota about something which in my mind could even be labeled as a crime against humanity. Now, thanks to Coker I have at least a clue; they are suffering a cognitive overload, which is causing their prefrontal cortex to stop functioning.

I sure pray they recover soon… or we will have to wait for those regulatory drone-robots which in terms of Coker could at least console us with “reducing the inhumanity so as to balance the loss of humanity”.