Whether pension plans are based on defined benefits, defined contributions or a mixture thereof, in order to deliver, they all depend on the economy being healthy.

Sir, I refer to Martin Wolf’s “The case for an alternative pensions model” April 6.

For decades I have sustained that the best pension plan that exists, is to have loving children working in a functional and reasonably healthy economy. And that long before Venezuela proved how good pension plans could come rapidly to absolute naught by irresponsible governments.

If the economy is in shambles when pension fund assets have to be converted into purchasing capacity, it does not matter whether these are based on defined benefits, defined contributions or a mixture of these.

With risk weighted capital requirements for banks that favor an over-indebtedness resulting from financing the "safer" present consumption, like houses, over the financing of riskier future production, like entrepreneurs, there will be no economy capable to deliver even a fraction of what is currently expected from pensions.

Wolf refers to the importance to sharing “the risks among a very large group of people…across generations”. Indeed but those now young will tomorrow ask Wolf and his generation… why did you not allow banks to share in the risk taking needed for us to have a future?” and they might with justification give their elders the finger.

Currently, having already to live in the basements of their parents houses because of the lack of jobs, the minimum the young today will hold tomorrow is: “Mom, dad, you move downstairs, its our turn to live upstairs!”

PS. Yes, I am obsessive about the distortions that the risk weighted capital requirements for banks cause in the allocation of bank credit to the real economy, but Martin Wolf, for less worthy reasons, is even more obsessive when ignoring it.

PS. Current “midlife crisis” could be a piece of cake compared to what awaits.

@PerKurowski

We humans search for risk-adjusted yields. So did banks, but they now search for risk-adjusted yields adjusted to allowed leverage

Sir, let me comment on three paragraphs in John Plender’s “The global economy looks solid but there are worrying signs” February 7.

First: “there are grounds for concern about a credit cycle in which risk is clearly being mispriced. This is partly a product of the enduring search for yield. When almost every asset class looks expensive, investors tend to respond by taking on more risk”

Ever since risk weighted capital requirements were introduced, banks do not more search for yield, but instead search for yield adjusted by allowed leverage, and so risk has been mispriced.

Second: “A further hint of a return to normality is the reappearance of volatility after a long period in which it has been conspicuously absent — helpful if you worry that low volatility encourages complacency and makes the financial system more vulnerable to crises.”

And why should we not there worry, in precisely the same way, that what is perceived as safe encourages complacency and makes the financial system more vulnerable to crises?

Third: “Applying a higher discount rate to the liabilities while enjoying an uplift in the value of the assets is the answer in today’s low interest world to the pension fund manager’s prayer.”

The so many times repeated opinion that all pension funds should be able to obtain a real return of 5 to 7% annually, is one of the most harmful financial misinformation ever.

@PerKurowski

Mr Grainger has regulators who did not lose their pensions to thank for losing his life savings with Northern Rock

Sir, Emma Dunkley writes about how Dennis Grainger, a one-time Northern Rock manager, lost his savings when the bank collapsed. “10 Years On: The victim: ‘It’s left a nasty taste in our mouths’” September 2.

One sad part of the story is that it will most often be retold by ex-post/Monday quarterbacking besserwissers, in terms of Mr Grainger taking excessive risks, something that no matter his wife’s concerns, he was not doing in any for him comprehensible way. And what’s wrong with one man putting all his eggs in the same basket in a crazy world in which regulators give banks huge incentives to put all their eggs in the same “very safe” basket?

That of allowing banks to leverage their equity (capital) 60 times or more with the net margins obtained from what was perceived, decreed or concocted as safe, like AAA rated and sovereigns, that was what in a huge way contributed to bring Mr Grainger’s “safe” Northern Rock down.

Did regulators lose their pensions because of that? No, they even got promoted. Many of them are even hailed as heroes when with QEs and ultra low interests they are kicking the crisis can over to next generations. It is truly an unfair world. It leaves indeed a very bad taste in my mouth.

PS. That FT, in its “10 years on”, is unable to pinpoint the main causes for the crisis, does only worsen that bad taste in my mouth.

@PerKurowski

Martin Wolf, to keep the welfare state alive, before considering taxes, look at what real economy you need for that.

Sir, Martin Wolf asks: “Will the UK public sector be able to provide the benefits the public expects in return for the taxes it is willing to pay? The answer to that question seems to be “no”. If so, will the promise to provide some universal services be abandoned? Will taxes be raised? Or will debt be allowed to grow until it has to stop?” Wolf answers: “With current commitments, [fiscal] revenue must rise relative to GDP… The alternative is to abandon pillars of the welfare state.” “It is time to talk about raising taxes” May 19.

That starts from the wrong end. The real question should be what future economy do we need so that it will allow fiscal revenues or other means by which not having to abandon the pillars of the welfare state? The answer to that question might be increasing taxes as Wolf recommends but it could also require many other means, not necessarily including extreme ones like to “choose a collapse in life expectancy”

For many decades I have argued the best and most sustainable pension/health plan to be that of having children who love you and are working in a healthy and functioning economy.

I have been blessed with loving children, thank God, but I do fret about the future economy, as there is no way on earth for it to be either healthy or functionable with regulators distorting the allocation of bank credit, with their insane risk weighted capital requirements.

Since 1988, with Basel I, that set the risk weight of the sovereign at 0% and the citizens at 100%, public indebtedness has been artificially subsidized.

Unless that distortion is eliminated it will guarantee to deliver unsustainable public debt levels and an unhealthy economy. That is because whether the statists like it or not, reality is that government bureaucrats do not know how to use bank credit more productively than the private sector’s SMEs and entrepreneurs.

Having allowed the banks to run up such huge exposures to what is perceived as safe, the past and the present, while refraining from financing the riskier future, will cost our aging society much, because frankly, why should our children and grandchildren ignore that regulatory discrimination against them.

If we do not rectify, there will come a day where the young will show the elderly the finger… pointing at the closest “ättestupa”

PS. My decades long insecurities on the debate about social security

PS. Of course immigration and emigration could also help.

PS. A 2022 letter in Washington Post: “Before the debt ceiling is lifted, Congress must dare to at least pose a question.”

@PerKurowski

How many university professors know they are educating kids for jobs not to be had?

Sir, Mo Ibrahim writes: “the more time young people in Africa spend in education, the more likely they are to be unemployed… It highlights the worrying mismatch between the skills our young people are taught and those needed by the contemporary job market. This is a recipe for frustration and anger” “Africa’s youth, frustrated and jobless, demand attention”, April 13.

Scary! But it is even scarier if we connect this to Rana Foroohar “Dangers of the college debt bubble”, April 10 and Alex Pollock’s letter of April 12, “Colleges are acting like subprime loan brokers”.

A question. In our universities how many of the professors might be aware of the slim chances of their students’ landing a job in the future that will allow them to service their student debt and have a life… and still say nothing?

In many occasions over the years I have written about the needs to better align the remuneration of professors, at least their pensions, with the future of their students.

It is amazing to see so many professors criticizing bankers for poaching their clients while they de facto behave just the same. Load up the kids with loans, so that we can collect (bonuses) today! 

It will not work, and it will come back and bite us all.

PS. If I owed a student loan I would ask for a debt to equity conversion, offering a percentage of my after tax earnings over a certain amount for a definite number of years.

http://teawithft.blogspot.com/2010/04/if-incentives-are-correctly-aligned-all.html

http://onechildonevote.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

PS. We need worthy and decent unemployments

@PerKurowski

What about suing bank regulators for malpractice; and those who falsely promised us rose-garden type pensions?

Sir, Gillian Tett, pointing “to the US presidential election result”, writes it “has unleashed wild swings in equity and bond prices…. This could dent the fortunes of many of those who have a 401(k)… There is another reason why 401(k) holders might want to scan their statements: litigation… an explosion in class action lawsuits over alleged malpractice in these pension plans… excessive fees” “Lawyers shake up a sleepy pension world” November 25.

Let me put all that in a different perspective. The current risk weighted capital requirements for banks, introduced by the Basel Committee, represent a regulatory risk aversion that when layered on the banks natural risk aversion, signifies millions of SMEs and entrepreneurs will not have access to that bank credit that could help our real economies to move forward, in order not to stall and fall.

So when in twenty years time, all those 401(k) accounts do not hold what was expected on these, remember you wasted time suing for excessive fees, instead of suing against future depriving regulations. Regulators might argue they did not know… but should that be a valid excuse for those who present themselves to us as experts?

Why do those 401(k) fees that most certainly are too high, seem so especially high now? The real explanation is that the economies are not producing close to the seven percent real annual returns that too many institutions around the world assured pensioners they should expect on their savings. Those promising impossible rose gardens should also be sued… and for good measure include also those withholding truths.

@PerKurowski

Mark Carney: Who should offset the credit distributional consequences of the risk/future adverse bank regulations?

Sir, Martin Wolf mentions that BoE’s Mark Carney, noted monetary policy has distributional consequences but “it is for broader government to offset them if they so choose”. “The unwise war against low interest rates” October 19.

The risk weighted capital requirements for banks has distributional consequences too, in this case with respect of bank credit.

For instance, a risk weight of 35% when financing residential housing, and a risk weight of 100% for loans to SMEs, helps the young to have more availability of basements in which to live with their parents, than perspectives of a new generation of jobs.

And the blatantly statist 0% risk weighting of the sovereign, skews the distribution of credit away from the private sector and towards government bureaucrats.

So the question is: Should we now try to add a new layer of non-transparent complications so as to try to offset those credit distributional consequences, or should we simply get rid of risk-weighted capital requirements altogether?

I clearly favor the latter option but, doing so, I have to continuously confront those who like Martin Wolf know, quite correctly, that a below BB- borrower is risky (150% risk weight) but, unfortunately, do not have the necessary wisdom to fathom that what’s AAA rated, and therefore only 20% risk weighted, is, or will be made by this, much more dangerous to bank systems.

Wolf also states: “Lower interest rates need not worsen pension deficits; that depends on what happens to the value of assets held by pension funds. Normally, lower interest rates should raise the latter. What would lower both real interest rates and asset prices is greater pessimism about economic prospects. Central banks do not cause such pessimism but try to offset it.”

That is so very wrong! The only moment when the value of assets held by pension funds is really important, is when these have to be sold in the market in order to access purchasing power for the pensioners. And with these risk weighted bank regulations that impede banks from financing the risky future, and have these only refinancing the safer past and present, you can bet that the future economy will not be strong enough to pay well for those assets.

Of course Wolf might think it is the bankers’ duty to overcome such regulations, but that would be to ignore completely the overriding objective of bankers which is to maximize the risk adjusted returns on equity (and their bonuses).

PS. On the issue of low interest rates, let me as a financial consultant with extensive main-street experience, remind you that few things stimulate projects to advance faster from plans into income generating realities, than high interest rates. Low interest rates feed a lot of project execution laziness into the active real economy.

@PerKurowski ©

Anything that might weaken the future real economy, destroys pensions which depend more on tomorrows than on todays

Sir, Tim Harford argues “it’s far from clear that the Bank really is destroying pensions. It is true that low interest rates make future obligations loom larger in today’s company accounts. This creates a problem for any pension scheme. But, on the other side of the equation, low interest rates have boosted the value of shares, bonds and property and thus the value of most pension schemes” “Carrots with bite” September 24.

What? Does the Undercover Economist believe that lifting short-term the values of shares, bonds and property has much to do with the long-term value of those assets when they need to be liquidated so as to fulfill retirement expectations? 

Harford writes “Pensions campaigner Ros Altmann recently launched an eye-catching attack on the Bank of England for paying generous pensions to its own staff while undermining everyone else’s retirement plan.” Of course central bankers, and bank regulators, should be held much more accountable for what they do to the economy… and not only by pensioners but also by those needing the jobs that Andy Haldane comments with: “I sympathise with savers but jobs must come first.”

The risk weighted capital requirements, which give banks clear incentives to only refinance the safer past and stay away from financing the riskier future, will hurt both the pensioners when trying to sell assets into a sinking economy, and the young who need jobs in order to at least conserve an ilusion of a decent retirement. 

Harford writes: “The basic principle for any incentive scheme is this: can you measure everything that matters? If you can’t, then high-powered financial incentives will simply produce short-sightedness, narrow-mindedness or outright fraud.”

Harford should really read a recent working paper published by the ECB, “The limits of model-based regulation”. That describes what should go wrong, if you allow banks, by mean of their own complex risk models, to set their own incentives. Perhaps with that Harford who like so many other with close to willful blindness trusted Basel’s risk based regulations, will see that some other than little me, are now reluctantly beginning to have some serious doubts.

@PerKurowski ©

For governments to take advantage of current low rates in order to build infrastructure, is not a sure great thing.

Sir, Trevor Greetham argues that the government, taking advantage of current conditions, should take on debt and invest in infrastructure, all in order to stimulate nominal growth through government spending while suppressing interest rates; meaning that it should on purpose pursue a policy of transferring wealth from savers to borrowers.” “Hammond should not let the low gilt yields go to waste”. September 15.

Sir, I am not sure that is a constructive way of thinking. Greetham mentions that a big reason for the low interest rates on government bonds is “pension fund buying”. I assume he would not dare to complain if, when he retires, he does not get the pension he expected.

But worse, another reason for the low interest rates is the risk weighted capital requirements for banks; which diverts credit from 100% risk weighted SMEs and entrepreneurs, to the 0% risk weighted government. That sounds like a very doubtful way of how to build future.

And that’s even ignoring the possibilities of much infrastructure investments ending up in bridges to nowhere.

@PerKurowski ©

It would be nice, and fair, to see technocrats, like Margrethe Vestager, directly affected by what they decide.

Sir, I refer to John Gapper’s “Apple, keep your cool over global tax” September 1 in order to ask one question.

If Margrethe Vestager had her future pensions defined by the medium pension paid out in her constituency, would she do what she is doing with Apple. She might and she might not, but it sure would be nice to see her personally affected by what she decides.

I truly believe that no government bureaucrat/technocrat should receive a pension over the median pension paid in their country.

And that includes Prime Minister and Presidents and similar big shots.

@PerKurowski ©

All projected interest/pension earnings, always depend on the real economy being able to deliver these down the line.

Sir, Keith Ambachtsheer writes: “If low investment returns are here to stay, those responsible for pension plans have a choice: wring their hands, or fulfill their fiduciary duty by rethinking what it means for the design of their schemes. Doing nothing is not an option.” “Long-term thinking will lead the way to improved returns” August 30.

Absolutely! But the long-term fiduciary duty should also include doing the best to reverse what has gotten us into this low interest rate and low economic growth environment.

That begins by protesting the risk weighted capital requirements, that which allow banks to leverage more, and to therefore obtain higher expected risk adjusted returns on equity, on assets ex ante perceived as safe than on assets perceived as risky.

It has distorted the allocation of credit causing the banks to populate (even dangerously overpopulate) the safe havens were traditionally widows, orphans and pension funds did their business.

Too low interest rates on public debt? How could it not be with risk weights of 100% for We the People and of 0% for the Government?

Let us also remember that if the real economy is in doldrums when the times come to cash in pension assets, whatever seems great now could be totally worthless.

Sir, if we do not rid banks from that regulatory introduced risk aversion that have stopped them from financing the future like lending to “risky” SMEs, and have them only refinance the “safer” past, then that future real economy is doomed to be in the doldrums.

@PerKurowski

If I was young and my pension fund was to invest in a bridge, I would want and need for it to lead to somewhere great!

Sir, John Authers with respect to future pensions holds that “if we have done our job properly, we should by now be scared out of our wits”, “There is still time to alter the script of the pensions crisis” August 27.

And just like in The Graduate Mr McGuire recommended Dustin Hoffman “plastics”, Authers recommends current kids “infrastructure”.

How did we get here? The answer is that regulators, with their risk weighted capital requirements, told the banks to go to where pension funds did much of their savings, basically in what was perceived as fairly safe.

Authers spends most of his article writing on how we should adapt to lower yields and longer life resulting in huge pension deficits. He argued for instance “There is no reason why young investors’ long-term savings should not go into funding infrastructure, or clean energy, or other beneficial investments for the future.”

That could be, clearly supposing the specific beneficial investments for the future, yield enough real returns for our retirement planning young investors. We have left them enough debts so as to complicate matters even more by sticking to them some bridges to nowhere!

But, before that, we must see to that our banks, again become banks making profits and returns on equity by taking risks, and not by just minimizing equity.

While concluding Authers writes: “it grows clear that the issue of pensions divides us, particularly along generational lines. Many view it in moral terms. This is all wrong. We are all in this together, whether we are generationally lucky or not.” Absolutely, for a starter, if the economy is not prosperous and employ the young, who is going to buy all the retirement investments at the price of a then decent purchasing power?

The only way to keep an economy moving forward, so that it does not stall and fall, is to ascertain that primary societal risk-takers, like banks should be, take the risks that are needed. Too much risk aversion is riskier than too much risk taking.

Of course, we all want and need for that risk-taking to be carried out with reasoned audacity. God make us daring! 

@PerKurowski ©

BoE, if you really believe jobs come first, why not capital requirements for banks based on job creation ratings?

Sir, I refer to John Authers and Robin Wigglesworth “Big Read: Pensions: Low yields, high stress” August 23.

There we read that Baroness Altmann, the former UK pensions minister, said this month “The emergency to pension schemes has been caused by Bank of England’s quantitative easing policy of buying bonds…I don’t see how it is reasonable to ask companies with pension schemes to fill a £1tn hole and put money into their businesses as well. It doesn’t add up.”

BoE officials say they recognize the problem, but Andrew Haldane, its chief economist, says the central bank’s top priority must be to stimulate the economy. “I sympathize with savers, but jobs must come first”.

I don’t think so, from what BoE and their colleagues are doing, it seems much other, like keeping the values of assets high and borrowing costs for the government low comes first.

Sir, again, for the umpteenth time, the Basel Committee, the Financial Stability Board and other frightened risk adverse bank nannies, have mandated stagnation.

When you allow banks to hold less capital when financing what’s perceived as safe than when financing the risky; banks earn higher expected risk adjusted returns on equity when financing the safe than when financing the risky; so you are de facto instructing the banks to stop financing the riskier future and keep to refinancing the safer past… something which guarantees stagnation… a failure to develop, progress or advance… something which guarantees lack of employment for the young and retirement hardships for the old.

I would prefer not to distort the allocation of bank credit but, if I had to, then I would try to ascertain that bank credit goes to where it could do the society the most good; in which case I would consider basing these on job creation ratings and environmental sustainability ratings and not on some useless credit ratings already cleared for by banks with the size of their exposures and interest rates.

PS. If you want more explanations on the statist bank regulations that are taking our Western society down here is a brief aide memoire.

PS. If you want to know whether I have any idea of what I am talking about here is a short summary of my early opinions on this since 1997.

@PerKurowski ©

High interests do not solve any retirement problems, if there is no real economic growth to pay for these

Sir, Jonathan Ford writes of how “The Bank of England’s decision to cut interest rates and resume quantitative easing” is creating all sort of expected deficits in retirement plans, and specifically to “UK’s 6,000 still existing defined benefits schemes” “Real change in attitude is needed to solve the issue of fund deficits” August 22.

Ford also mentions the responsibility of the “existing generation…to strive to provide for the obligations to workers they have inherited”. That is very correct, but the possibilities of it will also very much depend on the health of the real economy.

If there were no low or even negatives interest rates, but only high positive interest rates, in order for these to translate into real positive rates, the interests would, in the medium and long term anyhow, have to be paid by real economic gains.

And that is why, once again, I insist that the most egregious thing that is happening to that future economy on which we all will depend, is the risk aversion that has been introduced into the allocation of bank credit by means of the risk weighted capital requirements for banks.

It is just amazing this is not even being discussed.

@PerKurowski ©

The most stressful banks to me are those who least help the future of our real economy.

Sir, Laura Noonan, Rachel Sanderson and James Shotter present EU’s bank stress test results. “Bank stress tests single out the usual suspects” August 1.

And it ranks the banks based on their 2018 fully loaded common equity tier one ratio, which is CRD IV Common Equity Tier 1 capital divided by CRD IV Risk Weighted Assets. And so let us be very clear, if the risk weights used are wrong, the results are absolutely meaningless.

Sir, how long will you all play along with the current regulators as if they were geniuses setting risk weights, as if they had any idea of what they are doing? Are you totally deprived of intellectual honesty?

If you go to EBA’s stress result you will read “The EU banking sector has significant shored up its capital base in recent years leading to a starting point capital position for the stress test sample of 13.2 % CET1 ratio at the end 2015… 2% higher than the sample of 2014 and 4% higher than the sample in 2011”. 

That’s great!... sort of… because it also states that “the aggregate leverage ratio decreases from 5.2% to 4.2% in the adverse scenario”. In terms of real leverage what does from 5.2% to 4.2% leverage ratio mean? It means that in their “adverse scenario” the bank leverage of equity has increased from 19.2 to 23.8 to 1… and that’s just the average!

How is it possible, an increase of the CET1 ratio, at the same time the leverage increases? Easy, banks take on more of those assets perceived, decreed or concocted as safe that carry low risk weights, and less of those assets perceived by bankers and regulators alike like more risky that carry higher risk weights, such as loans to SMEs and entrepreneurs. The real economy will suffer the impacts of this stupid and short-sighted regulatory risk aversion.

We should of course be concerned with the safety of our deposits in our banks… but, should we not concerned with that these banks take the risks needed to offer our children and grandchildren a future at least as good as that one our parents offered us? I sincerely think so.

PS. And it not only about the young. The welfare of future pensioners depend very much too on the health of the economy.

@PerKurowski ©

All awful on the pension front

Sir, John Authers responsibly puts his finger where it hurts, the issue of whether there will be sufficient resources to provide those pensions that so many take for granted will be there, “Hunt for the middle ground to avert pension poverty” July 9.

And doing so Authers discusses the implications of defined benefit and defined contribution plans, especially in times of extraordinary low interests. His suggestion to find an in-between plan that takes a little from both, sounds very logical, though of course, unfortunately, that cannot guarantee either there will be enough to meet the needs and much less the aspirations.

But the state of the economy at the time of any drawdown of a pension also matters tremendously and, if bank regulators are allowed to continue distorting the allocation of bank credit, that state of the economy will be very bad.

The risk weighted capital requirements for banks are causing a dangerous overcrowding of the safe havens, like public debt to which a risk-weight of zero percent was decreed; and for the economy an equally dangerous lack of exploration of the risky bays, SMEs and entrepreneurs, and which got hit with a risk weight of 100%.

As a consequence banks are now mostly refinancing our safer past and not financing sufficiently our riskier future. And that bodes very badly for the future pensioners, and very badly for the future prospects of the pensioners’ last reserve and hope, their children.

PS. 2006 “My insecurities about the social security debate” 

@PerKurowski ©

Loony and statist bank regulators are destroying the opportunities of the real economy to sustain decent pensions.

Sir, Patrick Jenkins writes “The funding gap facing— anyone with the dream of a decent pension income — illustrates the broader truths about a slow burn financial crisis that threatens to engulf the globe over the next decade or two.” June 22.

But Jenkins argues all over the place without referring to the biggest threat, namely the state of the real economy, when all those pensions are to be paid out. Because it really doesn’t matter how much you save up, if the economy tanks precisely when you want to convert your savings into real purchase power of goods and services.

And the real crisis that will engulf our pension funds, is the direct result of all that essential risk-taking that has been denied the real economy, because of the credit risk based capital requirements for banks.

Had capital requirements not discriminated against what is ex ante perceived as risky, and in favor of what is perceived, decreed or concocted as safe, during more than a decade, then millions of small loans would have been given to SMEs and entrepreneurs, and the economy would have been much more dynamic and prepared to take care both of the jobs our young need, and the retirement needs of our older.

Truth is the world has been let down by bank regulators so loony so as to believe that what is below BB- rated pose greater dangers to the bank system that what is AAA rated.

Truth is the world has been let down by bank regulators so statist so as to believe that government bureaucrats can make better use of bank credit than the private sector.

@PerKurowski ©

Negative interests make you need deflation to balance your social security plans.

Sir, you mention that “José Viñals, a senior IMF official, has warned that negative rates could become more damaging for society the longer they persist, undermining the viability of life insurers, pensions and savings vehicles.” “Negative rates may be nearing a political limit” April 11.

Of course it does that. More than a decade ago, as an Executive Director of the World Bank I frequently objected to all those documents on Social Security System Reforms that assumed pension funds to obtain real rates of return I felt were unrealistically high for the long term. And to achieve those returns in an environment of negative interests, how much deflation might you need? Clearly, negative interests do not lead to something good.

You write: “Opponents of negative rates need to spell out the alternatives”. But Sir, that is precisely what I have done, in those hundreds of letters that you for whatever internal reasons decided to silence.

And so here it comes again. You mention that negative interests are — “intended to encourage… banks to lend more to the real economy”. But it is not only a question of more lending but also of correct lending. And the risk weighted capital requirements for banks impede these to allocate credit efficiently to the real economy.

How? Again: by allowing banks to leverage more on “safe” assets than on “risky”, the expected risk adjusted returns for safe assets will be higher than those of risky assets, and so banks will lend too much to “the safe” and too little to “the risky”.

And so in order for negative interests, QEs or any other monetary concoction to work, that regulatory distortion needs to be eliminated. Capisci?

@PerKurowski ©

The by far best “collect as you go” pension plan, is built around loving kids and a healthy economy.

Sir, I refer to Michael Skapinker’s “Five possible scenarios for a ‘work till you drop’ world” March 10.

In my book “Voice and Noise” of 2006, on the issue of “Social Security in Real Terms” I wrote:

“In order for your savings and social security investments to be worth something when you need them, the real economy must be in a reasonable condition at the time of your selling your investments. When I hear the many discussions about the financial preparation needed to accommodate for the upcoming demographic changes, I find it truly amazing how little is being said about the economy in real terms.

Considering that there will be many fewer young ones to drive people around and shovel snow, much of today’s beautiful real estate might drop in value when the elderly start selling their houses to live close to a metro, hospital, and more reasonable weather conditions. So, before putting the money away in a private accumulation trust I think we need to rethink the whole retirement strategy.

Also we should never forget that historically, through all economic cycles, there is nothing so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that you can’t, in real terms, beat that with any social security reform.”

I have the very loving very great kids, but I am still very concerned. Regulators concocted credit-risk weighted capital requirements for banks, and that is seriously distorting the allocation of credit to the real economy. If that mistake is not soon corrected, our economies are doomed to stall and fall.

How many kids of working age are not already living in the basements of their ‘work till you drop’ parents?

Sir, as I see it, we have no choice but to fire, immediately, the current bunch of dumb bank regulators.

@PerKurowski ©

Current regulations impose on banks investment guidelines adequate for pensioners with very short life expectancy.

Sir Gillian Tett writes “Ms Yellen stressed on Wednesday that, if you want to understand monetary policy now, you have to take a long-term view” most probably taking refuge in Keyne’s principle of that in the long run we are all dead. “A bloated Fed prepares to shape up” June 19, 2015.

But what is sure is that regulators are applying strictly the short-term view. They make banks lend almost exclusively to what is perceived as safe, and thereby rewarded with ultralow capital requirements… is about the shortest termism one can think of. Like imposing on the banks portfolio investment guidelines adequate for a pensioner with very few expected years (or months) of life left.

Tett also writes: “When future historians write the story of finance in this decade, the current feverish debate about whether rates rise in September or December may appear a mere footnote in the great battle to make the Fed more “normal” again.”

That may be but let me assure you Sir, that future historians will marvel at the stupidity of the current capital requirements for banks… and of how most of the financial world, Ms Tett and you included, decided to ignore that.

@PerKurowski