Most of those who either preach or negotiate free trade are just like a Peeping Tom in a nudist camp.

Sir, Alan Beattie, referring to the possible escalation of trade wars writes: “At the time the WTO is most needed, its failings become ever more manifest. Without reform, the organization itself will suffer severe, possibly fatal, collateral damage from the US-China struggle” "A global trading system under fire” October 22.

Beattie also quotesPascal Lamy, a former head of the WTO: “Whether we like Trump or not — and I do not like Trump, I think he must be credited with one thing, which is to have put this issue of WTO reform on the table.”

Having been busy denouncing failed and dangerous bank regulations, I have not followed WTO for more than a decade but, back in 2006 and 2007, I remember Grant Aldonas, Fred Bergsten and Martin Wolf already opining strongly on the need for WTO to reform.

The reforms requested were not only about efficiency… they were about the real core of free trade.

For instance Grant Aldonas held that the success of any reforms, depended on “WTO negotiators recognizing where the conventional mercantilist approach has taken them [so as to] turn around, head back up the road and chart a new course to achieve the development goals that were their original destination” “Why trade negotiators need driving lessons” May 3, 2006.

In a letter, I agreed stating “Currently trade negotiations, instead of opening the doors to the greener pastures we all wish for, feels more like someone corralling you in, to brand you.”

Grant Aldonas later also suggested a “plurilateral agreement among all WTO members willing to move directly to free trade on a global basis”, “A fresh free trade agenda for Doha”, July 13, 2007.

Again I agreed: “Just like in a nudist camp, we need to separate the real nudists from the Peeping Toms. Only this would allow us to conform a true and honest free trade core. It is clear that many of those who profess a belief in free trade fake it, since how could you otherwise explain the sort of perverse satisfaction many show from entering into negotiating processes that hinders the free trade from really advancing. The true spirit of free trade does not stand a chance against these saboteurs and who are simply too scared of taking off their protections, but want to enjoy the view anyhow.”

When Martin Wolf in April 2007 opined “If free trade is really as good as we say it is, then why should we negotiate about it”, I responded: “Indeed,you do not go to a nudist camp to play strip-poker!”

Sir, most of those holier than thou free-traders bashing President Donald Trump for imposing restrictions on trade, are just like a Peeping Tom preaching the merits of nudity, for other.

WTO bureaucrats also help make WTO inutile, as a result of many of them being engaged, primarily, in the protection of their own turf.

Protectionism comes in all colors and shapes. Those tariffs and subsidies imbedded in the risk weighted capital requirements for banks, are many times more costly to the world than any trade tariffs Trump can come up with.

PS. I myself must confess that, even though I am in principle all for free trade, I often find myself worrying about that all deficits and surpluses are not made equal, some are better, some are much worse.

@PerKurowski

What kind of tariffs is protectionist Michel Barnier thinking of imposing on banking and financial services provided by the City of London to Europeans?

Sir, Mehreen Khan’s, Jim Brunsden’s and Sofia George Parker’s write thatin reference to that “the EU would have more to lose from cutting off the City of London than Britain would” Michel Barnier said: “This is not what we hear from market participants, and it is not the analysis that we have made ourselves.”“Barnier dismisses UK hopes of special market access for London after Brexit” April 27.

Sir, I must confess that Michel Barnier does not qualify as my favorite EU Brussels technocrat, but with this he certainly proves himself to be a protectionist, completely in the hands of the European financial intermediaries (the aluminum and steel producers) and with little consideration to all those European consumers of financial services that might prefer using the services and the legal framework provided by the City.

What kind of tariffs is Barnier thinking of imposing on banking and financial services? Has Michel Barnier really been authorized to impose on behalf of all the European Unions his will on all Brexit negotiations?

Sincerely, I do not think Barnier has thought this thru. He might be setting off a real European capital flight to London. 

@PerKurowski

The Basel Committee’s tariffs of 35% risk weight on residential mortgages and 100% on loans to entrepreneurs, is pure protectionism.

Sir, Martin Wolf, with respect to President Trumps’ indication that “he would sign an order this week imposing global tariffs of 25 per cent on steel and 10 per cent on aluminum” writes “This is a purely protectionist policy aimed at saving old industries” “Trump’s follies presage more protectionism” March7.

Absolutely! I could not agree more. But what I cannot understand is why Wolf does not react in the same way against the protectionism imbedded in the bank regulators’ risk weights? For instance is not a 35% risk weight on residential mortgages and of 100% risk weight on loans to entrepreneurs represent even a worse protectionism than Trump’s?

That protectionism allows banks to leverage their capital 35.7 times with residential mortgages and only 12.5 times with loans to entrepreneurs.

That protectionism has banks avoiding financing the "riskier" future in order to refinance the older "safer present". Does that not sound extremely dangerous?

PS. And a 0% risk weight of the sovereign and 100% the citizens, is that not the mother of protection of statism?

@PerKurowski

Current bank regulations also guarantee Canadian covered bonds will have more demand than Italian.

Sir, Thomas Hale while explaining the appetite for Canadian covered bonds quotes Michael Spies, a strategist at Citi with: “I’m buying a collateralised bank bond rated triple A, from a bank which is rated double A, in a country which is rated triple A,” he adds. “Now let’s put this together and compare it to an Italian covered bond.” “Canada’s housing rally owes a debt to Europe” July 12

That is not the whole story. Those Canadian covered bonds can, as a consequence of the risk weighted capital requirements, be held by banks against less capital than those “risky” Italian ones; and so therefore the banks can multiply their equity with more Canadian net risk margins than with Italian; and so banks will earn higher expected risk adjusted returns on equity with the Canadian than with the Italian; and so the Canadian covered bonds, when compared to the Italian, will have more demand than these would have had in the absence of the risk-weighting, and the Italian less.

That the distortion in the allocation of bank credit to the real economy the risk-weighted capital requirements for banks cause is not more discussed, is one of the great mysteries of our times.

PS. I was kindly informed of that "The risk weighting for a highly rated Italian covered bond is actually significantly lower (10%) than for a Canadian covered bond of the same rating (20%). This is because the European legislation (CRR) affords preferential treatment to issuers in the European Economic Area." I did not know that, but it sure makes me question whether Canada is aware of that it is subjected to this kind of European regulatory protectionism. 

@PerKurowski

Since Brussels technocrats took EU members too much for granted, Brexit could perhaps turn into a better deal for UK.

Sir, Martin Wolf in reference to Theresa May’s Brexit “No deal is better than a bad deal” asks, “Why, after all, would the EU offer better terms to a non-member?” “Trade realities expose the absurdity of a ‘no deal’ option” June 2.

That is true; except for if the current membership deals are based on technocrats taking EU members too much for granted; and now waking up to the Brexit fact they should perhaps not do so.

Also, would these technocrats dare to further weaken their not too strong position by declaring a war on Britain, a war that most of the Europeans probably do not wish? Do Brussels generals really have that kind of credibility? I don’t think so.

Wolf writes: “Now Brexiters imagine the UK can refuse the EU’s terms for an amicable divorce and yet still count upon active and enthusiastic co-operation in ensuring the smooth flow of trade.”

Why can someone who like Wolf has attacked growing trumpist trade protectionism in the US, arguing it primarily hurts the Americans, yet be willing to accept the thought that trade protectionism from EU towards UK, would not hurt the Europeans too?

That is what Wolf should be informing Europeans of, so that they help to keep their hurt-egos technocrats from enforcing some stupid vengeance plans. But no, Wolf seems determined to want that UK should just take its well deserved punishment for not listening to his advice, and then shut up.

@PerKurowski

Why do bank credit’ surpluses and deficits not attract the same concerns as does trade’s surpluses and deficits?

Sir, Martin Wolf writes: “What is frightening about the trade agenda of the administration is that it manages to be both irrelevant and damaging. A relevant agenda would focus on the imbalances in savings and investment across the world economy” “Dealing with America’s trade follies” April 19.

Of course Wolf, like IMF among others, is right to be concerned with growing trade protectionism. What I can’t understand is why he, and IMF among most others, is not at all concerned with the consequences of financial protectionism?

I ask because the risk weighted capital requirements for banks are just like any other sort of tariff. It benefits some, and hurts other… in all it dangerously distorts the allocation of bank credit to the real economy, for no good purpose at all, as it does not promote financial stability, much the contrary.

In November 2004 FT published a letter titled “Basel just a mutual admiration club of firefighters seeking to avoid crisis” In it I wrote: “We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. 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.”

Of course there I was referring to the fact that the Basel Committee had decreed that the sovereigns were safer than the private sectors on which usually the sovereign depended.

Could the problem be that Wolf does not understand that allowing banks to leverage their equity (and the societal support they receive) differently for different assets distorts?

Or is it that Wolf, and the IMF, also belong to that admiration club and therefore dare or cannot breakup with its own groupthink?

Here again a link to some questions the members of such special club refuse to even acknowledge

PS. If I am obsessed with the risk weighted capital requirements for banks, which I am, then Martin Wolf must be just as obsessed with his “macroeconomic imbalances”.

@PerKurowski

Martin Wolf, I totally agree it is not nice where we find ourselves, but you’re part of how we got here… I am not!

Sir, Martin Wolf writes: “Who would have imagined that primitive mercantilism would seize the policymaking machinery of the world’s most powerful market economy and issuer of the world’s principal reserve currency? The frightening fact is that the people who seem closest to Mr Trump believe things that are almost entirely false… Protection just helps some businesses at the expense of others… The rhetoric of “America First” reads like a declaration of economic warfare.”"Trump and Xi battle over globalization" January 25.

Indeed but then again: “Who would have imagined that primitive statist technocrats would seize the regulatory machinery of banks of the world? And the frightening fact is that the people who seem close to the Basel Committee, like Martin Wolf, also believe things that are entirely false, like that what is perceived as very risky is very risky to our banking system… which only helps to protect the access to bank credit of “the safe”, at the expense of “the risky”…The rhetoric of “We Regulators must make our banks safe” reads like a declaration of economic warfare.”

Sir, I am sure that had the world not silently accepted the risk weighted capital requirements for banks in 1988, which introduced such obnoxious statist concepts of assigning a risk weight of 0% to the Sovereign and 100% to We the People; and then in 2004 going on to assign a such a meager risk weight of 20% to what was AAA rated… the subprime crisis would not have happened… Greece would not have received so much in loans, and Trump would still busy himself with hotels and casinos.

Martin Wolf, I understand you are also a victim of that confirmation bias that have swept the regulatory circle, but your silence on the distortion in the allocation of bank credit to the real economy, makes you, ever so little, an accomplice of Trump’s rise to the presidency of America… so don’t just wash your hands like any Pilate.

PS. “rules-based trade” is not really “open markets”

PS. I did what I could.

@PerKurowski

FT, you have good reporters; send them to the Whitehouse to pose Trump some constructive questions on protectionism.

Sir, you write: “Forcing industrial output to return to the US is likely to create work for US-based robots rather than workers” “Take the US president’s protectionism seriously” January 25.

Precisely, that is what I have tweeted for some time now, and on which I have written some letters that you have steadfastly decided to ignore, like those on the subprime banking regulations, without thinking of it as any type of censoring, or without “without favour”.

But, without resorting to qualifying Trump’s protectionism as “profoundly retrograde” which means so little, which sounds so besserwisser, and which can only insult those who are then implied of having voted for a “retrograde”, why don’t you use your voice to send a journalist to Washington to ask of the Whitehouse, directly, some constructive questions?

For instance: “With current and future actions taken against foreign suppliers, in order to make America great again, what ratio of new employments of humans to robots do you foresee? How many robots have substituted for humans in jobs in USA during 2106?

And, if there’s a chance and a will, dare ask: Why does the Whitehouse think that trade protectionism is worse than that financial protectionism that is imbedded in the current risk weighted capital requirements for banks?

@PerKurowski

Financial protectionism could be just as bad or even worse than trade protectionism

Sir, I refer to the so plentiful anti-trade-protectionism writings, in FT and everywhere, and which all warn about the dangers of what Big Bad Donald Trump is up to. Many of these, not all, are solidly argued. Yet these contrast so much with the almost absolute silence against the financial protectionism that is imbedded in current bank regulations.

The risk weighted capital requirements for banks allow banks to leverage more with assets perceived, decreed or concocted as safe, than with assets perceived as risky. That means banks will earn higher risk adjusted returns on equity on the “safe” than on the “risky; so banks will favor with credit or investments what’s safe over what’s risky.

Is this not how it always is. Yes but before the introduction of these capital requirements the perceived risk was cleared for by the size of the exposure and the risk premiums charged. Now when capital requirements are also based on the same perceived risks, the effect of these in the allocation of bank credit to the real economy are augmented and so distort.

Here are some risk-weights of Basel II. Sovereign=0%, AAArisktocracy=20%, residential housing=35%, not rated “We the People”, like SMEs=100%, below BB-rated=150%.

Those who do not see how those with lower risk weights have their access to bank credit protected, against that of the risky, are not interested, dumb or trapped, almost irreversibly, by the mother of all confirmation biases.

@PerKurowski

Are we supposed to be very impressed with the intellectual capacity of Davos’ besserwissers?

Sir, in Wikipedia we can read that Martin Wolf “has been a forum fellow at the annual meeting of the World Economic Forum in Davos since 1999.” If that’s true, which it does not necessarily have to mean in these days of fake-news, Mr. Wolf is as much a “Davos” man as anyone else of them.

I make a note of this because now Wolf writes: “weakening of globalisation partly reflects the exhaustion of easy opportunities for global commerce and the feeble growth of demand since the crisis. But it also reflects shifts in policy: the post-crisis re-regulation of finance has had a pronounced home bias, with reduced support for cross-border activities.” “Populism will not lead to a better world” January 17.

What? Do we now have a “pronounced home bias”? What about Basel II’s risk weights of 0% the Sovereign, 20% the AAArisktocracy, and 100% “We the People” and that are mostly still in place?

No, though I might run the risk of being be tilted a vulgar populist by Davos’ Wolf, I assure you Sir that I do not find much wrong in reducing the regulator’s pronounced risk aversion bias; that which have them favoring the lending to “safe” corporates wherever they are, or to friendly and “safe” Sovereigns, over the lending to “risky” SMEs and entrepreneurs in their own localities.

And what’s that running around like chickens, scared of some possible horrors of neo-protectionism, in a world that has been so much changed? Do the Davos intellectuals really think that Trump would be able to impose really major increased costs on the American consumers? Like telling its kids “the price of an I-phone will be 50% higher because it has to be made in America… and you must now wait one year more to have it delivered? Forget it! That would be like introducing a 50% tax on all purchases on the web, so as to defend the local mom and pop stores. The smuggling of drugs and fake goods would then be minor compared to that of the so many new entrants.

What Davos should be doing though, is to analyze the need for new solutions in a world in which, because of increased automation, there will be more and more structural unemployment; and also one in which, for sustainability reasons, perhaps some consumers’ aspirations must be reduced.

I believe a Universal Basic Income might indeed be one of the best tools available. I fret though about leaving the discussions on such beautiful and delicate solutions that can so easily be distorted into a monster, in the hands of the so many redistribution profiteers and besserwissers always present in Davos.

PS. Basel II assigned a risk weight of 20% to those rated AAA-AA; and one of 150% to those rated below BB-. Sir, are we supposed to be impressed by the intellectual capacity of the Davos group that saw nothing wrong in considering those perceived as very risky a much bigger threat to the banking system than those perceived as very safe? You tell me!

@PerKurowski

With tighter bank capital rules and lower bank profits, risk weighting hurts economic dynamism more than ever.

Martin Wolf asks “Is globalisation reversing?” And answers “No, but it has lost dynamism… partly because opportunities for expanded processing trade have diminished, and partly because the era of large-scale trade liberalisation is over.” “Sluggish global trade growth is here to stay” October 26.

Indeed that matters, but Wolf refuses to acknowledge that the economies could also have lost much dynamism, because of credit access protectionist regulations, applied globally, that have banks refinancing more the “safer” past and present than financing the "riskier" future.

How can Wolf ignore that? I haven’t the faintest Sir; you must of course know him much better than I.

Anyone besserwissing I can besserwiss better, I can betterwiss better than you, Mr Wolf.

PS. Here again is an aide memoire on some of the monstrous mistakes of the risk weighted capital requirements for banks.

@PerKurowski ©

I would be scared too by Michel Barnier…and by Sir Mervin King.

Sir, Alex Barker in “Barnier vs the Brits” November 9, writes about the fears of Sir Mervin King in that Brussels reforms will reshape a vital British industry, banking, to the benefit of eurozone rivals. Would that not be a case of plain vulgar under-the-table protectionism?

I do not know much about the competitive aspects of UK banks but, I would indeed be frightened if the banks of my country were to be even partially supervised by someone who when going to Washington D.C. presented in a brochure, as a success story of his office: “A French citizen complained about discriminatory entry fees for tourists to Romanian monasteries. The ticket price for non-Romanians was twice as high as that for Romanian citizens. As this policy was contrary to EU principles, the Romanian SOLVIT centre persuaded the church authorities to establish non-discriminatory entry fees for the monasteries. Solved within 9 weeks.” http://ec.europa.eu/solvit/problems-solved/discrimination/index_en.htm

And, if an owner of a small business or as an entrepreneur, classified as “risky” by the regulators, and in need or want of bank credit, I would also be scared witless by someone who even after the world has gotten itself into such enormous difficulties by the excessive bank exposures to what was ex-ante officially deemed as absolutely not-risky, during a conference in Washington, insisted on that his responsibility as a regulator is simply to avoid excessive risk-taking… but, come to think about it… so does also UK´s Sir Mervin King opine. Help!

Mexico needs to speak out against China´s renminbi manipulation

Sir I find myself 100 percent in agreement with Martin Wolfs “Evaluating the renminbi manipulation” April 7, since manipulation is what it clearly is. But that said perhaps more than the US talking and taking actions, others like Mexico, being the most affected, as it is their exports that are being displaced, should also do their share of loud screaming and hollering.

There is regulatory financial protectionism of what is seemed as having a lower risk

Sir John Plender writes “Protectionism is coming at us from all directions” July 1 but fails to mention that financial protectionism that has been around for just a couple of years and that discriminates among lenders. On top of what the market charges for risks an unrated borrower has to pay for the cost of the bank having to put up 8 percent in capital while a triple A rated company gets away with the cost of only 1.6 percent. And then we ask why do inequalities grow?

Has this financial protectionism served us well? Absolutely not! I have even read Nobel-prize winning economist who though standing in front the monumental losses derived from financing the safest assets, houses, in the supposedly safest country, the US, and in instruments that carried the best credit ratings, still describe our current crisis as having originated by excessive risk taking. Ridiculous, they are either intellectually lazy or they have no idea of what they are talking about. It should be crystal clear that this crisis resulted from of an excessively misguided risk-adverseness and which got a tremendous boost from the regulators protecting what should not be protected.

The differences between winning a presidency and a Nobel Price

Sir after reading Michael Bloomberg’s “America must resist protectionism” December 12 I am torn between being happy that he is not running as a candidate and is therefore free to spell out the truths and sad because he is not running. Seems you can’t have the cake and eat it too running for president… though you can win a Nobel Prize for being environmental conscientious without even daring to spell out that gasoline/petrol taxes are needed in the US.

Financial Time’s Hillary Clinton interview

Sir the following is my reaction after reading the interview of Senator Hillary Clinton, conducted by Financial Times ’s Washington bureau chief Edward Luce.

Protectionism: Full fledged competition in a globalized world would have eroded the profitability of many companies had we not awarded them the protection of intellectual property rights, and invested some serious money in making that shield mean something. Can you imagine Microsoft in a world where efficient software copiers are free to roam?

Therefore since most of labor have not been furnished similar new protections, and some old ones have in fact been taken away, it should not come as a surprise that the share of labor income as a percentage of GDP is dropping, and that this is, certainly and rightly, creating a source of conflict.

So what’s to be done? There are only two choices? Either we award to labor similar protections which would set us all on a de-globalization route, a lose-lose proposition; or we must require that the beneficiaries of intellectual property rights give back some extra of their quasi-monopoly based extra earnings to the society. As an absolute minimum, this should represent the direct cost of enforcing and defending their rights. Is this protectionism? No at all!

Review of existing trade agreements: Absolutely. In some of the US bilateral agreement some prohibitions were imposed on developing countries because at the time they were considered as appropriate, but hindsight has led to other conclusions and so these clauses need to be revisited. For instance some US trade agreements prohibit any restrictions on capital movement even though now these restrictions are deemed quite good at taking away some of the excessive volatility that the waters of the global financial oceans can have on local bathtubs.

Energy and environment: “the most important thing is getting the US focused on energy efficiency, on clean renewable energy, combating global warming on raising gas mileage etc.” Just like the recent Nobel price recipient Hillary Clinton does not have the courage of spelling out what is primarily needed to really alter the energy and environment realities in the US, namely a substantial tax on gasoline consumption.

Housing crisis: Just like the US can sometimes use a Strategic Petroleum Reserve I would suggest the government buying a large amount of the houses currently involved with subprime loans; at a price below the current outstanding mortgage; financed by the current mortgage holder; and giving the current debtor a option to repurchase his house in a couple of years at a price that would keep the tax-payer form being harmed. That’s what I would do… but then again I am no PhD and so I could be wrong

That is not the route!

Sir, Jeffrey Garten’s “We need rules for sovereign funds” August 8, includes a mind-boggling list of proposals “that many will see . . . as having a protectionist thrust.” No kidding? The only real conclusion I reached was to tell my daughter to watch up if she was thinking of studying international trade or finance at Yale.

Not only does Garten analyze the issue of sovereign funds as if trying to carve out for himself the role as The High Priest of financial nativism but also, even if he was absolutely right about his deepest misgivings, the type of solutions he proposes, like requiring from the government owned investment companies that they “publish internationally audited reports on their entire portfolios at least twice a year” could not serve any rational purpose and could in fact even serve as a dangerous valium.

What on earth is Garten up to? Trying to extend Sarbanes Oxley to the rest of the world governments? Asking the credit rating agencies to rate the sovereign funds? Allowing these funds only to buy government paper? Good luck! This type of approach would only have much of the current world imbalances try to go underground, making them so much harder to manage. Do I then mean that sovereign funds do not pose any threat? Of course not…some do, the same way that some non-sovereign funds could also be dangerous for any sovereignty.

Yes we need a Peeping Tom free, free trade core

Sir, I could not be more in agreement with Mr Grant Aldonas’ suggestion for the first part of “A fresh free trade agenda for Doha”, July 13, namely that of a “plurilateral agreement among all WTO members willing to move directly to free trade on a global basis”. Just like in a nudist camp we need to separate the real nudists from the Peeping Toms, as only this would allow us to conform a true and honest free trade core

It is clear that many of those who profess a belief in free trade fake it, since how could you otherwise explain the sort of perverse satisfaction many show from entering into negotiating processes that hinders the free trade from really advancing. The true spirit of free trade does not stand a chance against these saboteurs and who are simply too scared of taking off their protections, but want to enjoy the view anyhow.