Banks, except for limited liquidity purposes, should not be dabbling in sovereign bonds

Sir, Reza Moghadam vice-chairman for sovereigns and official institutions at Morgan Stanley, in order to “provide more stimulus to slower-growing economies” proposes that “ECB should lengthen the maturity profile of the bonds it holds of slower-growing economies [as] Other things being equal, a flatter yield curve is more stimulative, as it encourages investment, and, by raising the price of long-dated bonds, strengthens the capital position of banks that hold them.” “A new twist in the ECB’s reinvestment policy”, September 13.

That reads as Moghadam hopes that ECB, indirectly, in a veiled way, helps to capitalize banks (and his department shine). It should not do so.

In my mind, if we want the real economy to stand a chance of sturdy and sustainable growth, banks should instead, little by little, be made to reduce the financing of public debt, most specially of its own sovereign, that to which they have been guided by very statist very low capital requirements. 

As fast as possible, banks should be allowed to hold the same capital when lending to entrepreneurs and small and medium businesses, as they are required to hold against sovereigns, residential mortgages and AAA rated securities. Only that way do the banks stand a chance to allocate credit efficiently to the real economy. 

In 2004, coming from a developing country, in a letter published by FT I asked: “How many Basel propositions will take before regulators 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.” That clearly applies now also to developed nations.

PS. Sovereign bonds, if so safe, at interest rates not subsidized by regulations, should primarily be available for pension funds and insurance companies.

@PerKurowski

What would happen to the yield curve if regulators dared to increase, ever so little, their current 0% risk weight for US Treasury debt?

Sir, Megan Greene discusses how the yield curve the spread between long- and short-term bonds may be influenced by, “The US Treasury is currently borrowing more money to finance predicted big budget deficits and it has mainly done so with short-term debt… and global quantitative easing has created a seemingly insatiable demand for five- to 10-year Treasuries, pushing down yields.” “How central banks distort the yield curve’s predictive power”, September 4.

But that’s not all the distortion in force. The risk weighted capital requirements for banks might distort even more; we recently saw how Greece was taken down by the 0% risk weigh EU authorities assigned to its debt, which caused European banks to drown in it, until they got rescued, by the victim Greece having to take on even more debt.

If the US, in face of its ever growing public debt, suddenly sees it as its responsibility to increase the risk weight of it, so that the interest rates send more correct signals, then I would hold that the rate on all longer term bonds would immediately shoot up, and many banks around the world would stand there with huge losses on their books. 

I here you “That will just not happen? Yes, they have with that 0% risk weight painted themselves into a corner but, sooner or later, there needs to be some adults in the room who start working against having to face a scenario of total collapse; this time with much less tools available than the last time they kicked the can down the road in 2007 2008 … or at least so we hope… or at least so we pray.

PS. Here on research that is still missing 

@PerKurowski

To base bank regulations on that ex ante perceived risks reflects the ex post possible dangers, is pure an unabridged naïve over-optimism

Sir, Martin Wolf writes “Over-optimism is the natural precursor of excessive risk-taking, asset price bubbles and then financial and economic crises.” “A bit of fear is exactly what markets need” February 14.

Indeed, and what is more a naïve “Over-optimism” than bank regulator’s risk weighted capital requirements for banks, based on ex ante perceived risks reflect the ex post possibilities?

Wolf writes of “the hope that those who manage systemically significant financial institutions remain scarred by the crisis and are managing risks more prudently than before”. Why should they? The incentives provided by the risk weighted capital requirements for banks still distort the allocation of credit. In this context “prudently” means more banks assets going to perceived, decreed or concocted safe-havens, some of which, as a consequence, are doomed to be dangerously overpopulated. 

Wolf admonishes, “If a policy [quantitative easing] designed to stabilise our economies destabilises finance, the answer has to be even more radical reform of the latter.”

I would argue that the “quantitative easing” was not correctly designed to help the economy, precisely because it ignored the regulatory distortions that impeded the economy to, by way of bank credit, use that liquidity efficiently.

Wolf correctly states “It is immoral and ultimately impossible to sacrifice the welfare of the bulk of the people in order to placate the gods of the financial markets”. But I ask, is that not what is being done by allowing banks to obtain higher expected risk adjusted returns on equity when financing the safer present, than when financing the “riskier” future our grandchildren need to be financed?

Again, I dare Martin Wolf to explain why he believes regulators are correct in wanting banks to hold more capital against what, by being perceived as risky, has been made innocous to the bank system, than against what, precisely because it is perceived as safe, is so much more dangerous?

Bank regulators have the right to be fearful, but they should fear more what is perceived safe than what is perceived risky.

PS. Here a brief aide memoire on the major mistakes with the risk weighted capital requirements

@PerKurowski

It’s not the role of regulators and central banks to help governments fund their operations, behind the back of citizens

Sir, Kate Allen writes that “euro-area financial institutions” have reduced their holdings of public debt “17 per cent in the past two years [but] the ECB made nearly €1.5tn of cumulative net purchases of eurozone public sector bonds through its quantitative easing programme — effectively replacing the purchasing role that banks had played. “Post-crisis reforms force European governments to curtail size of debt sales” January 5.

It all forms part of the same statist subsidizing of public debt. 

What would sovereign rates be if banks had to hold the same capital against sovereign debt than against loans to citizens; and if ECB had not purchased “eurozone public sector bonds through its quantitative easing programme”? The answer would have to be rates much higher, which would send quite different risk-free-rate signals.

In 1988, with Basel Accord, statist regulators, with their 0% risk weighted bank capital requirements, began subsidizing immensely government borrowings. When the 2007/08 crisis came along, central banks, perhaps in order to hide own their regulatory failures, with their quantitative easing purchases generated, wittingly or not, new sovereign debt subsidies.

This has dramatically changed the economical relations between governments and private sectors. It amounts to statist hanky-panky behind the backs of citizens. Since besides needing servicing it consumes, for nothing really special, sovereign indebtedness space that could be urgently needed tomorrow, it might become deemed as high treason by future generations. Where this is going to end is anyone’s guess, but it sure won’t be pretty.

@PerKurowski

Leonardo da Vinci, smiling, must be harboring great gratitude to the Fed and ECB for helping his Salvator Mundi to become so highly valued.

Sir, I refer to Josh Spero’s and Lauren Leatherby’s “Record price sparks hunt for Da Vinci painting buyer” November 17.

Surely Leonardo da Vinci wherever he find himself must be smiling and extending his deepest gratitude to Fed’s Janet Yellen and ECB’s Mario Draghi for their QEs and ultra low interest rates. That has allowed him see his Salvator Mundi valued at US$ 450 million much earlier than he could have expected.

And Janet Yellen and Mario Draghi and their colleagues must surely be smiling too. Since Dmitry Rybolovlev bought that painting in 2011 for $127.5m, its current price hints at being successful at reaching an inflation rate target they never dared dream of.

The art curious still do not know who the buyer is, but be sure the redistribution profiteers are also looking after these US$ 450 million to find out how that money escaped their franchise.

Since the latter will surely soon again be talking about inequality I take the opportunity to advance my usual question of: How do you morph such a valuable piece of art into street purchasing power again; that can be used for food and medicines, without the assistance of another extremely wealthy?

@PerKurowski

Now, ten years after, have not all quantitative easing and low interest rates just kicked the crisis can down the road?

Sir, Martin Wolf writes: “A… criticism is that easy money policies have worsened inequality, especially of wealth. But keeping the post-crisis economy in recession in order to reduce wealth inequality would have been insane. In any case, wealth inequality matters less than inequality of incomes, where the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term. Above all, the worst form of inequality is to leave millions of people stuck unnecessarily in prolonged unemployment.” "Unusual times call for unusual strategies from central banks" November 13.

We are now into ten years of post-crisis. How can Mr. Wolf be so sure that if painkillers like Tarp and quantitative easing had not been prescribed, that we would now be in a worse position in terms of unemployment and in terms of inequality? Perhaps that all just kicked the can down the road, a can that could begin to violently roll back on us.

Sir, in August 2006 you published a letter of mine titled “Long-term benefits of a hard landing”. In it I wrote: 

“Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

I agree with that “wealth inequality matters less than inequality of incomes” but when Wolf then holds that “the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term”, it would seem he would also agree with the benefits of a hard landing… that is as long as it is not on his watch.

In my Venezuela we have seen how millions of citizens who had reasonable expectations for the future, are now in desperate conditions. They have learned the hard way that no matter how much they might hold in assets, this means little if at the time you want to convert your assets into actual street purchasing capacity, there is no one there to buy these. And, as we sure have learned, to move from very good to very bad can be lightning fast. 

And I will keep on arguing… if government and regulators prioritize the financing of the sovereigns and of houses so much more than the financing of SMEs and entrepreneurs, we will be heading to a future of much poverty, lived out in an abundance of less and less maintained houses.

Wolf ends with: “given the instability of finance, today’s low neutral interest rates and the unwillingness of governments to use fiscal policy, the willingness of central banks to adopt unconventional policies may be all we have to manage the next big downturn.

Yes we might be in dire need of “unconventional policies”, but not necessarily from the central banks.

For instance we should urgently think of creating decent and worthy unemployments, to face the possibility of a structural lack of jobs. For that I would begin studying how to tax robots and artificial intelligence, and or how to reduce the margins of the redistribution profiteers, in such a way that it permits us to design and fund a universal basic income.

The UBI could initially be small, perhaps just US$ 100 per month, something to help you get out of bed, not so large as to help you stay in the bed, but the system has to be in place before social fabric breaks down, or before populists make hay of our problems.

PS. Today’s low neutral interest rates are artificially set low neutral interest rates

@PerKurowski

Professor Summers. Keeping mum on how sovereign public borrowings are currently subsidized is cheating on the future

Sir, Lawrence Summers writes: “Borrowing to pay for tax cuts is a way of deferring, not avoiding, pain. Ultimately the power of compound interest makes even larger tax increases or spending cuts necessary. But in the meantime debt-financed tax cuts raise the trade deficit, and reduce investment thereby cheating the future.” “A Republican tax plan that would help the rich and harm growth” November 6.

Sir, Prof Summers is entirely correct in that “Borrowing to pay for tax cuts is a way of deferring, not avoiding, pain”. But, one major reason for why such borrowing can occur is that it is currently contracted at artificially low rates.

With the regulatory subsidy imbedded in the capital requirements for banks’ 0% risk weighting of sovereign debt; and with the stimuli provided by the Fed with its low interest policy and huge quantitative easing programs, America’s current government’s borrowing costs do not reflect the real undistorted rates.

Without these non-transparent help from their statist colleagues, there is no doubt the interest rates would be higher, the current fiscal deficit higher, and the adjustments needed much clearer.

Sir, since Professor Summers has been consistently ignoring this, he is willing or unwittingly helping to cheat the future too.

@PerKurowski

Basel Accord’s risk weights subsidized sovereign bonds, so since then these were no longer proxies for risk free rates

Sir, Michala Marcusssen argues that because of quantitative easing and negative interests “the proxies of sovereign bond yields for the “risk-free” rate of return is becoming an increasingly imperfect substitute with potentially dangerous consequences” “The demise of the ‘risk-free’ rate in markets”, June 14.

Marcussen refers to “a new debate on how to treat sovereign debt on bank balance sheets. At present, sovereign debt enjoys favourable treatment not just in the euro area but across the globe. Basel III allows (but does not mandate) a capital requirement of 0 per cent for sovereign bonds”

Not exactly, as I have often written to FT, the problem of a not valid proxy for the risk-free rate originated much earlier, soon 30 years ago.

The Basel Accord of 1988, Basel I, set the risk weights for sovereigns at zero percent and that of citizens at 100 percent. Since that signified a regulatory subsidy of sovereign debt, ever since we have not have had a reasonable proxy for a risk free rate.

ECB, Mario Draghi, before bank regulation distortions are eliminated, should not be allowed to waste any more in QEs

Sir, James Shotter reports that Mario Draghi, “the ECB president, said the central bank would pay close attention to the impact of the recent falls in oil and commodities prices, as well as the ability of banks to pass on the ECB’s monetary policy” “Draghi’s speech hints at further stimulus measures for the Eurozone” February 16.

Mario Draghi, as the former chair of the Financial Stability Board must know that the risk weighted capital requirements for banks, dramatically distorts the allocation of bank credit to the real economy, which impedes banks to pass on efficiently any stimulus measures. And, if Draghi does not yet know that, it’s even worse.

Shotter also refers to Draghi opining that reforms since the financial crisis had boosted the resilience, “not only of individual institutions but also of the financial system as a whole”, and presenting as evidence “that the Eurozone’s banks had boosted their core tier one capital ratios — a key measure of financial strength — from 9 per cent to 13 per cent.”

And Draghi must know that it most surely is the result of banks shedding or swapping assets against which they are required to hold a lot of capital, like loans to SMEs and entrepreneurs, for assets against which they are allowed to hold much less capital. And therefore that strengthening could be absolutely meaningless for banks, or even increase the systemic risk in the banking system; as well as a great source of weakness for the economy. And, if Draghi does not yet know that, it’s even worse.

ECB, Mario Draghi, before bank regulation distortions are eliminated, should not be allowed to waste any more in QEs or other similar stimulus.

One could also ask, how long Europe will stand for having financial authorities that, demonstratively, are not up to the task?

@PerKurowski ©

Never have so few central bank and regulatory technocrats done so much damage with pseudoscientific mumbo jumbo.

Sir, James Grant writes: “We live in an age of pseudoscience. The central banks’ forecasting models have failed to predict the future. Quantitative easing and zero per cent interest rates — policy centrepieces of the post-2008 era — have failed to restore what we used to call prosperity.” “Magical thinking divorces markets from reality" July 21.

Absolutely, but that pseudoscience has its roots in other even worse mumbo jumbo, namely the Basel Accord’s credit risk weighted capital requirements for banks.

With these requirements silly regulatory experts thought they could make banks safer, by allowing these to leverage more their equity for what is ex ante perceived as safe than for what is perceived as risky… as if those perceptions were not already cleared for by other means.

That distorted the allocation of bank credit to the real economy… and sent banks to build up against very little capital, huge exposures to what is ex-ante perceived as safe, precisely the material of which major bank crises are made of… and stopped the banks from lending to those most in need of bank credit like SMEs and entrepreneurs.

The quantitative easing and the zero interest could even have been somewhat effective, had only Basel’s regulatory distortions been removed. Unfortunately that would have made it necessary to admit what was done wrong, and since it is basically the same little group of members in a mutual admiration club that are responsible for both QEs zero interests and bank regulations, we can’t have that… can we?

History will be clear about that never before have some so few technocrats done so much damage. And history will of course not be kind to those who having been informed about it, like FT, nevertheless decided to keep mum.

@PerKurowski

The Fed, with QEs, helped some kids to have a merry Christmas. Now we’ll have to see how all parents pay for it.

Sir, I am amazed that on November 1, 2014, you can title your editorial “Farewell to the Fed’s QE3, a monetary job well done”, all as if its entire job has been done.

Yes the Fed, with its QEs, like a Santa Claus brought some children a lot of gifts paid for by parents’ credit cards, and helped to keep up the Christmas spirit.

But now it is up the parents to pay for those gifts, and to see what to do with the kids who did not receive much or any of these… and, if all that goes well, then that would be the the time to thank the Fed/Santa Claus… not one second before!

You hold “QE was exactly the right thing to try in reviving the US economy”. And I say absolutely “No!” to that.

Before any QE could be really productive, the US (and Europe) needed to remove those credit-risk-weighted equity requirements for banks that cause so much distortion in the allocation of bank credit to the real economy. Those dumb risk adverse regulations caused the crisis and stopped the recovery.

Either the Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell

Sir, on October 25 you title your editorial “The risk that QE will generate inequality”… even though you must know that’s what’s most probable. Shame on you!

And you also end by categorically stating: “Quantitative easing has been a bold and innovative experiment. Its outcomes were always uncertain, and some may have been unfortunate. But central banks have been right to do what they did.”

I am not entirely disputing that, but, over the last decade, I have sent to you, and to your reporters, over 1500 letters where I have argued the following:

The pillar of current bank regulations is credit-risk-weighted capital (equity) requirements for banks; which signify more ex ante perceived risk more equity - less risk less equity; which allows banks to earn much higher risk-adjusted returns on their equity when lending to “the infallible” than when lending to “the risky”... totally distorts the allocation of bank credit to the real economy.

And that causes banks to lend too much at too low rates to “the infallible”, and too little and at too high relative interest rates to “the risky”, like to medium and small businesses, entrepreneurs and start-ups. And, so by impeding the fair access to bank credit, it blocks equal opportunities, and therefore drives inequality.

And therefore, while those capital requirements for banks remain in effect, much of the liquidity provided by QEs is wasted, because it is not allowed to flow, by means of bank credit, to where the real economy would need it the most.

Sir, I guess we have since a long time ago arrived at an impasse. Either big Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell.

If I am proven wrong, I will put on a dunce cap, take a picture of me, and post it, with my most sincere apologies to you and to bank regulators, on my TeaWithFT.blogspot.com.

If instead you are proven wrong... do you have it in yourself to do something similar?

Or is it that notwithstanding your motto "Without favor and without fear", you just do not dare to think of the possibility that the bank regulators could be so fundamentally mistaken?

PS. To introduce the virus of risk aversion into the banks of a Western World which has become what it is thanks to risk-taking, is, as I see it, pure financial terrorism.

PS. That financial terrorism has blocked the creation of millions of jobs that would have benefited our young.

NOTE: I am a happy husband, father and grandfather, with no scandalous past.

I have a long and I quite successful carrier as a financial and strategic private and public sector consultant and, in 2002-2004, I was an Executive Director at the World Bank.

I have studied in Sigtuna SHL Sweden, Lund University, IESA Caracas, London Business School and London School of Economics.

Since 1997 I have published over 800 Op-Eds in some of the most important newspapers in Venezuela.

I have had many letters and articles on banking regulations published around the world. And few can claim having warned in such precise terms on impending banking disasters as I did between 1997 and  2007. 

And I stake all my professional reputation, and the loving trust my family has shown me, on the fact that current bank regulators of the Basel Committee, and of the Financial Stability Board, have been wrong. Not a pardonable 15 degrees wrong, but an unpardonable 180 degrees totally wrong.

QEs were wasted by dangerously overcrowding safe-havens while leaving risky but valuable bays unexplored

Sir, Martin Wolf explores if quantitative easing “An unconventional tool” has worked” October 6. He fends off much criticism of QE with arguments that could make a savvy defense lawyer blush, namely that it should not be accused of weaknesses and risks that it shares with other monetary policies.

My continuous criticism of QE, and that Wolf ignores, is that if QE is done in conjunction with the current credit risk-weighted capital requirements for banks, it will help the safe havens to become dangerously overcrowded, while “the risky” bays, those the economy most need, will remain totally and even more dangerously unexplored.

Wolf mentions the possibility of a “helicopter drop”, retrospectively, but, for that to happen, the QE liquidity would have to be soaked up and returned without the existence of the silly guidance mechanism used by bank regulators.

There can’t be any sturdy economic growth in sending our banks to occupy the terrain where orphans, widows and pension funds used to roam, in order to wait for money to drop on them.

Which also leaves us with one question about the civilian casualties of QE. Where do risk-adverse savers save when what is “most-safe”, pays interest rates below the risk-free rate, as a result of sovereign debt being subsidized by the fact that banks do not have to hold much or any capital against it?

ECB´s Mario Draghi needs to do an act of contrition, for history to be more lenient on him…perhaps

Sir I refer to Claire Jones “Draghi’s new deal”, September 3.

In it Jones writes “The message: Paris and Rome must reform their economies, removing barriers to the creation of business and jobs”.

Well Mario Draghi, as the former chairman of the Financial Stability Board, and therefore much responsible for current bank regulations, should be ashamed of himself. 

I say this because perhaps no barrier stand as high against the creation of business and jobs, than the current credit risk-weighted capital requirements for banks, which have only to do with the short term stability of banks (not the long term) and not one iota with the creation of business and jobs.

It must be demolished, so that bank credit can again flow in fair terms to the “risky” medium and small businesses entrepreneurs and start-ups, and without whose help no economy can move forward.

Were Draghi in an act of contrition, to confess his mistake, and help to "tear that wall down", history might be more lenient with him… though that might be difficult considering how much of Europe’s youth might have already been condemned to form part of a lost generation only because of the regulators' so idiotic and so dangerous risk aversion.

Central banks’ Friedman helicopter pilots have no idea about how to spread quantitative easing and low interest rates

Sir, Ralph Atkins report that "Central bankers face ‘confidence bubble’” August 28.

With respect to central bankers as bank regulators you know very well it’s been a long time since I have had any confidence in them. They are so lost in the labyrinth of their own making.

For instance they are now also supposed to base their monetary policy on the job rate, and so they pour liquidity and low interest rates on the economy while at the same time, with their risk-weighted capital requirements, they make sure that does not go as bank credit to “The Risky”, the medium and small businesses, the entrepreneurs and start-ups… those who could create the next generation of jobs. How crazy is not that?

Really, how smart is it of the central bankers to believe ordinary lowly bankers to be so blind and so dumb so as to require them to hold 5 times as much capital when they lend to someone they know has a BB- rating than when they lend to someone they know has an AA rating?

Or, inversely, how smart is it of central bankers to believe ordinary lowly bankers when they argue they could hold only a fifth of capital when lending to someone who has an AA rating, than what they should hold when lending to someone with a BB- rating?

I can’t help to ask myself what Friedman would have to say about the ability of the current central bank’s helicopter pilots. I am sure he would be aghast at their stupidity.

PS. FT, dare to ask!

Sir FT, are you allergic to the idea that SMEs, entrepreneurs and start-ups lend our economies a helping hand?

Sir in “Central banks at the cross-roads” August 25, you describe the cross-roads in terms of whether central banks and governments are, with fiscal and monetary policies, to help or not to help. 

You do not include the crossroad that rids of the discrimination against “the risky” present in the risk-weighted capital requirements for banks. Doing so would allow banks to once again lend to medium and small businesses, entrepreneurs and start-ups. Are you allergic to the idea that they should have a chance to help out?

Why does FT insist on wasting scarce quantitative easing, before removing the roadblocks in Europe?

Sir, again, sort of for the umpteenth time, you insist in that “Europe now needs full-blown QE” August 15.

Although you do not want to confess it, perhaps because for some really petty reasons, I know you are perfectly aware that the risk-weighted capital requirements for banks, acts like a roadblock that would stop any liquidity provided by quantitative easing, to reach by means of bank credit, those Europe most need to reach, namely medium and small businesses, entrepreneurs and star-ups.

Why would you want to waste what must be some quite scarce European quantitative easing before removing that boulder?

Eurozone cannot afford ill-targeted quantitative easing.

Sir, I refer to your “Eurozone needs quantitative easing” July 21. No! It cannot handle more distortions.

Before getting rid of the capital controls that risk-weighted capital requirements for banks represent, and which channels new liquidity to whatever is officially perceived as absolute safe, and not to where the economy most needs bank credit to go, any Eurozone quantitative easing would be plain foolish… and set the eurozone up for something even worse.

And to top it up, you suggest that quantitative easing should be carried out through the purchase of government bonds, as if the zero risk weighting of eurozone government bonds is not distortion more than enough.

We must indeed fret the possibility of some fundamental lack of character at the Federal Reserve

Sir, Henny Sender makes a well argued call in “The Federal Reserve must not linger too long on QE exit” July 5; concluding with opining that “The Fed wants to have its cake and eat it too”, and asking “Might it be that the Fed has everything in reverse?" It is truly scary stuff! 

On August 23, 2006, you published a letter I sent titled “Long-term benefits of a hard landing”. Therein I wrote:

“Sir, While you correctly argue (“Hard edge of a soft landing for housing”, August 19,) that “even if gradual, a global housing slowdown would be painful” you do not really dare to put forward the hard truth that the gradualism of it all could create the most accumulated pain.

Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

And now Sir, soon eight years later, we can only observe how the Federal Reserve, even when facing clear evidence all what their liquidity injections and low rates have achieved is increasing or maintaining value of existent assets, and little or nothing has it done for the creation of any new real economy… are unwilling to cut the losses short, and keep placing more and more bets on the table… with our money!

Sincerely, no matter how we look at the Greenspan-Bernanke and incipient Yellen era at the Fed, we have reasons to fret the existence of some fundamental lack of character.

PS. Of course, when it comes to banks, the regulators have already evidenced plenty lack of character with their phobia against “the risky”. And so now they also have our banks placing ever larger bets on what is “safe”, blithely ignoring that in roulette, as in so many other aspects of life, you can equally lose by playing it too safe.

Instead of QE, why not an ECB cheque to each European?

Sir, Wolfgang Münchau comes strongly out in favor of a quantitative easing program of well over $1tn… among other “to get banks to sell assets to the ECB, the proceeds of which they would use to lend to companies”, “Central bankers talk far too much and act to little” March 31.

I wonder, with current risk-weighted capital requirements for banks, would that lending to companies really result in a for the real economy efficient way? It would not! For that, better than QEs, is to get rid of those entirely unmerited regulatory distortions against the access to bank credit of “the risky”, medium and small businesses entrepreneurs and start-ups.

And since lately there has been quite some outrage over the unequal distribution of wealth, should we not consider that QE’s, the way they have been designed, are really drivers of inequality? In that case, why not a cheque to every European instead, and then take it from there? Please don’t let anyone fool you, ECB, by buying specific type of assets, is handing out lots of free cash to some few.