Who is going to fact check the political ads on social media fact checkers? Big Brothers?

Sir, you opine: “The spread of political advertising on social media requires companies fact-check political ads in collaboration with trusted, independent organizations”, “Online political ads are in urgent need of regulation” November 1.

“Trusted, independent organizations”, does that not ring a bell with respect to trusting the human fallible credit rating agencies with so much power to decide on the risk weighted bank capital requirements?

I am reminded of an Op-ed I wrote in 1998 in which I argued, “In many cases even trying to regulate banks runs the risk of giving the impression that by means of strict regulations, the risks have disappeared” 

And in it I opined “in matters of financial regulations, the most honest, logical and efficient is simply alert to alert about the risks and allow the market, by assigning prices for these, to develop its own paths”

Sir, if I was concerned then, how much more concerned should I not be with the possibility of social media, fact checkers and Big Brothers entering joint ventures. 

So no Sir! Much better is a continuous reminder that: “Nothing advertised here has been fact checked and so even though it sounds interesting and correct, it is quite possible that it is all fake, even an outright shameful lye”

@PerKurowski

Martin Wolf, we sure don’t need a Basel Committee for Large Technological Companies Supervision

Sir, Martin Wolf ends his discussions about the monstrously large technological companies (Apple, Alphabet, Microsoft, Amazon and Facebook, Alibaba, Tencent and Samsung) with: “What are the implications? They are that our futures are too important to be left to the mercies of the technology industry alone. It has done magical things. Yet nobody elected it master of the universe. Policymakers must get an intellectual grip on what is happening.” “Taming the masters of the tech universe” November 15.

Does Wolf really believe some probably self appointed technocrats should be able and capable enough to stand in for the current masters of the tech universe, for all these to work more smoothly and safer without any unexpected consequences?

I am reminded of AEI’s Alex J. Pollock’s 2015 article “Martin Wolf’s childlike regulatory faith”. That article referred to Wolf’s “naïve faith in the future superior knowledge and future ability of central bankers and other bureaucrats successfully to tell other people what to do”.

Sir, just look at what those who appointed themselves as the Regulation Masters of the Universe of Banks have done:

They have allowed banks to leverage differently with different assets. As a consequence banks have different capability to obtain risk-adjusted returns on equity with different assets. This has dangerously distorted the allocation of bank credit to the real economy, in favor of what could be leveraged the most. Now instead of banks wanting savvy loan officers to maximize their ROE, they look mostly for equity minimizers to do that.

And, by considering the risk of the banks assets per se, and not the risk those assets represent to the banks, they got their whole risk-weighting totally wrong. A clear example of that is Basel II’s risk weight of only 20% for the dangerous AAA rated and of 150% for the so innocous below BB- rated. Sir, have you ever seen more inept Masters of the Universe?

Would the banks left alone to the markets be able to leverage 62.5 times to 1 only because an AAA to AA rating was present? No!

Would the banks left alone to the markets be able to lend to sovereigns without any capital at all as Basel II’s 0% risk weighting of sovereigns implies? No!

Would we have suffered to 2007-08 crisis had it not been for these regulations? No!

Do I suggest we should leave the tech monsters to do what they want? No, but I don’t think markets will allow them to reign alone and do what they want forever either… things do change, just look at GEs and Siemens.

For instance I can feel some ad-blockers around the corner that could help us users to charge Google and Facebook something for them using our own preferences to earn their advertising revenues.

And I can also smell additional taxes coming up in the future, like for instance a minuscule cost for each advertising connection in social media, which would make sure the marginal cost of exploiting our limited attention span is not zero. But these taxes will hopefully be shared out to all by means of universal basic income mechanisms instead of increasing the franchise value of the redistribution profiteers.

And to combat “people of ill” engaging in “deliberate dissemination of dangerous falsehoods”, much could be helped just by means of having an independent credible register that guarantees us who do not want to engage with unknown strangers, that behind a communication stands a correctly identified and not hacked real person.

PS. Here are some questions I have on tweets and tweeting etiquette that I tweeted.

If without any bad intentions I have re-tweeted a tweet that turns out to be fake news or fake and damning accusations, could I be sued?

If I re-tweet a tweet that I know or should know contains fake news or fake damning accusations, should I be sued?

Don’t we need a sort of ISO quality standard on tweeting that we can adhere to?

Don’t we need somebody to guarantee us that a tweeter is a real identifiable person that has not been hacked?

@PerKurowski

Insurance sector: Again loony regulators are trying to cover for unexpected losses by analyzing the expected ones.

Sir, I refer to Alistair Gray’s report on “the capital [insurance companies] must hold against unexpected losses” “Insurers face tough new safety rules” October 5.

In it Gray writes: “A paper to be published quantifies the higher capital requirements for the designated insurers. The size of the hit will depend on each company’s mix of business and how systemically important regulators deem them to be. So-called non-traditional and non-insurance (NTNI) activities carry the largest surcharges, of between 12 per cent and 25 per cent.”

So again we have regulators, like those of banks, who set capital requirements for unexpected losses based on the expected risks they perceive. Loony! Do regulators really think they can perceive risks better than the insurance companies? Is there not a huge risk that both the insurance companies and the regulators will perceive the same risks, and so that there therefore will be an overreaction to these risks, which obviously means a sub-consideration of other risks? And boy, are these regulations just screaming to be gamed?

Also, at a moment that so many want infrastructure projects to be started as a way of reactivating the economy, who of the regulators is thinking about the fact that many of the risky long term projects, often financed by insurance companies… could perhaps not happen only because of wrong and distorting capital requirements.

Where have all humble regulators that know of the importance of not interfering gone? When will they ever learn, when will they ever learn?

Why do they in order to cover for unexpected losses not just set for instance a 10% capital requirement on all assets? Are they scared they would then look like less sophisticated regulators to the general public? If so, God save us from regulators suffering an inferiority complex.

@PerKurowski ©

Those creating regulations that can be cheated provide the cheaters competitive advantages.

Sir, Michael Skapinker writes: “Devising a system to detect when a car is being tested surely required planning, expertise and a specific decision. It must have required forethought. It is not something you can drift into through incrementally deteriorating behavior”, “Volkswagen, its software and the psychology of cheating” October 1.

Indeed and we must blast Volkswagen for doing that. But, is it not also the responsibility of regulators to make absolutely certain that cheating cannot happen? Otherwise they will be providing the cheaters with a competitive advantage to win over those who do not cheat. At the end of the day, though Volkswagen needs to be punished, severely, let us not forget that it all happened thanks to lazy regulators who thought it was enough to regulate and no would cheat or game it.

Exactly the same happened when bank regulators allowed banks to hold very little capital against what was perceived as absolutely safe, and the securities backed with lousy mortgages to the subprime sector were dressed to the nines, wearing false AAA ratings.

@PerKurowski

A world obsessed with Best Practices may calcify its structure and break with any small wind

In reference to Mr. Flash Crash’s supposedly malevolent disruption of the market in 2010, John Plender writes interestingly about globalization, regulations and fragility “Global financial regulation meets a cul-de-sac” April 23.

In this respect I would like to recall a written statement that I delivered as an Executive Director of the World Bank on April 2, 2003, while discussing its Stategic Framework 04-06. In it I wrote:

“Ages ago, when information was less available and moved at a slower pace, the market consisted of a myriad of individual agents acting on limited information basis. Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg.

A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

http://subprimeregulations.blogspot.com/2003/03/my-comments-on-world-banks-strategic.html

@PerKurowski

Yes, America, the Land of the Free and the Home of the Brave, is suffering some serious mutations.

Sir, Edward Luce is absolutely right writing about “America’s compulsive urge to regulate” April 28. It would suffice with reading all those mindboggling, never less than two dozen, of safety instructions stapled around those American swimming pools from which you are extracted, every half hour, for a water quality check.

And when it comes to incongruities with “The Land of the Free and the Home of the Brave” it suffices to know that in America too… by means of risk-weighted capital requirements banks are allowed to earn much higher risk-adjusted returns on shareholders capital, when lending to the “absolutely safe” than when lending to the “risky”

FT, I just can’t believe you believe we need regulators, like Michel Barnier, to save us from Libor scandals

On September 3 you wrote “Barnier’s revolution”, in which you held that Brussels is right to end self-regulations”, like in the case of setting the Libor benchmarks.

Please read carefully your own reporters “Court papers reveal Libor broker called banks ‘sheep’” September 26, and tell us: Now that the market knows what happened, what good can come from having a regulator, perhaps Mr. Michel Barnier himself, overseeing the setting of Libor?

We share John Kay´s miseries

Sir what John Kay describes in “Public projects obscured by private finances” February 16, is very much what happened in many developing countries when we were subjected to the privatization crusade of our utilities and infrastructure.

Instead of the good project engineers, we were told we would get to run the operations efficiently, we were assaulted by financial engineers searching for how to squeeze out the most of what de-facto were most often safe monopolies, and that should ordinary have been financed at very low rates by orphans and widows. And, the cleverer these wizards structured the projects, the more they could pay upfront for the rights of executing them, and so the happier were our authorities too.

And now we are stuck with it, having to find consolation reading John Kay and seeing that at least our miseries are shared. The saddest part though is that it has so unnecessarily given the private sector a bad name. Looking at how doomed-to-fail these projects often were structured makes one suspect that it could almost have been done so on purpose.