The main ingredient of any safe pension system is a healthy and sturdy economy.

Sir, I refer to Martin Wolf’s “It is folly to make pensions safe by making them unaffordable” FT, June 28.

Wolf writes: “We also need true risk-sharing within and across generations, which is absent from today’s defined-contribution schemes”

But current risk weighted bank capital requirements, with lower risk weights for financing the “safer” present, e.g., loans to governments and residential mortgages, than when financing the riskier future, e.g., small businesses and entrepreneurs, is a clear example of how that intergenerational holy bond Edmund Burke wrote about has been violated.

John Kay and Mervyn King.“Radical uncertainty”? Please, give us a more stupid "radical certainty", than credit risk weighted bank capital requirements.

And way back, when observing how many Social Security System Reforms were based on the underlying assumption that they will be growing 5 to 7 percent in real terms, I also warned, time and time again, that it was not possible for the value of investment funds to grow, forever, at a higher rate than the underlying economy, unless they are just inflating it with air, or unless they are taking a chunk of the growth from someone else. In this respect the 'chickens are only coming home to roost'.

PS. Historically, through all economic cycles, there is nothing that has proven so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that, in real terms, you can't beat with any social security reform.

A letter to Martin Wolf in 2015. An essential component of an Edmund Burke intergenerational holy bond, must be the willingness to take risks.

Another letter on this subject sent to Martin Wolf in in 2017

And another letter on the Covid response intergenerational conflict of monstrous proportions, also published by the Washington Post in 2020

How much lower fertility, less children, is caused by “habitual well-being”?

@PerKurowski

The “midlife crisis” of Generation X or the Millennials, could be piece of cake when compared to what seems to await for them down the years.

Tim Harford, making reference to a new research paper from Angus Deaton, Nobel laureate in economics, argues that “people who would have their wellbeing most improved by a cash injection are the middle-aged, people between their forties and their sixties.” “A monetary remedy for the midlife crisis” March 31.

It is a fun argument for Harford to use when “I will have a word with my father and my children”.

But what would Harford say if the answer he got from his children was: “Daddy, in terms of where you find yourself in your lifecycle, you are the one living most over your means… so no cash for you… spend less… save more (so that you might leave some to us as your father left to you)… and for God’s sake get rid of those risk weighted capital requirements for banks that hurt us so much.”

That mentioned piece of regulation, by favoring banks to finance the present safer consumption over the “riskier” future production, has already placed a reverse mortgage on the current economy, which is jeopardizing everyone’s future.

And also, since it amounts to a gross violation of Edmund Burke’s holy intergenerational contract, I would suggest Harford and his generation begin to prepare a very good defense speech for when they will have to respond to their children why they allowed that to happen.

And Harford, as a retiree, or at least his generation of retirees, will also suffer because, as I have argued so many times, there is no better pension plan than having children who love you and are able to work in a reasonable healthy economy.

Sir, my grandchildren will at least know how much their grandfather, obsessively, fought against that crazy risk aversion. Will yours?

PS. If you dare to see how the elderly could so unexpectedly for them be suffering horrors, have a look at what is happening in Venezuela.

Where would China be if western world had not placed a reverse mortgage on their economies, in order to keep on buying?

Sir, with interest I have read Martin Wolf’s “How the developed world lost its edge” July 20. In my opinion Wolf ignores two major events that had these not happened would have radically changed the current outlook.

First, regulators told banks: “Go out in the market and negotiate the best risk-adjusted net margins you can. And then, in order to make sure you do not take risks, we will allow you to multiply these margins much more in the case of assets perceived as safe than in the case of risky assets.”

That of course led to the accumulation of excessive exposures and against very little capital (equity), to something ex ante perceived decreed of concocted as safe, like AAA rated securities and sovereigns, which when ex-post turning out very risky caused the 2008-crisis.

And then central banks, with their QEs and ultralow interest rates, hindered the necessary market cleanup, and kicked the 2008-crisis can down the road, a road made unproductive by previous mentioned regulatory risk aversion.

So what resulted? No adjustment and further indebtedness, which allowed prices of assets to increase and demand (among other of Chinese production) to be sustained… further allowing the Chinese to save. 

Wolf writes: “The rapid growth of both trade and cross-border financial assets and liabilities and trade, relative to global output, has come to a halt. In the case of finance, plausible explanations are risk-aversion and re-regulation”. “Risk-aversion”? Yes, but not any new one but that which result from regulators loading up, on top of bankers’ natural risk aversion, there own aversion based on the same perceived risks. The bankers lend you the umbrella when the sun shine’s Mark Twain, would never have believed his eyes had he seen such regulatory nonsense.

Sir, as I’ve written to you many times before, never ever has a generation taken on so much debt to finance their own consumption, and shown so little respect for the needs of future generations, those needs that include bankers lending to risky SMEs and entrepreneurs.

How can a Western world made great by taking risks, not lose its edge by avoiding it?

Wolf concludes with: “Rising populist pressure across the high-income economies makes managing these shifts far more difficult.” Indeed, but let us not forget that this mess began when some truly inept populist technocrats, like real life Chauncey Gardiners, convinced governments they knew what they we doing.

PS. Martin Wolf also fell for it.

@PerKurowski

Bank regulators have placed a reverse mortgage on our economies that extracts all present value and builds no future.

Sir, Martin Wolf writes about the growth of fiscal spending in health and other “predominantly age-related areas” and about “a conflict between the young and old and between the successful and less so”, “This year’s election will decide the future of the British state” February 20.

It is much worse than that. Regulators, with their equity requirements based on credit risks, de facto ordered banks to function as if they were the portfolio managers of retiree… “Don’t finance the future, that’s too risky… refinance the past, that’s safer.” And that has meant something like placing a reversed mortgage on our economies… extract maximum present value and leave no inheritance to those coming after.

And anyone that thinks that the fiscal deficits of tomorrow could be compensated by higher taxes only… and that if growth is needed then it suffices with governments proceeding with some infrastructure investments has no idea of the workings of the economy.

Those valves that control the flow of bank credit to “risky” SMEs and entrepreneurs are closed shut. They need to be open… as they always were… before my me-and-only-me baby-boomer generation outsourced bank regulations to an après nous le deluge Basel Committee.

Taxation through reverse mortgages?

Sir in “Adapting to mediocre prospects” July 17 Martin Wolf writes “Let the cash-poor but land rich borrow their tax payments from the government and demand repayment on death”. Is Martin Wolf trying out as a modern Sheriff of Nottingham proposing the taxation through reverse mortgages?

Why does Mr. Wolf not go after the cash-rich to begin with? What does Mr. Wolf have especially against landowners? Why does Mr. Wolf for instance not go after all those intellectual property owners who are granted monopoly rights and protection by the state without paying anything special for that?

But what are Britain’s banks to do for Britain

Sir Martin Wolf “What to do with Britain’s banks”, December 12, is evidence that the most immediate task at hands for the regulators who “represent the interest of these risk-bearers of last resort” should be to start giving thoughts on what Britain’s banks should do for Britain.

Ironically the current bank regulations fabricated by the Basel Committee had the sole purpose of avoiding bank failures, and which is why the regulators imposed minimum capital requirements based on vaguely defined risks of default and empowered the credit rating agencies to measure these risks, and we see were all that nonsense got us. The worst part of this financial nightmare turned reality is that most countries have so little to show for it.

An explosion of public and consumer debt, as if we all had placed a reverse mortgage on the world, is nothing to write home about. Our worst risk now is that the regulators in Basel and many influential opinion makers with them are incapable of understanding that the purpose of our banks is really not to avoid risks but to take the right risks on behalf of society since those are the only risks taxpayers could be asked to pay for.