Three questions for Angus Deaton, the chair of The Institute for Fiscal Studies’ wide-ranging review of inequalities in UK

Sir, I refer to Angus Deaton’s “Inequality in America offers lessons for Britain” May 15.

I have three questions for him:

Regulatory subsidized credit for the purchase of houses, which has helped morph houses from being homes into investment assets, how much increased inequality has that caused between those who own houses and those who do not?

The increased benefits for those who have jobs, how much increased inequality has that caused when compared to those without jobs?

The risk weighted capital requirements for banks, which very much favors the financing of the “safer” present over the riskier future, how much inequality is it producing between current and future generations?

PS. Decreed inequality

@PerKurowski

We need to rethink productivity data, in light of so many “working hours” spent consuming distractions.

Sir, referencing Chris Giles’ and Gavin Jackson’s “Surge in low-value jobs magnifies UK productivity problem” of August 13, I believe that whenstating “increases in low-wage jobs in bars, social work and warehouses have served to hold back UK productivity growth” it hints at sort of causation that might not really be there.

I say so because we have entered a new era that requires redefining entirely the ways we measure productivity. 

Some months ago, in Bank of England’s “bankunderground” blog, we read a post by Dan Nixon titled “Is the economy suffering from the crisis of attention?”. It said, “With the rise of smartphones in particular, the amount of stimuli competing for our attention throughout the day has exploded... we are more distracted than ever as a result of the battle for our attention. One study, for example, finds that we are distracted nearly 50% of the time.”

Nixon, answering the question posed in the title wrote, “The most obvious place to look would be in productivity growth, which has been persistently weak across advanced economies over the past decade.”

But, what if instead of being recorded as distractions during working hours, these were to be recorded as a private consumption that reduces the effective working hours? Would that not increase GDP and reduce working hours, and thereby point instead to a dramatic increase in productivity?

In the same vein, would then not real-salaries, instead of stagnating, have been increasing a lot?

And what about our employment and unemployment data if the time used to consume distractions during working hours would not be counted as work? 

Sir, it behooves us to make certain how we measure the economy gets updated to reflect underlying realities. 

Perhaps then we are able to understand better the growing need for worthy and decent unemployments.

Perhaps then we are able to better understand the need for a Universal Basic Income, not as to allow some to stay in bed, but to allow everyone a better opportunity to reach up to whatever gainful employments might be left, like those “low-wage jobs” that it behooves us all, not to consider as “low value jobs”

@PerKurowski

Productivity, real salaries, employment rates, GDP should consider the increased consumption of distractions during work hours

Sir, Erik Brynjolfsson (and Andrew McAfee) writes: “If machine learning is already superhuman, why did we not see it in productivity statistics earlier? The answer is that its breakthroughs haven’t yet had time to deeply change how work gets done” “Machine learning will be the engine of global growth” July 27.

That is true, but we also need to realize that we have not done yet measured the effect of all the increased consumption of distractions during working hours.

In Bank of England’s “bankunderground" blog we recently read: “With the rise of smartphones in particular, the amount of stimuli competing for our attention throughout the day has exploded... we are more distracted than ever as a result of the battle for our attention. One study, for example, finds that we are distracted nearly 50% of the time.”

And on a recent visit to a major shop in the Washington area, thinking about it, I noticed that 8 out of the 11 attendants I saw were busy with some type of activity on their cellphones, and I seriously suspect they were not just checking inventories.

The impact of that on productivity, with less effective working time is being put into production, could be huge.

Also, going from for instance a 10% to a 50% distraction signifies de facto that full time or paid by the hour employee’s real salaries have increased fabulously.

And what about the real employment rate if we deduct the hours engaged in distractions? A statistical nightmare? Will we ever be able to compare apples with apples again?

And how should all these working hours consumed with distractions be considered in the GDP figures?

@PerKurowski

Do we want to settle for working or middle class robots? I want the 1% top ones to work for my grandchildren

Sir, Sarah O’Connor while discussing the issue of jobs, for humans or robots, sensibly concludes that it is not “the routine jobs” taken over by robots that should bother us but “the basic stuff — homes, security, prospects — that we lost along the way” “The middle class is not shrinking as much as it thinks” July 11.

O’Connor brings up an interview from a 1974 book “Working” written by social historian Studs Terkel. In it a steelworker says: “I want my kid to be an effete snob . . . If you can’t improve yourself, you improve your posterity. Otherwise life isn’t worth nothing.”

I sure agree with this steelworker’s general concept, but, if my grandchildren must turn into effete snobs, I hope it is not because they have been replaced by some low or middle class robots, but by the 1% absolutely best ones… or the smartest ever artificial intelligence.

Sir, it should be clear that the better the robots that work for us the more they could produce for us. The marginal contribution of robots that substitutes for bank tellers must surely be less than that of robots that substitutes for bank CEOs.

Just as an example, let us suppose current bank regulations had been carried out not by Basel Committee technocrats, but by some smart artificial intelligence. Then the 2008 crisis and the ensuing slow growth would never have happened. Mr. AI would of course first have looked at what causes major bank crisis and so determine that excessive exposures to something ex ante perceived as risky, never ever did. He would also have understood that allowing banks to multiply with different leverages the net risk adjusted margins, would completely distort the allocation of bank credit to the real economy.

So what can we do? I would say first to make sure to keep the competitive pressure up on robot manufacturers. If we increase minimum wages for humans and do not begin taxing what the robots produce, we will not get the best robots we want.

An updated Chinese curse would be: “I wish your grandchildren live attended by 3rd class robots and dumb artificial intelligence.” And Sir, I would hate for that to happen to my grandchildren, because of something that I did or did not do.

Of course then we would come to the very delicate issue of how do we redistribute robot and automation productivity to humans. That is going to be awfully contentious. The only thing that occurs to me, before social cohesion breaks down, is to being by trying out a universal basic income.

That UBI should start out low and be very carefully designed. That is so because an UBI would become de-facto the robot that substitutes for the current redistribution profiteers, and so these would love to see it fail.

@PerKurowski

What if we had to face structural unemployment without fantasy games and with only books a la Jane Austen’s days?

Sir, Tim Harford writes: “young men in particular — are completely disengaged from the labour market. (They don’t count as unemployed because they’re not looking for work.) In 2016 — excluding full-time students — 15 per cent of men in their twenties did not work a single week in the entire year…why are so many young men not even looking? One explanation is that they would rather be playing a game” “Fantasy gaming beats having a job”, July 8.

Harford finds this to be an alarming trend: “If basement-dwelling videogamers are turning their backs on reality, they are missing a vital opportunity to pick up the skills, experience and contacts they will need if they’re ever to earn a proper living. The long-term prognosis is worrying.”

I am not so sure. It looks like the world, because of robots and automation, (and lousy risk adverse bank regulations) could soon face severe structural unemployment, in which case what to do with those unemployed, in order for social cohesion not to break down, becomes a major challenge.

Not long ago I remember reading about a city that, in order to keep large groups of youths from littering and causing a general disorder, was exploring plans to install speakers in the main square to play "nice, easy listening" music to calm behavior. I believe some Barry Manilow songs were to be on the repertoire.

I’ve no idea if that plan was put into effect, or if so of its results, but there is no doubt in my mind that keeping the youth busy with interesting games sounds like a more effective strategy.

Of course we should hope for those games to inspire good citizenship. Who knows, down the line there might be a Nobel Prize of Peace awaiting some specially deserving game designer.

And even if “Food is cheap; living with your parents is cheap; computer games are cheap” some type of Universal Basic Income must be present, in order to be able to at least half-bake a solution. If not young men could soon be telling their parents “Mom, Dad, you move down to the basement, now its my turn to live upstairs!”

But what are we to do with “Women — who spend less time playing games”? Will embroidery still do?

PS. We need decent and worthy unemployments

@PerKurowski

This

or this?

President Emmanuel Macron, listen to me, this is what you should understand before you act.

Sir, Martin Wolf reduces France’s problems to “low employment; the low rate of economic growth; and the sheer scale of public spending” “The big challenges facing France” May 10.

For a starter Wolf recommends Macron to get down on his knees: “The first priority is to pray for a strong recovery” this since “The persistently high unemployment must be at least partly cyclical”

Nothing wrong with praying, but I would suggest Macron first tries to understand more the origin of these problems.

Low employment? It can surely have something to do with an incipient wave of structural unemployment caused by robots and automation, in which case Macron better starts looking for tools to create decent and worthy unemployments, immediately, before things get out of hand.

Wolf writes: “Mr Macron needs to legislate his labour market”, and for that “The most important priority with the former is to reduce protection for permanent workers: few will hire if they cannot hope to fire.” Absolutely, and so perhaps what is needed are some unions that represent the unemployed and those that work less than 50% in the gig economy… and to get a national debate on universal basic income going, taking care of course of not letting that debate fall in hands of threaten redistribution profiteers. 

Low rate of economic growth? With risk weighted capital requirements for banks that favor the refinancing of the safer past and present over the financing of the riskier future, what else can be expected? I would suggest Macron calls in his bank regulators and asks for instance the questions linked here, and, if he cannot get satisfactory answers then he might copycat Trump: “Your fired!”

The sheer scale of public spending? Back to the regulators again: If you risk weigh the Sovereign at 0%, and the SMEs and entrepreneurs at 100%, you are heading to fall off the cliff of excessive public debt… no way to stop that. What would be the interest rates on French sovereign debt if banks had to hold the same capital (equity) against these loans than what they are required to hold against loans o French SMEs or entrepreneurs?

PS. Wolf writes: “Fortune favours the bold. Emmanuel Macron took a huge gamble and won”. Just out of curiosity, what would have been his huge loss had he not won? As I see it his huge loss would result from not doing what France needs.

@PerKurowski

My Industrial Policy would be to try having the best robots, and the most intelligent artificial intelligence

Sir, I refer to Rana Foroohar’s “Wanted: an industrial policy for America” May 8.

The 2007/08 financial crisis resulted from excessive exposures to what had been perceived, decreed or concocted as safe, those assets which therefore regulators allowed banks to hold against very little capital. Examples: the AAA rated securities backed with mortgages to the subprime sector and loans to sovereigns like Greece.

That should have been more than enough proof that, distorting the allocation of bank credit to the real economy with risk weighted capital requirements for banks, was not the way to go. But they all left it at that. As a consequence, only because they were as “risky” discriminated against by bank regulators, perhaps hundred of thousands SMEs and entrepreneurs have since then gotten their requests for bank credit rejected, or priced much higher. So Foroohar’s referencing an “Obama administration playbook” as especially favorable to job creation, sounds way out of place.

Yes, it is great that any government focuses its interest on job creation, but sometimes it must also give considerable thought to what to do if those jobs are nowhere to be found. That is why some years ago I wrote: “We need worthy and decent unemployments”.

I am against protectionism but, at this particular moment, if it were up to me, I would protect all learning and developing opportunities that could help my grandchildren to have access to the absolutely best robots and absolutely most intelligent artificial intelligence.

That is because if they don’t have it, they will benefit less or, in order to compete, have to work much harder for less than others.

That is because the Chinese curse “May your children live in interesting times”, might soon be upgraded to “May your grandchildren live surrounded by 3rd class robots, and dumb artificial intelligence”. 

PS. Sir, my granddaughters are Canadian so this message is in fact directed more to Mr. Trudeau than to Mr Trump.

PS. Again, please FT you who are so without fear, dare to ask regulators the questions below and dare learn the truth.

http://subprimeregulations.blogspot.com/2016/12/must-one-go-on-hunger-strike-to-have.html

PS. Then in 2023 I discovered OpenAI – ChatGPT. And boy could artificial intelligence help empower a citizens’ democracy. That is if, of course, if #AI regulators allow it. It could endanger their current Bureaucracy Autocracy.

 

@PerKurowski

Our societal radar does not record sufficiently many crucial problems and less do we discuss their possible solutions

Sir, Gillian Tett refers to JD Vance’s “Hillbilly Elegy” April 28.

The author, having faced “a family and culture in crisis” and in order to “combat a culture of instability, irresponsibility, anger and pessimism, made worse by opioid addiction’ suggests, besides the reintroduction of [some] military service, giving extended family members easier adoption rights over troubled children, enabling people receiving housing vouchers to move beyond poverty-stricken ghettos, and, most crucially, encouraging business to work with schools and community colleges to reshape education for teenagers, with more mentoring and apprenticeships.”

Ms. Tett concludes, “These are profoundly sensible steps. But they are also notably not measures that are getting much attention from Trump, let alone from the Democrats. Therein lies the tragedy of America today.”

Absolutely, it is a tragedy, but not only of America. Too much is not recorded timely by our social radars, or if identified then becomes horribly distorted, most often by those who want to profit, monetary or political, from the solutions.

For example: The world is facing structural unemployment, among other by robots and automation becoming more and more efficient. But was that talked about during the last election? No! It was not as politically juicy as going after, or defending, immigrants. If it had been discussed the Mexican wall could have been a non-issue.

In such a jobless world, in order to remain viable societies, we would have to create decent and worthy unemployments, which would probably have to include some sort of universal basic income? But was that talked about during the last election? No!

Also, for our economies to be able to move forward we have to stop current insanely risk adverse bank regulations, that refinances up to the tilt the safer present and past, while refusing financing the riskier future. Is that distortion discussed? No way Jose! If you do they might not invite you to Davos.

Instead populists agitate for instance with realities such as some few billionaires holding more wealth than half of the world’s population…while conveniently ignoring how un-transferrable such wealth really is… or scream about all the “cash stashed away” as if that cash was cash.

To have a chance to leave something reasonably workable to our grandchildren, we need to dramatically realign many incentives and fight those who are marketing solutions only to profit on these. In that respect here follows some of my wishes:

That we are able to keep the fiscal income lean since that is the only way to guarantee the fiscal spending does not get mean.

That we fight tooth and nail against all redistribution profiteers. By for instance creating carbon taxes that helps to save the environment, but that have all its revenues shared directly, equally, among citizens.

That we develop guidelines that help us classify credits, and as a consequence debts, into legitimate or odious.

That we make the pension plans of academics of the universities entirely contingent on how it goes for their students. As a minimum their pension funds should hold all the education loans that were given out in order to pay their salaries.

And of course, please, we must get rid of the so useless and so dangerous risk weighted capital requirements for banks.

@PerKurowski

When you parents prod banks to finance houses more than SMEs, more of your children will have to live with you.

Sir, Stephen Burgen when reporting on the horrifying lack of jobs in Spain, especially for the younger, informs: “According to a report by Spain’s Youth Council, a body of youth organisations, nearly 80 per cent of those aged between 16 and 29 years old live with their parents” “Part-time labour” April 22.

For purposes of setting the capital requirements for banks, in 2004 Basel II set the risk weight for financing residential houses at 35% while that for financing an unrated SME or entrepreneur was set at 100%.

That meant that banks could leverage their equity much more when financing the purchase of a house than when lending to SMEs or entrepreneurs.

That meant that banks would earn higher risk adjusted returns on equity when financing the purchase of a house than when lending to SMEs or entrepreneurs.

And so of course, the result of such distortion in the allocation of bank credit, will mean there will be much more financing of houses than job creations.

C’est la vie! Those who will most pay the consequences of bank regulators being so dumb, are of course the young.

Though their chances of obtaining clear answers are very slim, here are some questions the young could try to ask the bank regulators.

Burgen writes: “Casual contracts keep Spaniards looking for permanent work. Only a minority enjoy the benefits and security of permanent employment”. “Part-time labour” April 22.

Welcome to the new world… in which structural unemployment, created among other by robots and automation, and nurtured by dumb regulators, might mean hundred of millions young never ever having something resembling an employment.

I ask would not a Universal Basic Income, let’s say some 400 Euros allow everyone to adapt? It would be a small but useful ladder with which to step up to the gig economy. 

That could be much more efficient than introducing additional costly distortions such as paying “up to €9,600 per annum to employers who offer young people permanent contracts” or “giving public sector workers on short-term contracts [special benefits to obtain] permanent jobs”. Really? Threatening to take away the permanent jobs of bank regulators if they don’t smart up, fast, seems like a better strategy.

http://bombaaaa.blogspot.ca/2014/07/mi-carta-al-rey-felipe-vi.html

@PerKurowski

Why has the world not been duly informed about the impact on jobs of robots and dumb bank regulations?

Sir, I refer to your “incisive new global business columnist” Rana Foroohar writing, from a local perspective, that “Trump’s trade policies won’t help my town” March 6.

Let me for the umpteenth time comment on two issues 

Foroohar writes: “small and medium-sized businesses create about 60 per cent of jobs in America.” And it is precisely to “risky” SMEs that bank regulators have assigned among the largest risk-weights; which mean banks need to hold the most capital when lending to these; which means they have dis-incentivized bank lending the most, to what we most need to have access to credit. It is all so loony, especially considering that major bank crisis never result from excessive lending to this type of client… since these are perceived as risky.

Foroohar also writes: “Carrier recently cut a deal with the president to keep 1,000 jobs in Indiana rather than moving them to Mexico, only to come under fire from unions for outsourcing hundreds of others and replacing workers with robots… Those who might in the past have worked $25 an hour factory jobs now do $11-$13 an hour shifts at Walmart.”

That should indicate that our society has been surprised, unprepared, for a major event, namely that immense structural unemployment that might result from the use of robots and other variants of automation. How should we handle it? Do we not need decent and worthy unemployments? Should we at least not tax robots and cousins with any type of taxes we load on the employed so that these latter could at least compete fairly for jobs? There are hundreds of questions waiting to be answered but in this data world, we don’t find any data on for instance how many jobs were effectively taken over by robots and cousins during the last decade.

Of course, as Foroohar says, “when it comes to trade Mr Trump is fighting the last war”. But the main reason for that is that no one informed Trump or the rest that there was a new war going on”. Did anyone mention the insane bank regulations war on risk-taking, the oxygen of development? Did Hillary Clinton and Bernie Sanders talk of the robots coming? Was a Universal Basic Income possibility raised in any town-hall meeting? Who told Trump and the electorate that the building the Mexico Wall could itself represent the last decent job opportunities for many, on both sides of the wall? Sir, clearly the world has a lot of urgent catching up to do. 

@PerKurowski

If Uber drivers are considered workers, are not driverless cars, or robots, workers too, to be taxed accordingly?

Sir, Sarah O’Connor, Jane Croft and Madhumita Murgia report on how “Uber drivers in the UK have won a crucial legal battle with a tribunal ruling they are “workers” entitled to the minimum wage and holiday pay.” “British court rules Uber drivers are ‘workers’ in setback for ‘gig economy’” October 29.

Yes, but if so, why are not those driverless cars that are expected to soon be supplanting all drivers not considered workers too?

Sir, as I have written to you before, if we do not tax what will represent lost work opportunities for humans, something’s going to have to give.

I have nothing against artificial intelligence or robots replacing human workers. That’s great, that will leave us humans much more time to enjoy life. But our non-human replacement workers need to be taxed too; and all those tax revenues re-distributed to all of us humans, by means of Universal Basic Income. That so that we humans will be able to afford enjoying all our additional spare time.

And it is all a case of simple justice. If a company does not employ me because of the payroll taxes I generate for him, should not my robotic substitute be charged with those same taxes?

And a Universal Basic Income would make it so much easier for all us humans to adapt to the gig-economy… we would not have to work 16 hours a day to make a living, perhaps 4 hors would do.

PS. I pray for my grandchildren not having to live surrounded by dumb artificial intelligence and lousy 2nd class robots  

@PerKurowski ©

Millions of small loans not given to “risky” SMEs, only because of bank regulations, endangers our social stability

Sir, Mohamed El-Erian writes: “for things to continue as they are, you need to be confident that the economic, financial, political and social tensions spawned by low growth will not become the defining drivers of the economy. And that is increasingly unlikely in light of what is transpiring on the ground every day… If the political response continues to disappoint, low growth will give way to a recession while artificial stability in the financial system is replaced by disorder.” “Yet more low but stable global growth is unsustainable” September 30.

Absolutely! As I have been arguing in more than two thousand letters to FT over the years, we have been doomed to dangerous doom and gloom by bank regulators, as they have impeded the economy to breath that risk-taking oxygen that allows it to move forward, so as not to stall and fall.

Just think about the millions of small credits to “risky” SMEs and entrepreneurs around the world, that have not been awarded the last decade only because of Basel Committee’s stupid, dumb, senseless, useless, risk weighted capital requirements for banks.

To bridge that cliff of joblessness and hardships that it has and will have caused, I can’t think of anything else than a Universal Basic Income, a Citizen's Dividend, or whatever you want to call it. Of course that has to be duly funded, in much by reducing the margins of the redistribution profiteers, no funny money will do.

@PerKurowski ©

To put “broken Europe back together” it needs to be freed from dumb risk adverse bank regulators

Norbert Röttgen, the chairman of the committee on foreign affairs of the German Bundestag writes: “Given the range of challenges the EU faces with Libya, Syria, Russia, the euro, youth unemployment and the refugee crisis, the most urgent and profound danger for the EU is not economic or geopolitical: it is psychological” “Let Germany put broken Europe back together” June 28.

But in his prescribed ways forward he, as basically all experts have been doing, ignores how Basel Committee’s risk-weighted capital requirements have blocked banks from financing the riskier future and kept them busy just refinancing a safer past. Banks not daring to explore risky bays, is no way for Europe to solve anything. That just guarantees Europe will finish suffocating, gasping for oxygen, in some dangerously overpopulated safe havens. 

Nothing has done so much damage to the Eurozone as these regulations. For instance, without the ridicule low capital requirements applied when lending to sovereigns, Greece would never ever have been able to accumulate so much debt.

PS. And when Röttgen writes “Europe is a different place now the British have voted to leave. It is up to the rest of us to determine what type of Europe it will be.” I do find it somewhat hard to agree. First Britain is leaving the European Union not Europe. And then why should EU want to be a different Europa, just based on if Britain is in or out?

And I knew about the Euro risks

@PerKurowski ©

The gig and the no jobs economy need a Universal Basic Income. It also helps to keep redistribution profiteers at bay.

Sir, you discuss Senator Elizabeth Warren’s framework to “rethink the basic bargain for workers” “The gig economy needs a new bargain for workers” May 24.

I think we need to think equally, simultaneously, of those not working, as there is little doubt there could be a severe lack of all type of jobs.

In 2012 in an Op-Ed I wrote that the society also had to prepare itself to handle a growing number of unemployed, not cyclical but structural, that is, those who never ever in their life will have a chance to get an economically productive job, “We need worthy and decent unemployments”.

I argued there: “The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, will in the future, also depend on the quality of its unemployed, as a minimum in the sense of these not interrupting those working.”

And one of the first things that should be put in place for that is a Universal Basic Income floor, one that is completely independent of the having or not having a job. That, which should be the result of a social contract among citizens, and not the result of governments bringing gifts, will help to redistribute in the most cost effective and least socially diminishing way.

And if that income floor exists, then, contrary to what Senator Warren holds, in order to get more jobs and better salaries, I would call on all capitalists to exploit any low salaries, for as much as they can. 

PS. Should not companies also be part of the gig economy, so as not to waste resources trying to hang on? 

@PerKurowski ©

Should you include a job simulation experience in your cv?

I always read with much interest articles that discuss the employment of the young, such as Sarah O’Connor’s “Stepping inside the workplace simulator at a London school” April 27. And I do so because of two reasons:

The first is because I am convinced of that, by means of the risk weighted capital requirements for banks, concocted by the Basel Committee, we are making it very difficult for banks to finance what in the long run creates new jobs, because that takes a lot of risk-taking.

And second, because I am equally convinced of that no matter what we do, we will end up with many persons who will never ever have had a job, and it is a true and vital societal challenge to think about what to do with them.

PS. And of course, the question in the title of this letter, is just a bit too valid for my taste.

Martin Wolf, the government’s favorable borrowing terms come at extremely high costs, especially for our young.

Sir, Martin Wolf insists again in that the government should take advantage of very “favourable terms” to borrow so as to invest [in infrastructure]. "The same destination but a gentler route" November 26.

Again Wolf simply cannot understand (or does and turns a blind eye to it) that those “favorable terms” do not come cheap. 

The low interest rates result much from favoring the government’s access to bank credit over that of the private sectors, and especially over that of those perceived as risky, like SMEs and entrepreneurs. Therefore its cost is a road littered by private initiatives that never got the bank credit these needed to be tried out. Our young, who forever will see their employment opportunities seriously diminished by this, will, when they discover what has been done, not look favorably on those responsible for it, and on those silencing it. 

To think, as Martin Wolf obviously must do, that a government bureaucrat is more capable of efficiently using bank credit that he is not personally responsible to repay than citizens, can only be explained from an ideological point of view. He surely must be a statist, one of those who want austerity to be imposed on banks, but decries it when it touches the government.

Does that mean I disapprove governments investing and financing infrastructure? No! But, when evaluating projects, governments should not use the currently subsidized public borrowing rate as their reference.

PS: http://teawithft.blogspot.com/2015/11/tim-harford-non-transparent-taxes.html

@PerKurowski ©

The regulators odious discrimination against the fair access to bank credit of the risky is unacceptably abnormal

Sir, Martin Wolf refers to: “A more sophisticated view…of the Bank for International Settlements. It believes that… one should be prepared to tolerate prolonged cyclical unemployment over the medium term, in order to prevent a build-up of damaging financial excesses over the longer term” “Keep rates low — the world is still abnormal” September 9.

Clearly Wolf does not subscribe to that sick priority as he writes: “central banks should continue to focus on stabilizing the real economy, though more needs to be done to curb financial excesses”

But if I were allowed to question the Bank of International Settlements I would ask:

Do you really think that tolerating prolonged cyclical unemployment over the medium term will prevent a build-up of damaging financial excesses over the long term? Could it not be the other way round, as fewer and fewer asset types would then be perceived as safe, and, as a consequence, be turned into damaging financial excesses?

Wolf concludes: “Our world is not normal. Get used to it.”

Absolutely, our world is clearly not normal when regulators are allowed to come up with something so idiotic like the portfolio-invariant-credit risk weighted capital requirements for banks, and which so odiously discriminates against the fair access to bank credit of those perceived as risky… like SMEs and entrepreneurs. But NO! I do not accept I have to get used to it.

Again Mr. Wolf, though you have admitted I have told you so, you still do not get it. Financial excesses are built with assets perceived as safe, ex post turned risky… not with ex ante risky assets.

@PerKurowski

OECD: Make capital requirements for banks, instead of on credit ratings, depend on job-creation-potential ratings.

Sir, Sarah O’Connor reports that “OECD warns on ‘chronic’ low pay and job insecurity” July 10.

When you have bank regulations that are solely targeted to avoid those perceived credit risk which are basically already cleared for by bankers, by means of risk premiums and size of exposure; and which care not one iota about the effective allocation of bank credit… you will not be able to generate as much jobs as you otherwise could. It is as simple as that.

If you are really desperate for jobs, then offer banks to be able to hold less capital against loans that have a high potential of job creating ratings, so that banks can obtain higher risk-adjusted returns on their equity financing what you wish they finance.

And, by the way, if you want more planet earth sustainability then equally offer banks to be able to hold less capital against loans that have high sustainability ratings.

In short it all has to do with giving banks a purpose different from just silly credit risk avoidance. “Silly”? Yes! Bank capital is to cover for unexpected losses and it is precisely what is considered as absolutely safe from a credit risk perspective that carries the greatest potential of delivering the unexpected.

OECD, has a fundamental and urgent structural reform to do, namely throwing out the credit-risk-weighted capita requirements for banks. That would do much more for the creation of jobs than its worrying and wringing hands. 

PS. And perhaps OECD needs to start thinking about worthy and decent unemployments too.

@PerKurowski

Inglorious regulators! Getting to know them seems more important for banks than getting to know the customer.

Sir I refer to Frances Coppola’s “The golden age of banking was not always glorious”, June 25.

Coppola writes: “The assumption is that “getting to know the customers” was the touchstone of the industry before the deregulation that followed the Big Bang in 1986. If we could only return to the way things were done in the 1950s, we would have neither the excessive lending of the mid-2000s nor the starvation diet that has stifled businesses since. Lenders would act responsibly because their staff know and care for their customers… The truth, of course, is different. Banks have always acted irresponsibly at times”.

Not really. The fact is that in the 1950s, and really not until the 1990s, were banks required to have different amounts of equity for different assets. When that was introduced, especially with Basel II in 2004, it became more important for the banks’ risk adjusted returns on equity, to minimize equity requirement, than to maximize the getting-to-know-the-customers. Then bankers who used to argue the risk of borrowers, in order to charge higher premiums, argued their safety, in order to hold less equity against these. 

“Deregulation? Hah! Those regulations, by which inglorious regulators are re-clearing for the credit-risk already cleared for, are the direct cause of “the excessive lending of the mid-2000s [and] the starvation diet that has stifled businesses since.” Just wait until the young begin to understand what these regulations did and do to their perspectives of finding jobs. 

And Coppola tries to back up his argument by asking: “remember the 60 or so small lenders bailed out by the Bank of England in 1973?”. That is not applicable. That crisis resulted from excessive lending exposure to properties, which prices fell, and had very little to do with knowing your clients. By the way, had the current capital requirements been in effect in 1973, the final invoice to BoE for the bailout would have been much much higher.

PS. "Big Bang" In 1999 in a Op-Ed in I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”

Greece should be ashamed of presenting public sector pensions as a deal breaker, instead of youth unemployment.

Peter Spiegel and Kerin Hope report on FT’s front page that: “Mr Tsipras insisted he would continue to resist the cuts to public sector pensions demanded by creditors” June 18.

Sir, if I was a young unemployed Greek, I would go mad if I saw that the point of honor for my government, in order to negotiate or not with its creditors was the payment of the pensions of the public sector. I don’t understand how it can get away with this… or have all young Greek with any initiative already left Greece.

If I was Tsipras the following is the point I would make… or the line I would draw.

Europe, our bank regulators in the Basel Committee for Banking Supervision, all picked by you and none by Greece, decided that banks needed to hold much less capital when lending to our government, than for instance when lending to any unrated European SME.

And that meant that banks could leverage their equity and the support they got from the society much more when lending to our government than for instance when lending to any unrated European SME.

And that meant that banks could earn much higher risk adjusted returns on their equity when lending to our government than for instance when lending to any unrated European SME.

And so of course banks lent too much to our governments and too little to our SMEs.

If Greece wants to get out of its current predicament, and to be able to offer its youth good employments, these stupid risk adverse regulations must be reversed.

But that takes a lot of bank capital and we need you to helps us re-capitalize our banks. By the way you have the same problem with your banks.

@PerKurowski