Those who have no business interfering should not be allowed to use that a consequence was unintended as an excuse

Sir, Robin Wigglesworth writes: “Overlaying safeguards on an immensely complex financial system may have the unintended consequence of making it more intricate and therefore more fragile” "Regulators seek ways to stem fragility caused by hyper-fast trading", November 7.

Again there is that reference to “unintended consequence” which seems always ready to serve as an excuse for any kind of dumb and mindless interfering. An example:

Never have bank crises resulted from lending out too many umbrellas when it rained, they have all resulted from lending out too many umbrellas when the sun was shining radiantly.

But nevertheless bank regulators decided that, in order to make banks safe, they had to give them even more incentives to lend out the umbrella when the sun shines and to take it back hurriedly when it looked that it might rain. And so they imposed credit-risk weighted capital requirements for banks; more risk more capital – less risk less capital.

And of course the result was excessive bank exposures to what was perceived as safe, this time aggravated by banks holding specially little capital against it… was that an unexpected consequence?

And of course the result is excessive few bank exposures to what is perceived as risky, like SMEs and entrepreneurs, something very dangerous for the real economy… is that also an unintended consequence.

And then the regulators decided that a few human fallible credit rating agencies were going to decide on the riskiness of credits.

In January 2003, in a letter published in the Financial Times I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”

And yet many present the ensuing disaster with the AAA rated securities backed with mortgages to the subprime sector in the US as an “unintended consequence”. Have they no shame? Are we so dumb we allow them to get away with that?

@PerKurowski ©

Banks are dangerously overpopulating the traditional save havens of widows, orphans and pension funds.

Sir, Attracta Mooney quotes Pascal Blanqué, deputy chief executive of Amundi, stating: “QE has proved a mixed blessing. It prevented a 1929-style depression after the collapse of Lehman Brothers in 2008. But it has also delivered unintended consequences for longterm investors. The challenge for policymakers is to address them.” “QE ‘acted like an opaque tax’ on pension funds” November 2.

Again someone is speaking about unintended consequences, instead of referring to what obviously should have been expected consequences.

With QEs injecting liquidity into safe investments; with bank regulations awarding huge incentives through the capital requirements for banks to finance what is safe; with bank regulations awarding additional huge incentives through liquidity requirements for banks to hold what is safe, and with sovereign debt having been decreed as ultra-safe and assigned a zero risk weight, there can be no doubt that the financial safe havens of the world are bound to become dangerously overpopulated. Where is a widow or an orphan to take refuge nowadays… in Argentinian railroad projects?

@PerKurowski ©

Never allow anything to be classified as unexpected or unintended consequences, unless proven beyond doubts to be such.

Sir, I refer to Gillian Tett’s “Emerging markets brace for a bumpy ride” September 19.

I agree with absolutely all she writes about the losses many emerging nations suffered with their exposure to derivatives in 2008 “when the dollar suddenly surged in value as a safe haven currency”, except for when she argues“It is a lesson in unexpected consequences in a tightly interconnected world”.

As I see it, nothing should be classified as an unexpected, or much less an unintended consequence, if it has not been proven to be beyond any reasonable doubt to be so. Otherwise it just serves as an excuse for stupid behavior.

For instance, in January 2003 in FT I wrote “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds” and I was no bank regulator.

And so no one should be allowed to talk about unexpected or unintended consequences of ordering the banks to follow so much the credit ratings as Basel II did. But yet, how often have you not heard about the unexpected or unintended consequence of credit rating agencies not rating correctly?

In the real world, not the world of unaccountable regulators, anyone guilty of such a mistake, would have had two minutes to collect his personal items and hit the door, never to return. And yet there they are as if nothing happened… even expected to save the day.

Could what happened because of the exposures in derivatives Tett describes not be an unexpected consequence? Of course it could... but let them prove it to us first.

Investors driven out of safe investments by bank regulations and QEs, are they yield-hungry or just yield-starved?

Sir, Tracy Alloway and Michael MacKensie write that “Sales of US corporate bonds reflect a worrying lack of ratings differentiation” and they title that “Yield-hungry investors overlook credit risk” September 19.

All Fed’s QE’s, as well as the risk-weighted capital requirements for banks, as well as the upcoming liquidity requirements for banks, as well as much other risk-adverse regulations, only end up crowding out normal investors from what is deemed as “absolutely safe”, that which used to be said belonged to widows and orphans. 

And in that respect I wonder if “yield-hungry” is really the correct description of investors who seem more to have been yield-starved by official governments actions.

But also, let us not forget to ask ourselves… when can the extremely safe havens become so extremely dangerous crowded, so that suddenly the risky waters outside are actually safer?

And, is it not sad to read that increased corporate leverage is not resulting from increased real economic activity but only from “the combination of share buybacks dividend increases and M&A activities? I bet some years from now some authorities will once again try to explain that to us as just the result of “unintended consequences”… let us not be fooled by that… at least to me they are guilty, until they proved beyond any reasonable doubt it was not their intentions… or they plead insanity :-).

John Authers I strongly object. An ignored evident consequence has nothing to do with an "unintended consequence".

Sir, John Authers writes “The law of unintended consequences applies to new financial regulations… Think of the credit rating agencies, to whom all due diligence was effectively outsourced by rules such as the Basel II bank regulatory regime”, “Rules shake-up and the law of unintended consequences” June 2.

I vehemently object to that. Authers, and FT, has no business fabricating walls behind which regulators can hide in order to avoid being held accountable for their mistakes.

What Authers refers to was NOT an unintended consequence, it was an expected consequence but which was blithely ignored by the regulators. 

In January 2003 the Financial Times published a letter in which I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friend, please consider that the world is tough enough as it is.”

Do not allow regulators to hide behind “unintended consequences”.

Sir, where do you draw the line between unintended consequences and sheer stupidity? That is the question we should make after reading an article such as “The tough challenges to revive the global economy” written by George Osborne and Jun Azumi, the finance ministers of Britain and Japan, February 23.

Privileging bank lending to what is officially perceived as not risky, by means of extraordinarily low capital requirements, just had to create excessive and dangerous bank exposures to triple-A rated securities and infallible sovereigns. That I repeated over and over again, even while being an Executive Director of the World Bank 2002 -2004. So that should not be allowed to fall into the category of unintended consequences. 

It behooves us to hold regulators very accountable for how they regulate, most especially if they regulate on a global scale. In this respect we must see to that those regulators are not allowed to hide behind “unintended consequences”… or Black Swans for that matter.