Our younger generations have much more valid reasons than savers and bankers to profoundly resent bank regulators

Sir, Patrick Jenkins reports that the world’s savers and bankers have every reason to resent the posse of policymakers, one of the most powerful quangos in the world, the Group of Central Bank Governors and Heads of Supervision — GHOS for short, and that will meet on January 8”, “Time for GHOS train to leave the shadows and reconnect” January 3.

At the meeting the group will discuss “the future direction of global financial regulation” the “system of risk-weighting the assets on banks’ books” and “the riskiness of banks’ mortgages and SME lending”

Well no. Those who most should resent GHOS (and the Basel Committee for Banking Supervision) are the young.

These irresponsible bank experts, without considering the purpose of banks, and without any empirical studies on what causes bank crises, decided that it was much better and safer for banks to finance “safe” houses than to finance “riskier” SMEs.

That translated into bank financing more the basements where unemployed young can live with their parents, than financing the job creation that can allow the young to be able to afford becoming parents too.

To top it up, they also decided that it was much safer to lend to the governments than to the private sector.

I have for more than a decade and in more than 2.500 letters tried to convince FT to help me to ask these “bizarrely secretive” regulators some very basic questions. Unfortunately until now I have had no such luck.

@PerKurowski

There are many reasons we the aging should pray for the young allowing us to fade away with grace

Sir, Manoj Pradhan explores the question: “What will the future hold for the world’s ageing populations” and titles his article “Ageing economies will grow old with grace” October 14. That is indeed a sunny view; let’s pray for it.

When Pradham writes: “The elderly will resist moving out of their homes; a huge wave of construction will be needed to house the young and the millennials” some difficult questions linger: Are the young and the millennials willing to cast themselves as the downstairs and allow the upstairs elderly to stay in their homes? Will the savings and pension plans of the elderly be sufficient for them to stay in their homes? With retirement comes the wish to hold savings more liquid and so who is going to finance that huge wave of construction?

As I have argued for years, bank regulators, with their capital requirements based on perceived credit risk, which has given perceived credit risk too much weight, has caused a stagnant world… and to keep social structures amiable to all in a stagnant world is not an easy task. 

In March 2007 Peter Peterson, in FT, concluded his “Sacrifice can solve the entitlement crisis”, by citing the German theologian Dietrich on the ultimate test in moral society being the world it leaves for the children, and saying that “It is time for us to become worthy and moral ancestors.”

And in August 2006, finished an article I sent to FT, but that was not published with the following:

“It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. These days it could seem like quite the opposite, if we consider how our democracies might have been captured by us baby boomers. We need to revise urgently how our society deals with the next generations, before they throw us down an ättestupa—for damned good reasons!”

Sir, there are many reasons we the aging should pray for the young allowing us to fade away with grace.

@PerKurowski ©

Did the baby-boomers’ parents’ not take risks, or use reverse mortgages in order to extract everything for themselves?

Sir, Janan Ganesh writes “Bad luck, not policy, is the scourge of the young” January 7. What is this? I’ve seen a photo of him in FT, and so is he here just working for the baby-boomer establishment?

Of course “There is no law of the universe that says each generation most be more prosperous than the last”, but that should not diminish one iota the moral obligation of each generation from trying that to be so.

Currently grey-haired bank regulators base the capital requirement for banks which should take care of the unexpected losses, on the perceptions of expected losses. And with that they have introduced a distortion that guarantees banks will finance mostly what is perceived “safer”, like the known past, and keep out from what is perceived “risky”, like the future.

And does that mean that the young will at least inherit a safer banking sector? Of course not! The risk-weights which determine the capital requirements are portfolio invariant. That means these do not take account of the added risks of asset concentrations, or the dissipation of risks by means of asset diversification. And that means that the risk of the banking system might be increasing exponentially, even while it is being reported as safer.

Yes “Baby boomers enjoyed almost miraculously circumstances” but, to attribute that to luck and not to the daring risk-taking of previous generations is ungrateful, to say the least.

Just look at the financial products offered to baby-boomers. “Reverse mortgages” which allow parents to extract all equity possible from their houses, for their own consumption, and thereby leaving much less for their heirs. Did the baby-boomers’ parents do such things?

If the young would only look up from their virtual world, and react to what is happening in reality, then Paris of May 1968 might just seem in comparison to have been just another hip peaceful gathering of premature baby-boomers.

PS. There is not a day in which I do not thank all my antecessors for all their risk-taking, and not a day I do not fret I am not capable of taking enough risks for my successors.

God make us daring!

Is this crisis the beginning of a clash between generations?

Just this morning walking around the park on the farm where my mother lives in Sweden I stood on top of a cliff that is rumoured to be an “ättestupa”, one of those places where Swedes of ages ago were rumoured to have thrown themselves out when they felt they had become a burden for their children. I have always doubted this particular cliff as its relative low height has seemed more inclined to cause a broken foot, only aggravating the burden.

George Magnus writes the “Recession will compound looming issue of rapid ageing” November 6, and though he does have many valid points these are all from the perspective of those on the way out. In this respect we also must acknowledge the needs of those on the way in. This crisis might in fact just be the beginning of a clash between generations.

If you are a prosperous baby-boomer with plenty of assets, then you are indeed interested in keeping the prices of shares and housing growing, and, if just a baby-boomer, to keep your job. On the other hand if you are a young with nothing but future ahead of you, you would not mind seeing the lower prices that could allow you to acquire shares or your house at a reasonable price, or to have the elderly move over so as to get a decent job. I mean, who would like to start building a nest egg for the future with the Dow Jones over 14.000?

Two nightmarish possibilities

Sir, Christopher Caldwell’s brilliant “Youth and war, a deadly duo”, January 6, based on the probably even more brilliant book Söhne und Weltmacht by Orell Füssli, and that now has me brushing up on my 35year´s never more spoken and originally bad German, brings me two visions. The first is about a clash-of-generations pitting the baby boomers and other older people all over the world, wielding their wealth and political power, against hoards of desperate barehanded youths, and the other, of a big global arena were a mass of old Neroes are enjoying the spectacle of young gladiators killing each other. Let us pray we are wise enough to spare ourselves either nightmare.

Caldwell Füssli Söhne Weltmach youth

If reforming democracies, don´t forget the young

Sir, Deanne Julius and John Gault opine that “American democracy needs reform”, November 1, and though we agree with their recipes, especially the term limits, we wonder whether they carry sufficient punch to bring about that revival of democracy that seems to be needed, not only in America, to capture the attention and the compromise of the quite disenfranchised younger generations. Some of us believe for instance that there is now an urgent need to introduce a much more direct representation for the young to balance out for the baby-boomers.

Deanne Julius John Gault democracy