FT, Western liberalism might not be obsolete but it sure isn’t what it was a couple of decades ago.

Sir, with respect to Vladimir Putin’s recent claim — “that liberalism is obsolete” you opine his “triumphalism is misplaced. Not all of liberalism is under threat. The superiority of private enterprise and free markets — at least within individual nations — in creating wealth is no longer seriously challenged.” “No, Mr Putin, western liberalism is not obsolete” June 29.

You are only partly right, because nowadays-Western liberalism is not what it was. 

When regulators allow those that are perceived, decreed or concocted as safe, to be able to offer their risk-adjusted interest rates to banks leveraged many times more than those perceived as risky, as has been the case since 1988, that has absolutely nothing to do with free markets.

And assigning for the risk weighted bank capital requirements a 0% risk weight to sovereigns, and one of 100% to citizens, has nothing to do with “superiority of private enterprise” either. Those risk weights de facto imply that bureaucrats know better what to do with bank credit they are not personally liable for, than private sector entrepreneurs, and that has much more to do with statist a la Putin regimes.

@PerKurowski

Compared to the Basel Committee’s, Thomas Gresham’ manipulations seem minor.

Sir, Jerry Brotton in reference to John Guy’s biography of Thomas Gresham “Gresham’s Law: The Life and World of Queen Elizabeth I” quotes Guy in that “Gresham’s financial achievements werea harbinger of a world to come: one in which national sovereignty is answerable to the machinations of the market”. “Man with the Midas touch” June 21.

Greshham“halved the national debt in nine months in a remarkable manipulation of Europe’s markets that would dazzle today’s Brexiters”

I am not so sure of that. Slightly more than 400 years later, in 1988, with the Basel Accord, for the purpose of risk weighted capital requirements, banks regulators managed to impose on a clearly not alert enough world, a risk weight of 0% for their sovereign and 100% for the citizens.

The resulting ability of banks to leverage so much more their equity with sovereign debt, reduced the risk adjusted interest rate they charged sovereigns and, of course made them so much more willing to lend to the sovereigns. More than thirty years have gone by, and yet there is almost no questioning of that 0% risk weight, be it by Brexiters, Remainers or financial journalists. 

Sir, I am certain that had Gresham heard about this for him most surely a feat, he might consider his achievements minor in comparison.

@PerKurowski

To explain the 2008 financial crisis a two pieces puzzle could suffice.

Sir, Tim Harford writes, “Raghuram Rajan, when he was chief economist of the IMF, came closest to predicting the 2008 financial crisis. He later observed that economists had written insightfully on all the key issues but had lacked someone capable of putting all the pieces together”, “How economics can raise its game” June 29.

According to 2004’s Basel II, a corporate rated AAA to AA, could offer banks to leverage their equity 62.5 times (100%/(8%*20%)) with its risk adjusted interest rate, while one rated BB+ to BB-, or not rated at all, could only offer banks to have their risk adjusted interest rate leveraged 12.5 times (100%/(8%*100%))

Sir, I am not arguing whether it is better to be a hard or a soft economist but, any economist looking at that proposition and not seeing it would cause serious misallocation of bank credit, should either go back to school, perhaps to take some classes on conditional probabilities, or go out on Main-street, and learn a bit of what real life is about.

62.5 times leverage? What banker could dare resists that temptation and stay out of competition thinking, what if that AAA to AA rating is true?

PS. That leverage applied for European banks and US investment banks supervised by SEC.

@PerKurowski

Current bank regulators are closer to a Vladimir Putin type of regime, than to any possible Western world liberal idea.

Sir, I refer to Lionel Barber’s and Henry Foy’s interview with Vladimir Putin. ‘The liberal idea has become obsolete’ June 28.

Putin is quoted with that “the liberal idea” had “outlived its purpose”.

Sir, there are way too many interpretation of what is “the liberal idea” to know for cartain what is meant by it. That “liberal idea” flag is often waved for quite opposite positions, like more or less government intervention, to assure more or less personal freedoms… to guarantee more or less some human rights… and so on. I guess “liberal” is also something in the eye of the beholder. 

But to me my kind of “liberal idea” took a deep dive, in 1988, with the Basel Accord, one year before the fall of the Berlin wall. Because that accord, Basel I, introduced risk weighted bank capital requirements, which decreed a 0% risk weight to the debts of some friendly sovereigns, and 100% to citizens’ debts.

That de facto implied a belief that government bureaucrats know better what to do with credit they are not personally liable for, than for instance our entrepreneurs. That de facto has much more to do with a Vladimir Putin type of regime, than with any possible Western world liberal idea.

@PerKurowski

In the Eurozone’s sovereign debt mine there is a choir of canaries going silent but, seemingly, that shall not be heard.

Sir, Gideon Rachman concludes, “Almost all of the modern threats — from a resurgent Russia to climate change and trade wars — are much easier for Britain to deal with, by using the collective strength of the EU.” “Brexit is an idea left over from a bygone era” June 25, 2019.

That is correct, but only if we exclude mentioning the problems within Europe. I refer specially to the sovereign debt bombs that are ticking within the Eurozone, the agents of “the EU’s most federalising project — the euro.”

Yes, that Germany “is stubbornly resisting demands from Brussels and Paris for deeper economic union” does surely not help but the real problem is that the biggest problem with the Euro, is not really acknowledged. 

When Greece turned into a dead coalmine canary, how much discussion were there about the fact that EU authorities had assigned Greece, as to all other Eurozone sovereigns, for purposes of bank capital requirements, a 0% risk weight? And that 0% risk weight was decreed even though all Eurozone sovereigns contract debt denominated in a currency that de facto is not their own domestic printable one.

Basically no discussion at all even though that 0% risk weight guarantees European banks are going to lend way too to the Eurozone’s sovereigns. Greece was small and ended being forced by ECB to walk the plank. But if Italy’s debt bomb explodes would it accept doing so? I doubt it.

Sir, to be a Remainer without requesting from EU a clear plan on how to defuse that still ticking debt bomb that could take the Euro down and perhaps the EU with it, seems not to be a very respectful position either.

@PerKurowski

To have Green bonds really take off, the market signals must better assure the Green projects’ profitability.

Sir, Siddarth Shrikanth writes:“Estimates suggest that a mere 5 to 10 per cent of green-bond proceeds have gone towards funding biodiversity conservation projects, as the vast majority flows in to energy, buildings and transport”. “Green bond issuance leaves the planet’s wildlife behind” June 22.

The explanation to that is that it is obviously easier to construct a credible scenario for the investors’ to recover their investments, something that, no matter how good Green bonds investors’ intentions are, most of them want to do.

So, if we really want “Green bonds” to take off, these must be supported with strong market signals that helps the Green projects to be profitable, bettering the chances of the bonds being repaid.

In that sense, except from perhaps except it from all taxes, I have no clue as to what could be done with “blue bond” aimed at supporting sustainable fisheries. What I do know though is that, very high carbon taxes, with all its revenues being distributed equally back to the citizens, would signify a huge boost for the biggest majority of Green bonds.

What stands in our way in that respect, are the Green-fight and the redistribution profiteers refusal to give up one cent of their desired franchise value.

Sir, I say it again and again, if we are not able to keep the climate change fight profiteers away, we won’t be able to afford the fight against climate change. Hell, we will not even afford to mitigate some of its consequences.

@PerKurowski

How do you square negative rates with a 0% risk weight?

Paul Horne writes, “It must be a fairly dire outlook to persuade investors to pay eurozone governments to hold their capital even as there must be doubt about Bunds and French OATs being the “safest” of investments at today’s prices.” “Investors need to be aware of the other bond bubble” June 21.

Indeed, but given the redenomination risk that would exist if the still ticking 0% Risk-Weight Sovereign Privilege assigned to Eurozone’s Sovereign bomb explodes, I guess investors might prefer being paid with Deutsche Marks than with Liras or Drachmas.

@PerKurowski

A real review of UK’s financial system requires breaching the etiquette rules of a mutual admiration club

Sir, I refer to Huw van Steenis’ “An opportunity for the Bank of England to rethink its priorities” June 21.

Is he really recommending among other for banks to “use machine learning”, so that they can better cope with even more voluminous regulations…like that on climate change that has become so fashionable nowadays?

Well no Sir. “A review of the UK’s financial system to strengthen the BoE’s agenda, toolkit and capabilities” should, foremost, include a review of the credit risk weighted bank capital requirements. 

That could start by asking Mark Carney, why do you believe that what is perceived as risky is more dangerous to our bank system than what is perceived as safe.

You could follow it up with: Does the use of this not guarantee especially large bank crisis, caused by especially large exposures to what was perceived (or decreed, like the Eurozone sovereign's 0% risk weight) as especially safe, and ended up being especially risky, against especially little capital?

You could follow it up with: Favoring so much bank lending to the safer present over that of the riskier future not risk weaken our real economy? 

But of course, asking those questions and similar that shall not be asked is not comme il fautin the central-bankers’ and regulators’ mutual admiration club.

Sir, one single capital requirement 10-15% on all bank assets would serve us much better than the BoE’s entire current rulebook, distorting less the allocation of credit and bringing back into banking all that “risky” activity that has been expelled by regulators to be handled by other intermediaries. 

But how would then ten thousands of regulators justify their salaries? 

PS. My letter to the Financial Stability Board

@PerKurowski

If a firefighter had seen an explosive artifact, and not done anything in four years to defuse it, would he still be a paid firefighter?

Sir, as you might understand from my many letters to you I agree with most of what Ian Hirst opines on Martin Wolf’s article (“Weidmann casts a shadow over the ECB”, June 13) “ECB must end conjuring tricks and begin a structural overhaul” June 19.

Sadly though, no matter how “rock solid the political support for the euro is, it might already be too late, even for Jens Weidmann, to do all that needs to be done to correct the mistakes Hirst hints at.

Hirst writes: “As Mr Wolf points out, the German public, in particular, need to be told some home truths. The euro has greatly benefited their economy (while greatly damaging competitors in southern Europe). It does not work without some transfer and debt support elements, mainly funded by Germany and the Netherlands.”

100 percent correct but I ask, are they able to manage the whole truth? Included that of German banks being able to hold loans to for instance Greece and Italy against zero capital while being required to hold eight percent in capital or so when lending to an unrated German entrepreneur?

Sir, in March 2015 Mario Draghi wrote the foreword to an ESRB report on the regulatory treatment of sovereign exposures. In it he said “The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. [It} recognizes the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets, as well as the intrinsic difficulty of redesigning regulations so as to produce the right incentives for financial institutions… I trust that the report will help to foster a discussion which, in my view, is long overdue.”

PS. “Long overdue”? We are now in June 2019 and I ask, has the Financial Times seen Mario Draghi or the ECB doing anything about the still ticking 0% Risk-Weight Eurozone Sovereign Debt Privilege bomb? 

PS. "the current regulatory framework may have led to excessive investment by financial institutions in government debt" March 2015. Why did it take so long and why did they need research to only suspect that?

The still ticking 0% Risk Weight Sovereign Debt Privilege bomb awaits Mario Draghi’s successor at ECB

Sir, Martin Wolf, sort of implying Mario Draghi followed his recommendations, which of course could be true, holds that “Draghi did the right things, above all with his celebrated remark in July 2012 that ‘within our mandate, the ECB is ready to do whatever it takes to preserve the euro’”. “Jens Weidmann casts a shadow over the ECB” June 11.

Did Draghi resolve that crisis for the better, or did he just postpone it for the worse?

That’s is not at all clear. In March 2015 the European Systemic Risk Board (ESRB) published a “Report on the regulatory treatment of sovereign exposures.” Let me quote from its foreword:

“The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. 

The report recognizes the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets. 

I trust that the report will help to foster a discussion that, in my view, is long overdue.” Signed Mario Draghi, ESRB Chair

The regulatory aspect that report most refers to is, for purposes of risk weighted capital requirements for banks (and insurance companies), the assignment of a 0% risk weight to all Eurozone sovereigns. 

Though the report states that: “Sovereign defaults… have occurred regularly throughout history, including for sovereign debt denominated and funded in domestic currency”, it does not put forward that all these eurozone sovereign debts are denominated in a currency that de facto is not a domestic printable one of any of these sovereigns.

Since Mario Draghi seems to have done little or nothing since then to diffuse this 0% Sovereign Debt Privilege bomb, which if it detonates could bring the euro down, and with it perhaps EU, this is the most important issue at hand. 

So when choosing a candidate to succeed Draghi as president of ECB the question that has to be made is whether that person is capable enough to handle that monstrous challenge. Who is? Jens Weidmann? I have no idea.

Sir, it would be interesting to hear what Martin Wolf would have to say to the new president of ECB about this. What would a “Do what it takes” imply in that case? 

PS. And when Greece was able to contract excessive debt precisely because its 0% risk weight should not the European Union have behaved with much more solidarity, instead of having Greece walk the plank alone?

PS. If I were one of those over 750 members of the European Parliament here are the questions I would make and, if these were not answered in simple understandable terms, I would resign, not wanting to be a part of a Banana Union.

PS. "The current regulatory framework may have led to excessive investment by financial institutions in government debt." Really?

PS. Is there a way to defuse that bomb? Perhaps but any which way you try presents risks. One way could be to allow all banks to continue to hold all eurozone sovereign debt they current posses, against a 0% risk weight, until these mature or are sold by the banks; and, in steps of 20% each year, bring the risk weight for any new sovereign debt they acquire up until it reaches 100%... or more daringly but perhaps more needed yet set the risk weight for any new sovereign debt acquired immediately to 100%, so as to allow the market to send its real messages. 

The same procedure could/should be applied all other bank assets that currently have a risk weight below 100%, like for instance residential mortgages.

Would it work? I don’t really know, a lot depends on how the market prices the regulatory changes for debt and bank capital . But getting rid of risk weighted bank capital requirements is something that must happen, urgently, for the financial markets to regain some sense of sanity.

PS. An alternative would be doing it in a Chilean style. Being very flexible with bank capital requirements, even accepting 0%, even having ECB do repos with banks non-performing loans: BUT NO dividends, NO buybacks and NO big bonuses, until banks have 10% capital against all assets, sovereign debts included.

PS. I just discovered that Sharon Bowles, MEP, 
Chair Economic and Monetary Affairs Committee
 of the European Parliament, in a speech titled "Regulatory and Supervisory Reform of EU Financial Institutions – What Next?
 at the Financial Stability and Integration Conference,
 2 May 2011, said the following:

“I have frequently raised the effect of zero risk weighting for sovereign bonds within the Eurozone, and its contribution to removing market discipline by giving lower spreads than there should have been. It also created perverse incentives during the crisis.”

That is very clear warning that something is extremely wrong... and yet nothing was done about it.

PS. And in 2015 the European Commission also described the problem with the zero-risk weighted sovereign debts within the eurozone.

PS. https://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

PS. In Financial Times 2004: “How long before regulators realize the damage, they’re doing by favoring so much bank lending to the public sector? In some countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits”

The empowerment of the Bureaucracy Autocracy

“Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

@PerKurowski

America, warning, industrial policy fertilizes crony statism

Sir, Rana Foroohar argues that America has chosen “to support a debt-driven, two-speed economy rather than one that prioritises income and industry” “Plans for a worker-led economy straddle America’s political divides” June 9.

“Debt-driven” indeed, but that has mostly been by prioritizing the safety of banks and the financing of the government.

In 1988 the Land of the Free and the Home of the Brave signed up to a statist and risk adverse bank regulation system. The Basel Accord favors “the safer present”, for instance lending to the sovereign and financing the purchase of houses, over that of “the riskier future’, like lending to entrepreneurs. 

In 1988 when a 0% risk weight was assigned to it, the US debt was $2.6Tn. Now it is $22Tn, and still has a 0% risk weight. And just look at how houses have morphed from being homes into being investment assets.

There’s no doubt the report issued by Marco Rubio, as the chair of the Senate small business committee, is correct in that “the US capital markets had become too self-serving and were no longer helping non-financial business... and that public policy could play a role in directing capital to more productive places — away from Wall Street, and towards Main Street.”

But that does not mean the US, in order to “successfully compete with state-run capitalism” like China, has now to turn to industrial policy and thereby risk being captured by even more crony statism.

Regulators assigned a 20% risk weight to what, because it has an AAA rating could really create dangerous levels of bank exposures, and one or 150% to what is below BB- rated, and which banks do usually not want to touch with a ten feet pole. So why should we believe that governments who appoint such regulators, have better ideas than the market on how to funnel capital to the most productive places, connecting the dots between job creators and education.

Therefore the public policy most urgently needed is that of freeing America (and the rest of the world) from that public policy distortion of the allocation of bank credit, that which builds up dangers to the bank system, and weakens the real economy.

PS. Germany has benefitted immensely from so many eurozone nations helping to keep the euro much more competitive for it than what a Deutsche Mark would be. Therefore it is not really correct to bring up the “success” of Germany as an argument in favor of more state intervention.

http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

@PerKurowski

There are issues much more important for the future of the euro and the EU than who becomes Draghi’s successor at ECB

Sir, Wolfgang Münchau holds that “Draghi’s successor needs intellectual curiosity and a willingness to admit errors” “How not to select the next ECB president” June 3.

Of course, that should be a sine qua non quality of all candidates. The real problem though is that anyone chosen to become the new president of ECB could get trapped in a web of groupthink, and solidarity requirements, which impede the admittance of the mistakes.

Therefore, before choosing the next president some questions vital to the future of the euro and EU need to be made, not only to denounce mistakes, but to listen what the candidates have to say about it.

For instance if I was a newly elected first time European Union parliamentarian, at the first opportunity given I would ask: 

Fellow parliamentarians: I have heard rumors that even though all the Eurozone sovereigns take on debt denominated in a currency that de facto is not their own domestic printable one; their debts, for the purpose of the risk weighted bank capital requirements, have been assigned a 0% risk weight by European authorities. Is this true or not?

If true does that 0% risk weight, when compared to a 100% risk weight of us European citizens not translate into a subsidy of the Eurozone sovereigns’ bank borrowings or in fact of all Europe's sovereigns?

If so does that not distort the allocation of bank credit in the sense that sovereigns, like Greece, might get too much credit and the citizens, like European entrepreneurs, get too little? And if so would that not signify some regulators, behind our backs, have imposed an unabridged statism on our European Union?

If so, does that not mean that some Eurozone sovereign could run up so much debt they would be seriously tempted to abandon the euro and thereby perhaps endanger our European Union?

Colleagues, I do not know who should answer us these questions, but the candidates to succeed Mario Draghi as president of ECB, should they not at least give us their opinions on it?

@PerKurowski

John Kenneth Galbraith could very well have been asking for the impeachment of current bank regulators.

Sir, Rana Foroohar writes “Americans still fundamentally accept the idea that the private sector always allocates resources more efficiently than the public sector. It is a truism that dies hard” and she uses John Kenneth Galbraith… “concept of countervailing power”, put forth in his 1952 book American Capitalism… a critique of the “market knows best”, as back up. “Old economists can teach us new tricks”, June 3.

Indeed but for a different perspective she should also read John Kenneth Galbraith’s ““Money: Whence it came where it went” 1975. 

I quote: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]… 

The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

So, what would Galbraith had said about current regulator’s risk weighted bank capital requirements? Those that favor credit going even more to those who perceived as safe are already favored, and less to those perceived as risky who already have to pay higher interest rates and get less credit? That which guarantees especially large bank crises, from especially big exposures to what’s perceived as especially safe, against especially little capital?

Sir, I believe Galbraith could very well have joined me in a “Let’s impeach those regulators”.

And for the why these regulations are not sufficiently questioned, let me also quote Galbraith: “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”

PS. More than forty years ago, in Venezuela, John Kenneth Galbraith autographed my heavily underlined pocketbook version of “Money”

http://subprimeregulations.blogspot.com/1997/06/puritanism-in-banking.html

http://subprimeregulations.blogspot.com/2019/06/are-these-reasons-not-enough-cause-for.html

https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

@PerKurowski

Excessively low interest rates, and excessively low capital requirement for banks, put house prices on steroids.

Sir, Edward Ballsdon warns about how “excessively low interest rates fuelled real estate booms built on debt.” “Once-virtuous circle has turned vicious” May 31.

That is true, but in much those excessively low interest rates are the direct result of excessively low capital requirement for banks against residential mortgages.

Had banks needed to hold as much capital as they are required to when lending to entrepreneurs, houses would not have morphed so clearly from being homes into being investment assets.

@PerKurowski

Should not the private marketing of $31tn sustainability investments at least get the same scrutiny as the Green New Deal?

Sir, Richard Henderson writes about a “$31tn push to … address the world’s ills — from climate change and child labor to the dearth of female executives.” “Europe leads $31tn charge into sustainable investing” June 1.

What? An amount about 40% of the world’s GDP, about 80% of Europe’s and the US’s GDP, to be invested, mostly by some few, into projects that might not have any chance to recover the investment, or that could produce a much lower than expected contribution to the solving of the problems than offered. It sounds just like an Alexandria Ocasio Cortez’ Green New Deal.

The Financial Stability Board has a Task Force on Climate-related Financial Disclosures (TCFD) because: “The Disclosure of climate-related financial information is a prerequisite for financial firms not only to manage and price climate risks appropriately but also, if they wish, to take lending, investment or insurance underwriting decisions based on their view of transition scenarios.”

As I see it FSB needs, even more than the TCFD, a task force to consider the risks of all these help-to-the world investments; at least to make sure that the final result is not that of mostly having enriched the intermediaries.

Sir, I do not take the threat to climate change lightly but, if we are going to be able to do something important about it, we must keep an eye on the spending. Otherwise the consequences could be even worse… like if not being able to prevent global warming then not either being able to afford mitigating some of its consequences.

And before $ trillions are poured into good intention but adventurous projects, lets make sure the market signal are working at full intensity, for instance by means of a very high revenue neutral carbon tax, that is shared out equally to all citizens.

Why does the private marketing of $31tn in sustainability investments not get the same scrutiny as the Green New Deal?

http://ourpiedaterre.blogspot.com/2017/04/solutions-that-share-out-all-benefits.html

@PerKurowski

When are the Italians citizens to speak up against their statist central bankers and regulators?

Sir, Claire Jones and Miles Johnson write: “With economic growth non-existent and government debt at more than 130 per cent of gross domestic product, Italy would struggle without the aggressive monetary easing that Mr Draghi introduced.”, “Italy faces loss of influence in ECB after Draghi leaves” May 27.

Yes, short-term that’s true but, long-term, that’s much more questionable, especially if the regulatory distortions that favor bank credit to sovereigns over that to citizens are kept in place.

Sir, as far as I know, ECB/Draghi has never objected to that for the purpose of the risk weighted bank capital requirements, Italy has been assigned a 0% risk weight, and this even when its debt is not denominated in a domestic printable currency.

De facto that translates into expecting that Italian bureaucrats know better what to do with bank credit they are not personally responsible for, than what Italian entrepreneurs who would put their own name on the line can do with this; something that we all know can only weaken the economy, that is, unless you are a raving communist.

De facto it also translates into that, sooner or later, in the absence of galloping inflation in the Eurozone, the debt of Italy (and other sovereigns) will become unsustainable. When that happens Italy might have no choice but to give up the euro and return to the lira; something that could even bring the European Union down. If so, how sad that had to happen only because of inept statist central bankers and regulators, asked way too few question.

PS. I wonder how many in the European Union Parliament have asked what would be my first question if I had been elected a first time EU parliamentarian?

PS. My 2019 letter to the Financial Stability Board (FSB)

 

@PerKurowski

What if Robert Smith had asked the college and its professors for some assistance in paying off the student debts?

Sir, I refer Andrew Edgecliffe-Johnson story on billionaire Robert Smith announcing during a graduation ceremony that he would pay off the for many students enormous debt. “Philanthropist with a gift for surprise” May 25

Indeed, it was a great initiative, at least for the fortunate students but, to evaluate its full significance, you would have to know what assets Smith had to sell, or what services he could not buy, in order to pay off those debts.

But, that said, had Robert Smith said he’d pay off 85% of all graduating Morehouse College’s students’ debts, if only their professors and that college, those who got all the money from that student debt, paid off the other 15%, that could really have been a game changer. 

PS. http://perkurowski.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

@PerKurowski

The risk weighted bank capital requirements, is just a lean and mean “regression to the mean” machine.

Sir, Tim Harford when discussing luck and reversal of fortunes, holds that genius followed by mediocrity [is] likely a “regression to the mean”, or in simple terms, a return to business as usual. “It can be hard to discern luck from judgment” May 25.

Indeed, but sometimes that reversal to the mean, has nothing to do with such mystical issues as luck, but is a direct consequence of a distortion. 

As I have often written to FT about, allowing banks regulatory privileges when financing what’s perceived as safe, like sovereigns or houses, will result in too much financing of the safe, which will cause “the safe”, sooner or later to revert to become very risky.

In the same vein, those who without correcting for a crisis are now considered triumphant, like ECB’s Mario Draghi, only because they’ve managed to kick a crisis-can forward, will one day be held much accountable, when that crisis can rolls back on some, as it sure must.

@PerKurowski

Entrepreneurs should, as an absolute minimum, have the same chance for entrepreneurship than the State.

Sir, with much lower capital requirements for banks when lending to the sovereign than when lending to citizens, regulators de facto indicate they believe bureaucrats know better what to do with credit they are not personally responsible for, than entrepreneurs. And with that they are subsidizing sovereign borrowing paid by less access to bank credit for the private sector.

That is why I strongly oppose when Mariana Mazzucato opines: “The UK doesn’t lack strong economic foundations; it lacks investment opportunities… the entire government, particularly the Treasury… rather than obsessing about the fiscal deficit has to put innovation at the centre of how it thinks about economic growth [and] set bold and strategic goals.” “British industry needs its own version of the moon shot”, May 23.

Sir, way before the government takes on moon shot project, something which I absolutely do not oppose, we must clear away the regulatory distortion which impedes the market sending the correct signals on the costs of public debt, and gives entrepreneurs, as a minimum, an equal chance to have their risk adjusted interest payment offers accepted by banks, so that they too can do their own moon shots.

@PerKurowski

Why are tariffs on trade with others, worse than tariffs on access to bank credit for your own?

Sir, I refer to Martin Wolf’s spirited defense of free trade and not less spirited attack on Donald Trump for having turned the US into “a rogue superpower, hostile, among many other things, to the fundamental norms of a trading system based on multilateral agreement and binding rules.” “The US-China clash challenges the world” May 22.

Do I disagree? Not really, except noting that at least Trump follows the instinct to protect his own.

But where was/is Martin Wolf when bank regulators, for instance, with Basel II, require banks to hold 8% in capital when lending to their own unrated entrepreneurs, but allow his banks to lend to any other sovereign AAA to AA rated against no capital at all, or to any other foreign AAA to AA rated entrepreneur against only 1.6% in capital?

Sir, anyone who argues those differences in capital requirements are not de facto tariffs on the access to bank credit, have no idea of what they are talking about.

Truth is that since trade is about today, but credit is about tomorrow, I truly believe the Basel Committee and their affiliate regulators are, with their tariffs on the access to bank credit, doing much more damage than a Donald Trump.

But of course you dare not to favor the opinion of little me over that of your own chief economic commentator.

@PerKurowski

A Universal Basic Income deserves to be implemented fast but carefully, little by little.

Sir, Lex writes:“Either the Universal Basic Income (UBI) has to be unrealistically low or the tax rate to finance it is unacceptably high. Suppose the US provided its 327m inhabitants with $10,000 a year. That would be less than the 2018 official poverty threshold of $13,064. But it would cost 96 per cent of this year’s federal tax take.”“{Universal basic income: } money for nothing” May 20.

Let’s face it, the UBI, being an unconditional payment, eats into the franchise value of the redistribution profiteers, and so there are many out there wanting it never to be launched or, if it is, to be unsustainable. The usual way to sabotage it, is precisely arguing that if it is too small it does not solve anything, or if it is too large, it is fiscally unsustainable.

In my mind UBI, the basing building block for the decent and worthy unemployments we need before social order starts to break down, and therefore such an immensely valuable social experiment, deserves to start small, but fast, and grow, slowly, to where the future will and can take it. 

The tricks for a successful launch of a Universal Basic Income are:

1. That it helps all to get out of bed but that it never is so big so as to allow anyone to stay in bed. In other words that it is a stepping stool that helps everyone to reach up to whatever there is in the real economy.

2. That it starts small enough and grows little by little so as to guarantee its absolute revenue sustainability. It should never be an UBI for the current generation paid by future generations.

3. That its revenue sources should as much as possible be aligned with other social interests, like a carbon tax that helps fight climate change; or sources aligned with the new times, like taxes on robots, intellectual property and exploitation of citizens’ data.

Sir, the UBI should have as little as possible to do with government and politics, that because it should foremost be as a citizen to citizen’s affair.

PS. In countries blessed with high natural resource revenues, these should feed a much larger UBI, but that is because of the importance of reducing the concentration, in the hands of a centralized government, of income that does not come from taxes paid by citizens.

@PerKurowski

In EU the lines separating the real responsibilities between national and local politicians, and Brussels technocrats, are way too blurry, at least for the ordinary European citizens

Sir, Simon Kuper writes: “In recent years, we have improvised our way into an EU that works for most Europeans of our generation. We now have what Charles de Gaulle called a “Europe of nations”, in which the big decisions are made not by Brussels bureaucrats, or the European Parliament, but by national leaders acting in concert.” “Why today’s Europe of nations works” May 18.

I disagree. Because of the most probably very disastrous consequences for the euro and for the EU, the single most important decision that has been taken in the EU is, for the purpose of the risk weighted bank capital requirements, assigning to all eurozone sovereigns a 0% risk weight, and this even though they all have their debt denominated in a currency that de facto is not their own domestic printable one.

Sir, what German politician would like to be asked: why did you consider that German banks needed to hold eight percent when lending to German entrepreneurs but could lend to Greek bureaucrats against no capital at all. I venture the answer to that to be, no one!

In EU, technocrats and politicians will blame each other, whenever it’s convenient for any of them, but that is usual in most places. The real difference here is that in EU, the lines separating the responsibilities between national and local politicians, and the technocrats, are as blurry as can be. To know that it suffices to follow the European Commission twitter account, and therefore receive the most amazing barrage of publicity on it doing things that nobody could ever think was their responsibility.

Sir, those supporting Brexit could wrongly suppose too much decision power rests in EU, but those supporting Remain could be just as wrong supposing too much decision power remains in Britain. Who knows? Not me, but perhaps not you either.

@PerKurowski

On Brexit, as is usual these days in most issues, it would seem that both in Britain and EU, it is more profitable to divide than unite.

Sir, Martin Wolf writes that “In 2018 the EU’s exports to the UK were 79 per cent of its exports to the US and 153 per cent of its exports to China, though the UK economy was 14 per cent of that of the US and 21 per cent of China’s. The UK sent 47 per cent of its exports to the rest of the EU, against 13 per cent to the US and 6 per cent to China, though the US economy was 29 per cent bigger than the EU’s (excluding the UK), and China’s was only 16 per cent smaller.” “‘Global Britain’ is an illusion because distance has not died” May18.

It is not that very clear who depends most on whom for exports, Britain on EU, or EU on Britain? And I doubt you could really deduct that from these figures.

Nonetheless, that clearly evidences that it should also be in the interest of EU to come up with a counteroffer that could allow most of those who voted for Brexit to accept a Remain. As far as I know, there’s been nothing of that sort… even though, let me be very clear about it, neither does it seem Brexit proponents/negotiators have tried hard to propose something to EU that would make the Brexiters to accept a Remain.

In July 2017 in a letter to you I wrote: “I wonder why Martin Wolf, and most other influential Brexiters and Remainers, British foremost, supposedly, are not out there marketing the need for a very amicable Brexit, among all those Europeans that might wish the same, and who also the last thing they need, is for additional complications in their already hard as it is life.”

So why the lack of wanting to develop proposals that could bridge the differences between Brexiters and Remainers? Could it be, as is way too usual these days, that there is more political and financial profits in dividing than in uniting?

Sir, if so, what do we do about is, as that can only end up tragically bad, for all?

@PerKurowski

When compared to Venezuela’s oil reserves, Citgo is nothing.

Sir, Colby Smith refers to Citgo as “the last-remaining crown jewel of Venezuela” “Stakes rise for Venezuelan assets stateside” Alphaville May 17.

Frankly, Venezuela has what has been reported as the largest oil reserves in the world. What is Citgo compared to that? Absolutely nothing!

What’s valuable for Venezuela is its oil, but the value of it has been greatly diminished, first and foremost because the government handles the redistribution of all net oil revenues, but then also because way too many have wanted to profit from doing something with our oil, for instance refining it, abroad.

In 2000, in an interview in the Daily Journal of Caracas I said:

“Until someone convinces me of something different, I insist that anything else the Venezuelan state tries to do with oil, means a loss or a net reduction of the benefits brought by the first phases of the operation, [its extraction].

Because of that and the fact that I have seen the corporation's reports, I still can't understand the economic reasons for having bought and kept Citgo. There is evidence in the reports that it is being subsidized by PDVSA. 

And, for those who argue so much in favor of privatizing PDVSA, I challenge them to make an IPO for Citgo, subject to their obligation to purchase oil products at market prices."

Sir, we have millions of our young growing up undernourished and still some try to hang on to a very high hanging fruit as Citgo, so my current tweet sized proposal is: 

So that Venezuelans can eat quickly, hand over Pdvsa (and Citgo) to Venezuela’s creditors quickly, to see if they can put all that junk to work quickly, to see if they can collect something quickly, and pay us Venezuelans, not the bandits, our oil royalties quickly.

The Iraq Study Group established by the U.S. Congress, reported in 2006 the following: "There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource." Sadly it came to nothing

Sir, if that were to be implemented in Venezuela, then Venezuelans would live in a truly independent nation, and not just in somebody else’s business.

PS. A couple of years ago I gave a speech to transfer price specialists in Washington recounting the very curious thing of Venezuela´s state PDVSA that sold petrol at lower than market prices to their then recently acquired refinery subsidiary in the US, CITGO, paying unnecessary taxes to another than their own tax man, probably just because they wanted to show the Venezuela public that Citgo was such a good investment. Crazy? Yes of course, but that´s life in a tropical country.

@PerKurowski

How does the European Commission propose Eurozone’s sovereigns get out of that corner into which many of them have been painted by 0% risk weights?

Sir, Mehreen Khan reports that the European Commission’s Spring forecast warned last week that: “The geographical make-up of the euro area’s fiscal stance does not reflect the adjustment needs in the high-debt member states” “The eurozone’s fight for stimulus” May 15.

If so, for how long will the European Commission back those 0% risk weights that for the purpose of bank capital requirements have been assigned to all eurozone sovereigns, even when these de facto are indebted in a currency that is not their own domestic printable one?

That risk weight translates into signaling lower interest rates for the eurozone sovereigns that what would have been the case without these distortions.

That has caused many of the eurozone sovereigns to be painted into a corner. How does the European Commission propose they get out of it? 

The euro's and thereby the EU's future depends on it

@PerKurowski

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

As a consequence of too much regulatory subsidized credit, whether by deflation or inflation, both houses and sovereign debts will be worth much less.

Sir, Martin Wolf writes: “monetary policy fosters risk-taking, while regulation discourages it — a recipe for instability.” “How the long debt cycle might end” May 15

Over the last decade I have written hundreds of letters to Wolf and other at FT about the dangerous waste of any stimuli package when you simultaneously distort the allocation of bank credit to the real economy, as is currently done with the credit risk weighted capital requirements for banks.

Just looking at some of the risk weights: like 0% for the sovereign, 20% for anything rated AAA to AA, 35% or less for residential mortgages and 100% for loans to unrated entrepreneurs, should have sufficed to know where we would end up, namely:

A banking sector abandoning much of its traditional “risky” lending in favor of what is perceived, decreed or concocted as safe; forcing most of those that used to keep to what was perceived as safe, like individual private savers, pension funds and even insurance companies, to get into the world of what’s risky, something for which they are much less prepared than banks.

And excessive bank exposures, as usual, morph what is very safe into being very risky. Having, with too much financing, pushed houses from being homes into being investment assets, have made households house-rich and money poor. Just wait till many of current owners, out of need must convert houses into main-street purchased power at any cost. Whether by deflation or inflation, those houses will be worth much less.

Of course, lower bank capital requirements for loans to sovereigns than for loans to citizens, translates, de facto, into a belief that bureaucrats know better and are more responsible than citizens about how to use bank credit, and will therefore cause excessive sovereign debts. 

With respect to it Wolf writes: “Those in emerging countries are particularly vulnerable, because much of their borrowing is in foreign currencies”. That is so but let me also add to that the Eurozone nations who, de facto, do not take on debt denominated in a domestic printable currency. 

But, let us be clear, a nation printing itself out of excessive public debt, does also expose itself to inflationary pressures and so again, whether by deflation or inflation, in real terms, that sovereign debt will be worth much less than what its buyers’ paid for it.

Sir, finally, Martin Wolf opines that those who recommended another route of adjusting than with the stimuli package to the 2008 crisis were “fools”.

That could be but, as a consequence of taking “the smart way”, the world just kicked the crisis can forward and renounced to the long-term benefits of a hard landing. There will come a time when too many will regret not having taken the fools’ way.

http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

@PerKurowski

Sooner or later redistribution profiteers will meddle with any wealthy sovereign wealth fund.

Sir, with respect to “the world’s largest sovereign wealth fund” Norway’s, Richard Milne writes: “The danger is that one of the few sovereign wealth funds based in a democracy could be weakened by political meddling.” “Wealth fund’s abode at risk of becoming Norway political saga” May 9.

I quote from my book “Voice and Noise” from 2006. “My name was put forward as a candidate for the post of Diversification Manager in the Venezuela Investment Fund that was being created in 1974 to handle the oil income surpluses of the nation. I entered the Fund its very first day, and I left a couple of weeks later the same day my desk arrived, utterly frustrated when the Fund was requested [by the politicians in government] to analyze, and obviously endorse, [in one week] the economic feasibility studies of a 4 billion dollar investment known as the Fourth Plan of SIDOR, the big Venezuelan iron and steel complex. With an “if something goes wrong with this project the Venezuelans might have the right to hang us in Plaza Bolívar, and I’m much too young for that” I slammed the door on the public sector …”

Sir, sometimes politicians (redistribution profiteers) will meddle with a sovereign wealth fund after just two weeks, sometimes it will take decades for that, but sooner or later that will always happen, you can bet on that.

@PerKurowski

FT, when helping covering up for bank regulators’ mistakes, do you lie awake, or do you sleep like a baby?

Sir, Sarah O’Connor writes “We could use more leaders in politics and business who doubt themselves, who seek the opinions of others and who lie awake worrying about the consequences of their actions.” “A spot of ‘polish’ is not going to transform the lives of state school pupils” May 8.

Indeed. The regulators in the Basel Committee decided they had the right to distort the allocation of bank credit because they thought that what was ex ante perceived as risky is more dangerous ex post to our bank systems than what is perceived as safe.

As the 2008 crisis provided more than sufficient examples of, this is clearly not the case.

But, do these regulators lie awake because of the consequences for the real economy of what they did, or do they do so because of the consequences for themselves, if their mistake is found out?

Sir, let me ask, since with your silence you’ve helped cover up for this costly mistake, so much that it has not yet been corrected, do you lie awake, or do you sleep like a baby?

@PerKurowski

Central banks, when targeting, should start by making sure they are targeting the correct target; and the last thing they should do, is to promote distortions in the allocation of bank credit.

Sir, Marie Owens Thomsen writes: “Today, governments tend to run only budget deficits, making them rather structural. This leads to ever-rising debt levels and poses a potential policy dilemma. Thanks to the blissfully low rate of inflation, it is possible to ignore this fact. But should inflation hypothetically shoot up, it would quickly become apparent. Central banks could find themselves unable to raise policy rates enough to combat price increases without causing a debt sustainability crisis at home.” “Central banks need to be less dogmatic on inflation targeting” May 8.

Scary stuff, but even more so when one considers the following:

First, that the targeting of inflation is based on an entirely subjective measure of inflation. Just as an example it is based on the cost of renting houses but not the price of houses.

Then second, the artificially imposed risk weighted bank capital requirements, which among other much favor “safe” sovereign debt over “risky” loans to entrepreneurs and SMEs, is distorting the allocation of bank credit to the real economy, and sends out the wrong interest rate signals. For instance had the EU authorities not assigned a 0% risk weight to all Eurozone sovereigns, even though these were getting indebted in a currency that de facto is not their domestic (printable) one, Greece would never have been able to build up the exposures to German and French banks that doomed it to a crisis.

@PerKurowski

When experts on different aspects collaborate they should be able to disagree, not just join a mutual admiration club.

Sir, Tim Harford writes about “a flawed statistical study by Winston Churchill’s scientific adviser Frederick Lindemann that no one had both the technical skill and the political clout to challenge. [It caused] the allied bombing of dense urban areas in Germany during the war, which not only took a terrible toll on civilians but failed in military terms by sparing industrial targets.” “Real change requires experts to collaborate” May 4.

There is a document prepared by the Basel Committee on Banking Supervision dated July 2005 and titled “An Explanatory Note on the Basel II IRB Risk Weight Functions". It can be found on the web site of the Bank for International Settlements.

It is supposed to explain the standardized risk weighted capital requirements for banks decided upon in the Basel II agreements. It does nothing of that sort, mostly because those risk weights are impossible to justify.

For instance assets rated AAA to AA rated, which ex ante perceived safety could cause banks to build up excessive exposures that could be dangerous to the bank system if these turned out ex post risky are assigned a 20% risk weight while; for assets rated a below BB- and that because of their perceived riskiness banks will not voluntarily build up excessive exposures to, and therefore represent no risk to the bank system, even if they turn out even riskier than expected, have been assigned a whopping 150% risk weight.

But that explanation was never challenged. The fact that AAA to AA rated assets could be leveraged 62.5 times by the banks, when compared to the 12.5 times allowed leverage with unsecured loans to unrated entrepreneurs, created the incentive structure for the 2008 crisis, caused by the excessive exposures to the AAA rated securities backed with mortgages to the subprime sector in the US, which turned out very risky; or by the excessive exposures to assets covered by default guarantee sold by AAA rated AIG.

Even after that crisis, the silence on it has persisted. As is our bank systems are doomed to especially large crisis, caused by especially large exposures to assets perceived ex ante as especially safe, but against which when these turn out ex post to be especially risky banks hold especially little capital.

How did the weavers in Basel manage to convince the world that with their regulations the bank systems were fully dressed, and that anyone not seeing that were unfit for their positions, stupid, or incompetent? I have, like the child in Hans Christian Andersen’s “The Emperor’s New Clothes”, shouted out innumerable times that our bank systems are now even worse of than if naked, but this has obviously not sufficed.

Harford opines “good policymaking is now a team effort. It requires different perspectives and a range of specialist expertise. We all must learn to work with people who see the world very differently”

Indeed, and there is of course more than enough “technical skill and the political clout to challenge” these regulations, but yet nothing happens. Could there perhaps be too many disincentives to do so? For instance like then not being invited to Davos? 

Sir, one day historians will scratch their heads trying to figure out the reasons for the world’s now more that thirty years silence, on the outright loony (and statist) risk weighted bank capital requirements. Do you not wonder what they in that respect could say about FT’s?

@PerKurowski

A Neo-Inquisition is at work protecting mutual admiration clubs, like the Basel Committee for Banking Supervision

Sir, Ian Goldin writes “Today, the increasing depth of knowledge in any field means that greater specialisation is needed to master ideas. Yet this stifles creativity and the ability to grapple with real-world problems, whose messy complexity has less and less in common with the increasingly fragmented disciplines and professional specialisation” “Da Vinci code: what the tech age can learn from Leonardo” April 29.

Indeed, and that is most clearly evidenced by expert specialized regulators coming up, within the walls of a mutual admiration club, with risk weighted capital requirements for banks, which are based, not on the dangers bank assets could pose to the banking system, but simply on their ex ante perceived credit risk… as if bankers did not perceive these… as if bankers loved taking risks… as if not all major bank crisis had resulted from something ex ante perceived as safe turning up ex post as something very risky. 

Goldin rightly opines: “For progress to prevail, evidence-based, innovative and reasoned thinking must triumph. Genius thrived in the Renaissance because of the supportive ecosystem that aided the creation and dissemination of knowledge — which then was crushed by the fearful inquisitions. Today, tolerance and evidence-based argument are again under threat.”

Indeed those bank regulations, which blatantly failed in 1988, when AAA rating turned out wrong, and which are building up dangerous exposures to 0% risk weighted sovereigns and to 15%-35% residential mortgages, are still not discussed.

In response to a public request of comments on SMS financing, I sent a letter to the Financial Stability Board. It began this way:

“I have not found sufficient strength to sit down and formally write up my comments, because I feel I would just be like a heliocentric Galileo writing to a geocentric Inquisition.

The Basel Committee’s standardized risk weights are based on the presumption that what is ex ante perceived as risky is more dangerous to our bank system.

And I hold a totally contrarian opinion. I believe that what is perceived a safe when placed on banks balance sheets to be much more dangerous to our bank system ex post than what is perceived ex ante as risky; and this especially so if those “safe” assets go hand in hand with lower capital requirements, meaning higher leverages, meaning higher risk adjusted returns on equity for what is perceived safe than for what is perceived as risky.”

Sir, that letter managed to get nailed on FSB’s web-doors and I’m waiting to see what will be its destiny.

PS. In these days when the filthy rich are so much abhorred, there’s room to ask whether Leonardo da Vinci’s Salvator Mundi and Mona Lisa would ever have been painted if not commissioned by some filthy rich.

PS. In FT November 2004: “Basel is just mutual admiration club of firefighters seeking to avoid crisis”

@PerKurowski

Central banks seem not able to tell their magic porridge pot to stop

Sir, Robert Armstrong, Oliver Ralph, and Eric Platt make a reference to the fairy tale of the magic porridge pot writing “Every working day, $100m rolls into Berkshire — cash from its subsidiaries, dividends from its shares, interest from its treasuries. Something must be done with it all. The porridge is starting to overrun the house.” “‘I have more fun than any 88-year-old in the world’” Life&Arts, April 27.

And the magic porridge pot fairy tale ends this way on Wikipedia: “At last when only one single house remained, the child came home and just said, "Stop, little pot," and it stopped and gave up cooking, and whosoever wished to return to the town had to eat their way back”

Sir, the excessive stimuli injected by means of QEs, fiscal deficits, ultra low interest rates and incestuous debt credit relations, like the 0% risk weighting of the sovereign that provides credit subsidies to who provides banks with deposit guarantees, or loans to houses increasing the price of houses allowing still more loans to houses, against very little capital… all of that is the porridge of our time.

And it’s clear central bankers everywhere, have no idea of how to tell their pot to stop.

Will we be able to eat our way back? Not without sweating it out a lot at the gym. You see too much porridge, meaning too much carbs, and too little proteins, meaning too little risk taking, produces an obese not muscular economy. 

@PerKurowski

Martin Wolf, as part of the elite, should read the “Explanatory Note on the Basel II IRB Risk Weight Functions”, and then tell us ordinary people what he opines of it.

Sir, even if qualifying for degrees of sophistication, when Martin Wolf places a human rights violating dictator Nicolas Maduro in the same list of strongmen as Donald Trump, he certainly seems to have lost it. Nicolas Maduro has now 90% of Venezuela against him and is staying there by brute force, and the elections he won in the past, were fraudulent. Or could it be Wolf still wants to believe that Trump won also because of Putin’s help? “Elected despots feed off our fear and rage”, April 23, 2019.

Wolf argues that the reason president Trump was elected and why is he still trusted by so many, is “partly due to longstanding economic failures, partly to the financial crisis and partly to cultural changes”; and also the willingness of parts of the elite to exploit such emotions, to achieve huge tax cuts and eliminate regulation, something Wolf defines as “pluto-populism”.

Pluto-populism? There’s now more than 30 years since the Basel Accord introduced risk weighted capital requirements for banks that assigned a risk weight of 0% to the sovereign and 100% to the citizen. If that’s not statism that feeds a crony statism what is?

And those regulations based on that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe, is utter lunacy, that is unless its purpose is to realize bankers’ wet dreams of being allowed to leverage especially much with what is perceived as especially safe. 

The financial crisis resulted 99% from excessive exposures to what Basel II in 2004 backed by an AAA rated entity, like AIG, which meant banks could leverage a mindboggling 62.5 times their capital with these assets.

And much of the weak response to the immense post crisis stimuli, is the result of “risky” entrepreneurs and SMEs not having competitive access to bank credit, because of having to make up for the fact that banks can leverage much less their capital with loans to them. 

But yet, the monstrous missregulation by the Basel Committee is still not really discussed, and so it is still not really corrected.

I assume Martin Wolf, as the chief economics commentator of the Financial Times must qualify as part of the elite. So Sir, if you think he should live up to the responsibilities that entails, I suggest you dare him to read the Basel Committee’s “An Explanatory Note on the Basel II IRB Risk Weight Functions” of July 2005 and then inform you, and us ordinary people, whether that mumbo jumbo makes sense or not.

But back to Venezuela. Obama agreed to negotiate with Cuba leaving its de facto invasion of Venezuela out of it. President Trump does not want anything of that sort. Sir, I wonder, if Martin Wolf was one of the so much suffering Venezuelans, what do you think he would prefer, an American “strongman” or an American “weakman”?

PS. Here is what I opine of that Explanatory Note

@PerKurowski

The more voluminous data is, and the faster it is transmitted, the faster we can be sent over a cliff.

Sir, Robin Wigglesworth writes: “The amount of digital data around the world is unimaginably vast. As more of our social and economic activity migrates online, the quantity and quality is going to increase exponentially. The potential is mind-boggling”,“Big Data’s power to illuminate leaves public sector in the shadows” April 20.

In April 2003, when as an Executive Director of the World Bank I formally commented on its strategic plan I wrote: "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 it sure happened. The AAA rated securities backed with mortgage to the subprime sector in the US, send us straight into the 2007/08 crisis. 

In other words it is not just a question of data availability, in real time, but also on how we respond to it. It might behoove us all, to take a long time to digest it, before we react to it.

For example, and I quote from a BBC report: “On the 26 of September 1983, in the early hours of the morning, the Soviet Union's early-warning systems detected an incoming missile strike from the United States. Computer readouts suggested several missiles had been launched. The protocol for the Soviet military would have been to retaliate with a nuclear attack of its own. But duty officer Stanislav Petrov - whose job it was to register apparent enemy missile launches - decided not to report them to his superiors, and instead dismissed them as a false alarm. This was a breach of his instructions, a dereliction of duty. The safe thing to do would have been to pass the responsibility on, to refer up. But his decision may have saved the world.”

Sir, so what delay factor do we need to introduce before we respond to any real time data? I have no idea. You tell me.

@PerKurowski

Any winner in a second Brexit referendum should want to make sure his would not be a Pyrrhic victory.

Sir, Simon Kuper writes: “Only voting Remain will end the stress and tedium (the national divide will remain whoever wins)”, “How Remain can win a second referendum” April 20.

Of course the national divide will remain, but the question is whether it will remain the same whoever wins the second referendum? Could the divide not increase? Who could, if winning, be more capable to set a course towards national unity, Brexiters or Remainers?

Kuper opines, “Remain needs to sound as patriotic as Leave. It must present the UK as a European power, not a sorry victim of Europe.”

Yes, of course, but have the Remainer done so? I don’t think so.

A powerful Remainer would have imposed conditions on Europe that would make it easier to convert Brexiters. Of that nothing has been seen. (A powerful Brexiteer would have looked for the same in order to convert Remainers).

A powerful Remainer might have started out for instance by questioning Michel Barnier as the European negotiator, as there were indications of him having conflicts of interest. (A powerful Brexiteer should have had to do so too).

A powerful Remainer would have asked Europe for a clear answer on how they intend to solve the problem with having assigned a 0% risk weight to all Eurozone sovereign that take on debt in a currency that de facto is not their own domestic (printable) one. I mean a powerful Remainer would not risk standing their with egg on his face having won the second referendum and then having nothing to remain in. (A powerful Brexiteer might not really have had to do so).

Kuper also opines “In a second referendum, Remainers can borrow the anti-elitist language of Leave to inveigh against privileged Brexiters.” 

Yes, that could help the Remainers to win the referendum, but that would also increase the chances of the divisions growing and they having won a Pyrrhic victory.

Sir, at the end of the day Britain’s problem is that the Brexit vs. Remain debate was taken over way too much by those wanting to profit on it by it turning it into a battle between good and evil. If you do not possess a sufficient strong elite capable of stopping such nonsense, you will pay the consequences, 

Sir, when thinking about what second referendum result would have the best possibilities over to regain some workable unit, each day that passes, makes me feel closer to have to give, a quite reluctant, “Brexit” response to that.

PS. London’s West End needs urgently an Oklahoma revival adapted to Britain. “The Brexiters and Remainers should be friends”

@PerKurowski

To unite Britain, Brexiters and Remainers must negotiate a compromise. Sadly, its polarization profiteers object to that.

Sir, Martin Wolf writes: “Brexit, has weaponised identity, turning those differences into accusations of treason. … Once the idea of “treachery” becomes part of political debate, only total victory or total defeat are possible… The country is so evenly divided, and emotions are so intense, that resolution is at present impossible” “Britain is once again the sick man of Europe”, April 18.

Indeed, as I wrote to Martin Wolf on April 13th, when walking on Fleet Street I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” Thank God, in this case, the mother was clear about the answer. 

But that question must have popped up in this girl’s mind, as a consequence of a growing worldwide radicalization. Children elsewhere could also be thought asking similar questions, like: murder or Trump, murder or climate change, murder or filthy rich, murder or whatever.

Much of it is the direct result of that creating division, especially in these days when messages of hate, envy or fake news, can be sent out to millions at zero marginal cost, is a much better business proposition than uniting… or reporting real news.

Sir, honestly, how many efforts have been invested by Britain’s elite in requesting changes to EU that could make sense to Brexiters, or to design a Brexit that could be acceptable for Remainers? I believe way too little!

Now when Wolf’s asserts that Britain’s most important crisis is economicand that “Britain is once again the sick man of Europe”I am absolutely not sure about that. Wherever you look in Europe you find way too many symptoms of economic and social ailments. 

For instance, just the fact that Eurozone’s sovereign were assigned a 0% risk weight, even though they take on debt in a currency that de facto is not their domestic (printable) one, presents more dangers to EU, than a Brexit would present to a Britain with a Pound based economy.

Sir, has FT played a responsible role as a unifier? Since we all have to live with our own consciences, which is not for me but for you to respond.

Let me though here say that as much as the little girl’s question shocked me, more did your ample coverage/publicity given to a minuscule “Extinction Rebellion” “Inside the new climate change resistance” April 11. That group predicates and “plans mass civil disobedience”, and is one that has wet dreams such as: “After two previous attempts to get herself arrested, Farhana Yamin …hopes she will soon see the inside of a police cell”.

Finally, and back to Brexit, if as Wolf says: “only total victory or total defeat are possible”,what do you believe Sir poses the greatest opportunities for Britain to ever become united again, Brexit or Remain? (I have an inkling that each day that passes, makes me feel closer to have to give a somewhat reluctant Brexit response to that)

PS. London’s West End needs an Oklahoma revival adapted to Britain. “The Brexiters and the Remainers should be friends”

 @PerKurowski