November 25, 2004

So that Argentina will not have to cry, again

Sir, If Argentina, in a sovereign way, would just offer to include in the current restructure a little clause that states that if they were ever to take on new foreign public sector debt, all of it’s outstanding foreign debt would come due, then the future of that great country would truly shine bright.

As is, the recipients of any new exchange bonds will worry that the debt alleviation given will again tempt foreign investment banks to build up new short term exposure; as is, the argentine citizens will only have to brace themselves for history to repeat itself. Today more important for Argentina (and many other) than to solve its current debt overhang is to make sure it does not happen again. Doing so will open up investment flows to the private sector, Basel willing, the only sector where these flows should always have gone to.

Sent to FT on November 24, 2004

November 19, 2004

Basel is just mutual admiration club of firefighters seeking to avoid crisis

Published in FT November 18, 2004 The link is gone!

Sir, If a citizen from a developed country wishes to obtain finance from his local bank to buy a pricey retirement home in his local overheated market, then Basel poses no problem.

But should he want to buy a much more affordable home in a developing country and have his bank finance him, then Basel slaps such capital reserve requirements on the bank as to make it an impossibly onerous proposition.

This is just one way by which our bank supervisors in Basel are unwittingly controlling the capital flows in the world.

We also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

Please, help us get some diversity of thinking to Basel urgently; at the moment it is just a mutual admiration club of firefighters trying to avoid bank crisis at any cost - even at the cost of growth.

PS. Here is a current summary of why I know the risk weighted capital requirements for banks, is utter and dangerous nonsense.

August 10, 2004

Towards a counter cyclical Basel?

Sir, the financial system is there to safeguard savings, to generate economic growth by channeling investments, and to promote equality by providing full and free access to capital and opportunities.

Currently, our bank regulators headquartered in Basel are primarily concerned with the first goal, that of avoiding bank collapses, and how could it be otherwise, if you have only firemen on the board that regulates building permits.

Now, one of these days, the financial system, neatly combed and dressed in a tuxedo, but lying more than seven feet under in the coffin of financial de-intermediation, is going to wake up to the fact that it needs the presence of others in Basel. At that moment, perhaps we might start hearing about flexible capital requirements, moving up to 8.2 % or down to 7.8% by region, in response to countercyclical needs.

Meanwhile it’s a shame that even their first goal might turn out to be elusive, since although the individual risks have fallen with Basel regulations, the stakes have increased, as those same regulations accelerate the tendency towards fewer and fewer banks. 

PS. This letter that, while being an Executive Director of the World Bank I sent to the Financial Times. It was not published. But, because of its importance, I included it in my book Voice and Noise of February 2006

May 29, 2004

Big Responsibilities

Published in FT May 29, 2004

Sir, The Big Four accounting firms became that big by marketing the value of their size. Now they want to have their cake and eat it too, asking to be sheltered from ruinous lawsuits. If accountability is to mean anything in accounting, we cannot afford to turn the concept of professional responsibility into a risk model of affordability.

Individual professionals and small firms lay their names on the line, day after day. If the Big Four cannot handle it, they had better let go. Then we might all be better off. At least the systemic risks will be smaller.

April 18, 2004

Hurrah for the Queen!

Sir, facing the need of a career move, it was interesting to read in The Economist, two weeks ago, an announcement, by the Buckingham Palace, requesting an Assistant Private Secretary to H.M. the Queen. I finally did not send my c.v. to, not because it was not tempting, but because I thought that although I could offer good global perspective on many issues, the Queen might really be looking for someone with more local know-how (cricket) than what I (baseball) could provide for.

That said, Buckingham’s announcement is noteworthy as it evidences that, even in the Monarchy, good governance issues are deemed so important that they include the statement “The Royal Household is committed to equality of opportunity”. And so, in terms of transparency and equal opportunity in hiring, how does the IMF currently stand up in its search for a Managing Director when compared to the British Monarchy? Perhaps, even though born republicans, should not refrain from a “Hip Hip, Hurrah” for the Queen.

Sent to FT, April 17, 2004