December 31, 2009

The monsters that thrive on hardship haunt my dreams

As a son of a Polish soldier who had to endure more than five years in a German concentration camp, I also connect to Martin Wolf's feeling that the civilisation we pray survives for our descendants is indeed at stake ("The challenges of managing our post-crisis world", December 30).

In this respect my worst nightmare is that unmanageable Versailles-type public debts will become fertile ground for those monsters that thrive on hardships, and that is why I often wake up wishing that the US, instead of taxing and inflating itself out of an almost impossible problem, would simply do an Argentine form of restructuring such as offering 10 cents of the new dollar for each 100 cents of old dollar debt, hand out some Dollar II to its citizens and then take it from there. I believe not only that the world would still accept Dollar II as it has little other choice but also that China would then wake up and adjust . . . you see, governments can't stop dancing either while the music plays.

Once the air is cleared then we might have a better chance of tackling other challenges to civilisation like the climate change threat. As to the banking system, there is nothing that could not be solved by asking ourselves the simple question about what our banks are supposed to do for us, because, unfortunately, that is the question our current very poor set of regulators have never asked themselves.

Happy new decade!

December 29, 2009

Do not help the regulators to get off the hook.

I have always thought that bank regulations should primarily focus on stimulating the banks to take the kind of risks that are more useful to society, and so that, when something goes wrong, as it will do sooner or later, that it has all at least been worthwhile.

Instead the Basel Committee focused on trying to exorcize risk-taking from the banks so as to guarantee bank stability, something that per se does not serve society much; by allowing for some minuscule capital requirements for banks as long as they lent to or invested in operations that the credit rating agencies perceived as risk free… in other words:

Sheer lunacy! There is nothing to be obtained by giving those already blessed with being perceived as having low risks the additional advantage of generating low capital requirements for banks.

Sheer lunacy! Since capital by nature is already too coward, assigning special preferences to the “safe-havens” guaranteed these were to become overcrowded and create a new set of risks.

Sheer lunacy! Only some extremely gullible and naïve regulators would be unable to see that beside the fact that the credit rating agencies, composed by humans trying to measure hard to define risks were bound to go wrong, sooner or later, that with these regulations they were being set up for capture by many interested parties.

And this is why though I absolutely agree with much of Martin Dickson’s “The bankers who wouldn’t say sorry: a cautionary tale”, December 29, I completely disagree with it as a whole, since by pointing excessively at the bankers it might help the regulators to get off the hook.

December 28, 2009

Do we really need regulators who cannot define a purpose for their regulations?

Sir Simon Gleeson writes that the “hardest” is for the regulatory system is “deciding exactly what you are trying to achieve, “Regulatory systems do need regular pruning” December 28.

Gleeson is absolutely correct and if in need of evidence the current bank regulations produced by the Basel Committee, suffices. In these there is not one word on the purpose of the banks… because stability or better phrased the avoidance of excessive instability cannot of course per se be an objective but only a desired feature.

When having to embark on financial regulatory reform there is no better place to start than defining the purpose of the financial sector, but somehow it seems no one wants to do that… I wonder why?

December 22, 2009

Banker’s fears should pale in comparison to ours.

Sir Gillian Tett writes “when banks have made loans to western sovereign nations – or simply bought their debt, in the form of bonds – they typically do not post big reserves, since such debt is deemed ‘zero risk weighted’ in bank regulatory rules, and most western countries carried a triple A credit rating”, “Sovereign risk comes high on banker’s fears for 2010” December 22.

As I have written to FT so many times over the years now, though it has been blithely ignored, the banker’s fears should pale in comparison to ours as citizens, seeing that banks are allowed to lend to the State (which is what “sovereign nations” really means) without any capital requirements while, when lending to an ordinary citizen it must find at least 8 percent in equity.

Is not the State powerful enough without this regulatory favouring? Can’t you see it? Our banks are being nationalized through their balance sheet... or what would you call it when the bank holds many times their equity in government obligations?

I never held FT to be a procommunist paper but contemplating it’s unbelievable silence on this issue I am quite sincerely starting to have my doubts.

December 18, 2009

There should be a growth market in tea-parties.

Sir Gillian Tett is too forgiving when she describes as a “perverse situation” that “the Europeans banks are now net sellers of insurance against the chance of their own governments going into default – even though those same banks are implicitly backed by those governments”, “CDS market needs reform if more drama is to be avoided” December 18.

It is worse than so, it goes to the heart of what could be deemed to be an immense collusion of interests between big governments and big finance, which starts with the fact that banks in many countries, courtesy of the regulators, are required to hold zero percent in capital when lending to the government and therefore leveraging even more its power.

That an ordinary citizen’s borrowing gives cause for an 8 percent or more capital requirement for banks while the same lending to the governments cause a zero requirement must be a dream come true for any government. There seems to be a growth market in tea-parties all around the globe.

Sheer regulatory lunacy!

Sir Anousha Sakoui in “S&P in rating threat to covered bonds” December 16, writes that these bank issued will be rated among other based on “the likelihood of government support”. Given that governments appoint financial regulators who now use the credit risk ratings issued by the credit rating agencies to decide how much equity banks need to have, presumably so that the banks won´t fail and the governments will not have to bail them out, it is absolutely crazy that the credit rating agencies when rating the risk also measure the government´s willingness to bail out the bank. Is this dangerous and incestuous circle of opinions not sheer lunacy?

December 16, 2009

Let all citizens of all countries in on the climate change human race challenge!

Sir Jeffrey Sachs “Hold the rich nations to their world” December 16 clearly views fighting against climate change as a government issue. But, if the threat of climate change is as serious as told and which from what I at least have been able to see with my own unscientific eyes I have few reasons to doubt, then clearly the only way to have a chance to succeed in that battle is by making it a citizens issue.

In this respect when Jeffrey Sachs now rightly complains in respect to climate change that “rich-country leaders want to sneak by on minimalist commitments… not consistent with global needs or international commitments” similar to what has happened to “rich-country pledges on development aid”, he would do well reflecting on whether the citizen of rich countries were sufficiently involved when making those commitments… or does the need of participation and ownership that is so much preached on by the development community only apply to poor countries.

Also these days we heard comments from the US with respect to the difficulty of monitoring Chinese commitments on containing carbon emissions, but if in this case we can’t understand that the only real effective climate change monitoring that can be done in China or in any country is that which is performed by their own citizens, then I believe we have already lost the battle.

Let’s hurry back to the drawing board and start talking with the people of the world and not the Jeffrey Sach’s or the governments of the world… pas la même chose.

December 12, 2009

Who is guilty of having seeded expectations of climate change reparations?

Sir Christopher Caldwell is right in denouncing that “many of the developing world’s representatives have come to Copenhagen seeking reparations” Climate change, the great leveler”, December 12. What we must realize though is that these representatives did not develop these expectations on their own but that these were certainly seeded there by some reparation intermediaries or vultures. There is no doubt that we should try to eliminate poverty in the world but we must have clarity in what are the prime objectives with respect to our earth-environment.

It would be an interesting challenge for any journalist to investigate the origin of the idea to open up the flank of wealth redistribution in the environmental battle. It should be possible to do so and it would also be very valuable for all to do so, especially for those now bearing groundless expectations and who now are bound to be disappointed.

December 10, 2009

Never forget who really paid for the bonuses.

Sir, on your front page Patrick Jenkins, Brooke Masters and Francesco Guerrera reports on the “Banker’s fury at UK bonuses supertax”, December 10. Because there could be some shady collusion of interests that could want us all to ignore it, it might be convenient to remember that the real payers of those bonuses, or taxes, are the clients of the financial intermediaries. If we are going to have true fiscal transparency then perhaps the supertaxed part of the bonuses should be returned to the clients of the banks, and if so needed, taxed there.

December 08, 2009

Do the poor not have the human right to share the obligations of the human race?

Sir Jeffrey Sachs in his letter “Poor pay for the sins of the rich” December 8, writes about “Pushing the developing countries into a climate accord based on tiny sums today and vague financial promises for the future”. It makes one wonder about what is wrong with the developing countries doing what they feel they should and can do in fighting climate change without being paid anything. Do they not have the human right to help out when the human race and the world is faced with a challenge?

It is all part of the same preaching that has it that the poor should not have to pay for the water when having a water meter installed is perhaps the best chance the poor can start feeling that he is becoming a citizen.

Instead of offering the poorest of the poor in a developing country a payoff I rather see them shaming the rich and poor in developed countries into taking on their full share of responsibilities.

Also much more honest is to tell the poor in the developing countries that they are “on their own” instead of giving them some illusions about that some champions will convince the world to help them out. Or is Jeffrey Sachs willing to give the poor his word that he will be successful?

And frankly I cannot think about something less constructive to get us working together as the indigenous to the earth all we humans are, than phrasing the funding of the efforts needed to combat the climate change threat in terms of it being “a compensation for damages caused mainly by the rich world”.

Does this mean that I object to Mr Sachs motives and that I disagree with all he does? Of course not!

December 07, 2009

To solve climate change, concentrate on that and shy away from green pork and fighting injustice, those are other battles.

Sir, you end your editorial “Copenhagen: we can´t risk failure” December 7 saying “The forces of negativity and scepticism, whether self interested or naïve, must not prevail if we are to reduce the threat to the planet´s future without sacrificing future economic growth”. Do you mean that if reducing the threat to the planet´s future implies that we have to sacrifice future economic growth that then we should bother? Can´t you see that trying to achieve multiple objectives is one of the ways of risking failure?

One of the problems of finding a solution to the threat of climate change is that like many legislative process, many are interested in adding their own (green) pork to the bill; some by creating business opportunities, others by trying to foster global justice. When will we have a climate change congress that just concentrates on what it takes to insure solely against climate change?

December 04, 2009

There is still a lot learning to do about the real meaning of “getting out of the way of markets”

Sir Martin Wolf writes “Gone, too, must be the assumption that governments should merely get out of the way of markets”, “A weakened Britain enters the post post-Thatcher era”, December 4.

Absolutely not! When we see governments ordering the banks to hold significant amounts of “high quality” government bonds and allowing them a zero percent capital requirements when lending to the government, as compared to the 8 percent required when lending to an ordinary citizen, we cannot but wish that the governments and some financial commentators someday learn “what getting out of the way of markets” really means.

And also, when Wolf suggests that we should not suppress markets but instead support them and guide them, I can´t keep but wonder on what Margaret Thatcher would have had to say about the guiding part.

December 03, 2009

Is communism being infiltrated through financial regulations?

Sir José Maria Brãndao de Brito, in “New rules on liquidity could do more harm than good”, December 3, refers to how “the Committee of European Banking Supervisors, aim to raise the quantity and quality of liquidity buffers by forcing banks to hold significant amounts of ‘high quality’ government bonds”.

If we add to that the fact that the current Basel regulations permits banks to lend to the government with a zero percent capital requirement, compared to 8 percent when lending to an ordinary citizen, there are reason to suspect that some are trying to smuggle in communism through financial regulations. Are they building a new wall? With governments and their special triple-A rated comrades on one side of it, and all the rest of us the rabble or Pöbel on the other?

December 02, 2009

In Copenhagen, let us hope they finally make up their minds, and, if it is serious, scrap the cap and trade and fully enlist the poor

Sir though I agree with much of Martin Wolf’s “Why Copenhagen must be the end of the beginning”, December 2, what I most would like to see happening there is for the world to finally make up its mind whether it is going to treat climate change as a real threat or not. A wishy-washy middle ground that creates the false impression that something is done is the worst place to be. For instance, if we decide that we are going to act as we were in any real danger, then probably the first thing to do would be to scrap the whole cap and trade divertissement, roll up our sleeves and go whole heartedly for the carbon taxes which Wolf so correctly prefers.

But, where I really disagree with Wolf is when he mentions that “the cost should fall on the wealthy. This is as much because they can afford it as because they produced the bulk of past emissions.” Of course the wealthy have larger shoulders but, if this is really serious, then every human has the duty, and the right as a human showing solidarity, to push as hard as he can, with whatever he has, without any consideration to other issues. The climate change threat shall not be taken as a threat against humanity similar to the one depicted in the movie “Independence Day” and in which an American president takes an active part saving the world… as a fighter-pilot. This is no matinee show. The poor are probably among those to be most affected by climate change and so please, whatever, do not tell them that the wealthy will take care of it, especially when you know this isn’t so.