Tea with FT: About “Why bank regulators are intellectually naked”, and about besserwisser journalists

March 18, 2013

About “Why bank regulators are intellectually naked”, and about besserwisser journalists

Sir, Martin Wolf has suddenly seen light as he now writes “A sophisticated mistake is the idea that capital can be properly ‘risk-weighted’. This has proved fatally flawed”, “Why bankers are intellectually naked” March 18.

I have over the last five years written more than a hundred of letters to the editor commenting on articles by Martin Wolf explaining that capital requirements for banks based on perceived risks which have already been cleared for, is sheer stupidity, and creates all type of distortions. But my arguments have been mostly ignored and Wolf has even qualified me as a monothematic bore… something which I accept might very well be true, but all for a good cause.

And so of course I will read “The Bankers’ New Clothes” by Anat Admati and Martin Hellwig, with much interest, to see with what arguments they finally convinced Wolf. That is of course as long as Wolf’s new found conviction is the correct one. I say this because why then did he not title his book review “Why bank regulators are intellectually naked”

Wolf writes the book reveals why “we have failed to remove the causes of the crisis”, and I wonder whether the arrogant besserwisser attitude of some financial journalists who think they know it all, might be included there.

PS. I have not read it yet, but if Admati and Hellwig’s suggestion of a 20-30 percent equity ratio is based on risk-weighted assets, then sadly they have not understood it completely either, and the distortions could be even worse. And, if that 20-30 ratio is for unweighted assets, then it would be very interesting to hear how they propose to raise the bank capital needed to fill the hole created by the zero percent risk-weighting of sovereigns.

PS. Sir, just to remind you that I am not copying Martin Wolf more. He has told me not to send him anything more on “capital requirements”… he already knows it all, so he thinks.

Thank you, Martin Wolf

On October 1 2009, the Economist Forum gave me some FT voice again publishing "Free us from imprudent risk-aversion"

And I very much appreciate it.

And on July 12 2012 Wolf also wrote that when "setting bank equity requirements, it is essential to recognise that so-called “risk-weighted” assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk."

And that is something that I of course also appreciate, but that yet makes me curious on why Wolf does not follow up on it.

Yet one wonders

Between January 2003 and September 2006, out of 138 letters to the editor that I sent to the Financial Times before I placed them on this blog they published these 15. Not bad! Thank you FT!

Unfortunately, since then and until the very last day of the decade, out of some 1.000 letters that you can find here, FT published none, zero, zilch. Of course FT is under no obligation whatsoever to publish any of my letters and of course one should not exclude the possibilities that my letters might have quite dramatically gone from bad to worse… yet one wonders.

My usual suspects are:

1. Someone in FT with a delicate ego feels his or her importance diminished by giving voice to a lowly non PhD from a developing country daring to opine on many issues of developed countries.

2. That FT has some sort of conflict of interest with the credit rating agencies that makes it hard for them to give too much relevance to someone who considers they have been given too much powers.

3. The FT establishment had perhaps decided there were only macro economic problems and not any financial regulation problems, and wanted to hear no monothematic contradictions on that.

4. That FT feels slightly embarrassed when someone repeatedly asks the emperor-is-naked type question of what is the purpose of the banks and realizing this was something FT should have itself asked a long time ago.

5. It is way too much oversight for FT to handle.

6. Or am I just supposed to be a living example of one half of the Financial Times motto, namely that of "without favour"Which one do you believe is closest to the truth?

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A Blog is born

I like reading The Financial Times, or FT as it is known, and I frequently write letters to the editor and some of them that have indeed been kindly published, for which I feel thankful. But then I realized that all those letters to the editor that for reasons impossible for me to comprehend were never published, were condemned to an eternal silence not of their own fault, and so I decided to, at a marginal cost of zero, to resurrect them and keep them alive, right here.

English is not my mother language so bear with me and you’ll probably note when my letter has been published in FT by its correctness. Swedish is my mother language but I have not written anything serious in it for about 40 years and last time I tried, they just laughed their hearts out because of my démodés. Polish is my father language but, unfortunately, I do not speak a word of Polish, much less write it. Yes Spanish is my language, as I am from Venezuela and although I trust I write in it with great flair, I would still never dream of publishing an article in Spanish without having it edited by my wife.

And so friends here is my Tea with FT blog with my old and new letters to the editor. I hope you will share them with me now and again, and then again and again.

Welcome, and cheers, as I believe they say over there.

Per

PS. Just so that FT does not get too cocky and believe it is my only window to the world, I will now and again publish a letter sent to the editor of another publication.