June 30, 2017

How does the social sanctioning of Maduro’s financiers compare to that of Trump’s bad taste Joe/Mika tweet?

Sir, John Paul Rathbone in reference to the helicopter event in Venezuela writes: in “a plot twist barely worthy of a B-movie… whatever actually happened, one thing is clear: Mr Maduro, nearly half of whose cabinet members are generals, now has an excuse to repress more.” “Venezuela’s B-movie drama is moving from farce into tragedy” June 30.

Really, is that an excuse? Really, do you think anyone declaring: “If we cannot win with votes we will win with weapons” (which is what Maduro really said) need an excuse?

Sir, and let us be more precise. Venezuela moved from farce (if ever it was a farce) to tragedy a long time ago. Just ask the 2 million, out of 32, who had already have had to migrate to foreign lands, abandoning friends and family.

There is currently an incredible amount of social sanctioning of Donald Trump because of his “Psycho Joe” – “Crazy Mika” tweet. Rightly so, but Trump’s bad taste tweet represented no crime against humanity and, when compared to Venezuela’s Nicolas Maduro, he is clearly more of a Church Boy.

So, comparatively speaking there has been extraordinary little sanction of those who, incapable of resisting juicy margins, finance the Maduro government, like Goldman Sachs. For instance, how many have closed out their accounts at Goldman Sachs or how many have disinvited Lloyd Blankfein from a social event?

Sir, when an elite becomes incapable of sanctioning one of its own, reality will come back and bite it.

PS. Watching my inbox fill up with solicitations of donations in order to fight Trump, every time he puts his foot in the mouth, which should indicate these mess-ups are strong motivators, indicates some could have a deep love-hate relationship with him.

PS. Goldman Sachs, Lloyd Blankfein. Want to see how your client Maduro teargasses young Venezuelans in a closed truck?


What’s wrong with having the best robots work for you, if you know how to tax them correctly?

Sir, Gillian Tett writes: “Robots will be the real winners if US president goes ahead with curbs on steel imports” June 30. Of course! As I wrote to her and you in January “does Ms. Tett really need researchers from McKinsey to wake her up on what robots or automation could signify to jobs in general… is this really new news?”

And with respect to Trump’s announcement on tariffs, in January I tweeted “Beware robot manufacturers might lobby President Trump for higher tariffs and minimum wages” and linked there to a letter to you titled “The real winners of President Trump’s animosity towards cars built in Mexico could be robot manufacturers

But, on the other hand, what’s wrong with having the best robots working for you, taxing these, and paying out a universal basic income to all? Because what we do need though, in time, before social cohesion breaks down, are some worthy and decent unemployments.

Now, if end up with 3rd class robots and dumb artificial intelligence doing most work, then we would really be in deep shit.

PS. Would the recent US election have taken the same route if that “fascinating recent paper by economists Daron Acemoglu and Pascual Restrepo shows, American industry has been replacing workers with robots on a startling scale in recent years, particularly in sectors such as car manufacturing” had appeared in 2016 or earlier instead of in March 2017.

PS. Sir, do you really think you are behaving appropriately shutting me up, just because you have to be careful with some big-weak-egos of some prima donnas?


An adequate carbon tax has little to do with costs and much to do with the elasticity of the demand for carbon

Sir, Dr Robin Russel-Jones opines that a revenue neutral carbon tax will not work because of difficulties in “reaching agreement on the level of taxation.” "Support for carbon tax: let’s not get too excited", June 29 

The “market price for carbon credits of less than €10 per tonne of carbon dioxide… provides little incentive for businesses to control their emissions or invest in renewables” and “a carbon price of $166 per tonne of CO2…[based] on “societal costs generated by the burning of fossil fuels, calculated by the IMF… would put fossil fuels out of business”

No, the adequate level of carbon tax will depend on the elasticity of the carbon demand… and the only way to find that one out is by taxing. Put whatever carbon tax like for instance $40 per ton and see what happens. 

Dr. Russel-Jones, Chair of Help Rescue the Planet writes: “there is no reason to think that a business group in which fossil fuel interests are well represented will come any closer to solving the above conundrum than the UN has.”

Yet some of us also argue that there is no reason to think that those profiting from the business of protecting the environment would do so either.

That is why we need the carbon tax that pays out all revenues to the citizens. That aligns the incentives for the fight against inequality with those for protecting the environment, by means of market signals, and so without any hanky panky!


June 29, 2017

Financial Conduct Authority dare go after the Great Financial Distorters, your hubristic bank regulating colleagues

Sir, Madison Marriage, Peter Smith and Caroline Binham, reporting on the Financial Conduct Authority’s FCA work on investment managers write that: “tougher measures come as regulators and policymakers are turning their attention from banks to other parts of the financial system that could pose future risks.” “UK financial regulator lifts bar to create one of the toughest investment regimes” June 29.

Yes, but the part of the financial system that poses the most important current and future risks, are the regulators who with their risk-weighted capital requirements for banks, horribly distort the vital allocation of bank credit to the real economy.

Come on FCA, don’t waste time on the small guys, dare go after the big ones, even if they are your colleagues.

PS. FCA, suppose ALL Investment Managers behaved exactly they are supposed to do: Would that create less inequality? Would that represent more or less of a systemic risk?

PS. FCA, how can you help us have the wealthy 1% fall into the hands of really lousy investment managers, so as to fight inequality? :-)


June 28, 2017

Church organists, lapdancers, Uber drivers. What follows? Some Prime Ministry gigs?

Sir, in this day with so much dourness, it really brightens up the day to read such a solid British humored phrase as Sarah O’Connor’s: “Does Britain really want to be a country that defines its chocolate gingerbread men more carefully than its 32m-strong workforce? “Blurred job definitions serve nobody’s interest” June 28

What fun article. Many thanks. As I see it Sarah, or Ms. O’Connor, I am not sure on how to refer to her, could be greatly qualified to console us FT’s readers after the announced retirement of that equally good-humored gem that is Lucy Kellaway.

Now when she writes: “Before Uber drivers were compared with lapdancers, those lapdancers were compared with church organists” might she be implying a strange progression into a sort of underworld? If that’s the case, it would be interesting to hear what she believes could come after Uber drivers. Perhaps some Prime Ministry gigs?

But down to the business of the blurriness of definitions: To me, if you work when you want you work, in such a way you want to work, and nobody but you impose some specific targets that need to be achieved, then you work for yourself. If you work when someone else wants it, according to some imposed unnatural standards, or you must meet some clearly specified work targets, then you are an employee.

By the way, does Uber require any minimum number of drives per month?

PS. But what we most might need, is decent and worthy unemployments


Martin Wolf, beware; we all, including you, are not so immune to populism as we would like to think.

Sir, Martin Wolf opines on the dangers of populism and haughtily instructs us with: “those who wish to resist the rising tide of populism have to confront its simplifications and lies”… “The economic origins of the populist surge: Political turmoil in several western democracies is a legacy of the global financial crisis” June 28.

Before preaching us Wolf should know that beside easy to see through vulgar populisms, like the Chavez’ kind, there is also much more sophisticated but not less dangerous populisms, and to which the elite could also easily fall prey.

For example: The Basel Committee, and other bank regulators announced: “Banks and evil banksters are not to be trusted. They want to earn huge returns on equity by taking too many risks with your deposits, and then leave you as taxpayers to clean up their mess. But don’t you worry! We are going to fix that for you, with our risk-weighted capital requirements. More risk more bank capital - less risk less capital”.

And too many super duper experts, like (white guy :-)) Martin Wolf, fell for that nonsense.

This regulation, by creating incentives for banks to build up dangerously large exposures against very little capital to what was perceived as safe, like for instance to AAA rated securities backed with mortgages to the subprime sector, and to sovereigns like Greece, clearly failed and caused the 2007/08 crisis. But the same regulators now tell us: “Be calm, we have everything under control”, and too many keep believing them just the same.

And so now we are offered: some risk independent capital requirements, which could cause the remaining risk-weighing to be even more distortive on the margin; liquidity requirements that will equally distort; some tests of the stresses a la mode the regulators deem to be important; the creation of living wills by bankers who must surely find it hard to know what’s left to will after a severe crisis; and making sure banks do not apply too much of their own risk models but use more of the (loony) standardized Basel risk weights. In summary, all our regulators are managing to do is to assure the creation of more and more systemic risks.

And if someone like me denounces that regulators dangerously distort the allocation of credit to the real economy, those who have fallen to that regulatory populism, like Wolf, have the toupee of telling me that the evil banksters have an obligation to see through all that, and still do what is right. 

So now green is safe so you can finance it, but red is risky so you cannot. That entirely ignoring that green could just be safe houses with basements in which the young can live with their parents, while red could be the risky SMEs and entrepreneurs that if financed, could help the young to find the jobs they need in order for them to afford to buy houses.

Sir, frankly, have you ever heard of such technocratic bullshit populism?

But could I also not be the victim of populism? Surely! Which is why I wake up each day en-garde, ready to question everything, including what you opine Sir, sorry!

PS. Structural unemployment, brought on by robots and automation, is one of the greatest threats to social cohesion. That is why I wish for my world to try a universal basic income scheme, before it is too late. Once social cohesion breaks down it is so much harder to mend it… Venezuela dixit. Does this make me having fallen for some silly populism? If so, tell me so!


June 26, 2017

To restore real accountability in finance we must start with the bank regulators

Sir, Jonathan Ford writes: “Since the financial crisis, bank shareholders have borne pretty much the whole cost of cleaning up the reputational and legal damage done to the sector... the case must be focused on individuals simply to restore a sense of personal responsibility to finance. Bankers have escaped prosecution partly because of the law itself. There was nothing on the statute book to prohibit the mismanagement of big financial institutions.” “Restoring individual accountability in finance is worthy goal” June 26.

One reason for why that so necessary holding to account has not happened, might be the fact that the bankers “herded into the dock to face the music” could argue the following:

“Your Honor! Our regulators, those who explicitly or implicitly support us, those who tell governments and citizens they have everything under control, with Basel II in 2004, explicitly authorized us to leverage our capital 62.5 times or more whenever an AAA to AA rating was present, like the case of the securities backed with mortgages to the subprime sector, and to leverage even more with sovereign debt, like Greece.”

Sir, if there ever was a need to shame some in relation to the 2007/08 financial crisis, that would be its instigators, namely the Basel Committee and their bank regulating colleagues. Instead, like Mario Draghi, they were promoted.


June 24, 2017

If Venezuela’s social compact shared out all oil revenues directly to citizens, it would better resist lower oil prices

Sir, with respect to the possibilities of lower oil prices you write: “The real dangers… lie in emerging markets that rely heavily on oil exports and have large young and restive populations. Austerity will strain the social compact between rulers and ruled in the Gulf states. It will inflame existing conflicts in Nigeria and Venezuela.” “A sustained oil glut can have unsettling effects” June 23.

No! To refer to lower prices inflaming conflict in Venezuela is to ignore the true origins of the problem. The higher the oil prices the less do oil-regimes take notice of citizens… when oil revenues are large the citizens are mostly a nuisance to those in power… and the citizen’s mind-frame is set on how to get the largest share possible out of those revenues. That only guarantees a rotten to the core social compact. That only guarantees that sooner or later the nation fall into the hand of rotten to the core regimes, like the current one.

So in fact lower oil prices could help is it forces real changes. For instance if the net oil revenues were shared equally among all Venezuela’s citizens, we would have a much better and sustainable social compact. Not only because the real source of needed austerity would be more easily identified, but also because the decisions of millions about what to do with their share of the oil revenues, responding to their private and individual needs, would allocate resources more efficiently than what the well-intentioned or dark interests of some few would do.

Venezuela has the immediate need to get rid of its current government. But when that happens, then, immediately, its immediate interest becomes how to rebuild a devastated nation… before the next conflict breaks out. Nothing better than to completely rearrange how the natural resources not produced by granted to Venezuela by the providence is shared.

PS. Britain too would do better sharing out all revenues derived from taxes on petrol equally to all its citizens.


June 21, 2017

Should/will the holders of Venezuela’s “Hunger Bonds” have priority over the hungry?

Sir, John Dizard, in reference to the current financial difficulties of the state of Illinois points out that Judge Joan Lefkow of the Federal District Court in Chicago made the point of “Bondholders do not have priority over welfare recipients”. That according to a muni portfolio manager would signify that the judge “is starting the process of reprioritizing the primacy of debt service under state law and the state constitution.” “Illinois’ journey to junk credit is sending shockwaves through the muni industry” June 17.

Let me apply that to Venezuela. Would that judge order that those many Venezuelans, including children, who die because of lack of food and medicines would have the same pari-passu rights as the holders of what Ricardo Hausmann has named “Hunger Bonds”?

It really does not sound so farfetched, or unjust, considering that the holders of those “Hunger Bonds” must be, as reflected in the risk premiums, perfectly aware of the tragedies in Venezuela resulting from widespread corruption and violations of human rights, including the current violent repression of those demonstrating against the government.

Sir, many have argued that the world urgently needs a Sovereign Debt Restructuring Mechanism, SDRM. I agree but for more than a decade I have held that must start by defining clearly what credits are clearly bona-fide, doubtful or plain odious.

Dizard writes: “One of the key questions to ask about distressed sovereign credits is whether the paper is owned by locals. Even during Nigeria’s troubles in the 1970s and 1980s, the central bank continued to pay its promissory notes, even as its bank loans went into default. Nigerian officials owned some of the notes.”

Clearly in a case like Venezuela the Venezuelans should have a right to know exactly who were the financiers of their malign regime, and of how they came into holding these credits.

The “need” for holding Venezuelan paper so as to conform to some Emerging Market portfolios might have entrapped some investment funds. In such cases no much shame falls on them but of course they should voluntary submit their investments to a debt to food and medicines conversion program, and the product donated to the poor.

Personally I am trying to motivate a constitutional reform in Venezuela that would assign the property of its natural resources directly to the citizens. I wonder what judges would then authorize the embargo of a tanker that carried oil to be exchanged for food and medicines for the hungry owners of the oil.

I do that not for the purpose of getting away from onerous financial commitments but for the much more important mission of not having future Venezuelan governments to have a chance to do, ever again, what this XXI Century Socialistic revolution has done to my homeland.

Whether this would make it “more difficult and expensive to sell bonds if the state wants to fund pension obligations or fix its highways” is of little or no concern to me. In fact, the more I look around in the world and read of unfunded pension obligations that might be satisfied with debt to be paid by future generations… those limitations sounds like great news.


President Trump, remember Einstein’s “No problem can be solved from the same level of consciousness that created it”

Sir, Martin Wolf, in these moments of so much radical uncertainty, recommends Donald Trump to follow one don’t-rock-the-boat strategy. “Janet Yellen, and the Fed’s inflation target, should both stay” June 19. I wish I could be such an optimist to believe that would do.

If I were Trump I would like the Fed to think about how it could help to create sustainable jobs, not some kicking-the-can-down-the-road financed jobs; and about what to do with the unemployed, if they fail to reach the previous goal.

The current risk adverse bank regulations risk banks building up too large exposures to what’s perceived as safe against too little capital; and hinders the efficient allocation of credit to the real economy. So that just must go… completely!

Why should not Janet Yellen be able to do this? Well as Einstein once said: “No problem can be solved from the same level of consciousness that created it”

And the structural unemployment that threatens social cohesion must be forcefully attacked before social cohesion breaks down. After, it is quite too late, as we all can see has been happening in Venezuela.

What to do? A Universal Basic Income is one useful tool of many to handle that problem with; and the revenue neutral carbon tax, the carbon dividend, seems a good source to start feeding a UBI scheme that foremost must be financed with real money… that is of course unless you really want to go down the same road as Zimbabwe or Venezuela 


A revenue neutral carbon tax helps face climate change, inequality, structural unemployment (UBI) and promotes growth

Sir, Ed Crooks reports that “Eleven leading international companies… have joined a campaign backing a revenue-neutral carbon tax in the US, as a way of tackling the threat of climate change that “embodies the conservative principles of free markets and limited government”. “GM and Total among 11 multinationals to support US carbon tax campaign” June 21. 

And yesterday, George P. Shultz and Lawrence Summers also signed up completely on the idea. “The inevitable climate solution” Washington Post, June 20.

Indeed, as I have written to you many times before, a carbon tax which revenues are equally redistributed to all, “carbon dividends”, is the way of how to align the market signal that helps face the current environmental challenges, with the current concerns about inequality and lack of sustainable economic growth.

It also constitutes a fiscally sound way to begin funding the universal basic income the society so urgently needs in order to face growing structural unemployment, before social cohesion breaks down, as then it might be too late.

It follows the same principles as what I proposed in May 2016, in order to combat pollution in Mexico City, and that you surprisingly yet very kindly published.

So Sir, forget the Paris Climate Agreement lamentations, at least for a while. The Climate Leadership's Council proposed carbon dividends proposal carries a lot more green, social and economic punch.

Please, even if this could make Trump to become a greater green hero than Al Gore, swallow it, for the best of our young. If Washington Post seems to be able to do so, you could too. 

PS. A decade ago I protested the trading of carbon credits as being just indulgences issued in order to keep on committing environmental sins. But carbon-tax-dividends, is that not something like democratic climate change indulgences, applied to and shared by all?


June 20, 2017

So now European small businesses are being exploited like "subprime" buyers of houses were

Sir, Robert Smith writes: “‘It’s not quite 2006, but it does feel a bit like we’ve heard this script before’” “Europe looks to repackage bank debt: Return of securitisation coincides with concerns over slipping standards

He sure has, or should have heard it! That because the incentive structure in the process of securitizations is as bad as they come.

If you take very good credits, let us say A+ rated, and you package it so it comes out an AAA rated security, you might have done a good job but it will not earn you much.

If on the other hand you manage to package a lot of substandard BB- loans into an AAA rated security, then you will make fabulous commissions when selling these into the market.

It was precisely that which originated the AAA rated securities backed with mortgages to the subprime sector in the USA, and which caused the 2007/08 crisis.

The worse and higher paying interest mortgages you cant put into these securities the better for the whole team was the rallying cry. In the end those buying their homes with these mortgages and those investing in these securities, they were all defrauded by a wrong set of incentives. 

So now the small businesses and entrepreneurs in Europe, those who are risk weighted by the regulators at 100%, will be packaged into securities for which “double-A credit ratings were most likely” and thereby seeing their risk weight magically reduced to 20%.

Will this in any way shape or form really benefit European SMEs and entrepreneurs? The answer is if so, certainly very few of them.

What Europe needs is to get rid of the risk weighted capital requirements for banks, those that have so profoundly distorted the allocation of bank credit to the real economy. Then your bankers will be forced to become bankers again; maximizing their returns on equity by normal lending, to all, and not by minimizing their capital requirements.

PS. Here’s some numbers on the prime subprime deal! If you convinced risky and broke Joe to take a $300.000 mortgage at 11 percent for 30 years and then, with more than a little help from the credit rating agencies, you could convince risk-adverse Fred that this mortgage, repackaged in a securitized version, and rated AAA, was so safe that a six percent return was quite adequate, then you could sell Fred the Joe mortgage for $510.000. This would allow you and your partners in the set-up, to pocket a tidy and instantaneous profit of $210.000


June 19, 2017

Brexit should not be a humiliating capitulation process, so as to fit the remainders’ wish to say, “I told you so!”

Sir, Carl Bildt writes “The essential and unavoidable fact is that Britain will not be in the room when EU summits are called on all the different issues that are certain to emerge in these increasingly uncertain times… For all its public ambivalence, there is little doubt that on the inside Britain has been very powerful in shaping the evolution of the EU... Many have seen the UK as a necessary counterweight to other countries keen on a more closed approach, both political and economic” “Europe’s political landscape starts to shift” June 20.

Absolutely! And this is a fact that Britain should make abundantly clear, reaching out to its so many European friends, bypassing completely those Brussels technocrats that have had their weak egos hurt, because of the Brexit rejection.

Instead, many of your columnists have been arguing for a sort of humiliating Versailles type capitulation treaty, most of them in order to be able to tell their readers “I told you so!” Well, shame on them!

What would I do if a British citizen? First I would carry out an opinion poll in all EU countries asking their citizens whether they want Britain to be castigated for leaving EU, or whether they prefer EU to live as closely and friendly as possible with Britain after Brexit.

Then, with those results in hands, which I am sure would favor the second option, I would ask whether they would like to leave the Brexit negotiations on behalf of EU, in the hands of Michel Barnier, someone who has clearly a tendency to want to show off as a strong man, as a macho man.

Sir, and you know this is not the first time I so opine… but of course, since I am censored by FT, just like I was censored in my Venezuela, I must be silenced.


Much current radical uncertainty is the result of radical statism and of radical bank regulatory idiocy

Sir, I refer to Wolfgang Münchau’s “Welcome to the age of radical uncertainty” June 19.

He writes: “The victory of capitalism over communism was the single most formative event for many of today’s commentators and analysts like myself.”

Really? With the Basel Accord of 1988’s risk weights of 0% the Sovereign and 100% citizens, is that not more compatible with communism than with capitalism?

He writes: “The financial crisis turned what outwardly seemed a stable political and financial environment into what mathematicians and physicists would call a “dynamical” system. The main characteristic of such systems is radical uncertainty.”

Really? Did all that start with the financial crisis? What about Basel II of 2004 that with its risk weights and resulting capital requirements distorted the allocation of bank credit to the real economy even more?

He writes “To succeed we need to understand the difference between risks we can calculate, and deep uncertainty that we cannot.”

Indeed, as in the risk of the assets of a bank and the risks of what assets can bring banks and a bank system down. These are not la meme chose. Regulators allowed banks to hold only 1.6 percent of capital against what is rated AAA-AA, that which precisely because of that rating could lead to the build-up of dangerous excessive bank exposures; while requiring banks to hold 12% against below BB- rated assets, that which bankers do not willingly touch even with a ten feet pole?

He writes: “Once we accept that our globalised world has characteristics of a dynamical system, many of our assumptions will fall like dominoes”

Sir, the assumption we most need to fall, urgently, is that regulators know what they are doing. They don’t, they are radically dumb.

Sir, there is a growing problem with the apparent weakening of egos that makes it harder by the day for most to say (including You), “I was wrong!” 


June 17, 2017

Risk weighted capital requirements for banks, the mother of all wishful thinking, of all desirability bias?

I refer to Tim Harford’s discussion about desirability bias and wishful thinking. “Be careful what you wish for in politics” June 17

Basel Committee: “We know all of you want banks to be safe. For this purpose we have decided to impose risk weighted capital requirements on the banks”.

The world: “Risk-weighted? Hmm, sounds reasonable, that should do it. Good job guys!”

But that supposes, first that risks can be perceived adequately and second that the responses to these perceptions will be adequate. What are the chances of that? Nil!

That is why I nominate this the pillar of current bank regulations, to win the contest for the greatest wishful thinking during at least the last three decades.

So big was it that very few expressed some concerns about that it could dangerously distort the allocation of credit to the real economy.

So big was it that when with Basel I, 1988, it decreed a risk weight of 0% for the sovereign and 100% for the citizens, no one shouted, “You’re just a bloody bunch of statists/communists!”

So big was it that when 2004, with Basel II, no one found something wrong with a risk weight of 20% for AAA rated assets, that which bankers could love too much, and one of 150% for what is rated below BB-, that which bankers would not touch with a ten feet pole.

So big was it that when the 2007/08 crises broke out solely because of excessive bank exposures to assets that required banks to hold almost no capital, like AAA rated securities and sovereigns like Greece, the world screamed about the effects of “deregulation” and said not a word about “miss-regulation”.

So big was it that the Frank-Dodd Act, in its 848 pages, did not even mention the Basel Committee. And when that Act mentions risk weighing, no real concern is raised, but other risks that should also be included are pointed out.

So big was it that all type of efforts are being put in trying to make the credit ratings better, ignoring the clear danger present when there is even more trust put into these ratings.

So big was it that all those who had anything to do with it, like Mario Draghi, were promoted.

So big is it that basically every day we hear statements on banks being adequately capitalized, comparing current risk weighted oranges with former apple capital ratios that had no such thing.


June 16, 2017

Children, no matter what the redistributors promise, you cannot redistribute the future before it’s been created

Sir, Martin Wolf writes: “A case can be made for borrowing for high-quality investment, especially when real interest rates are so low… But the increased spending needs to be paid for by effective and efficient taxation… What is needed is honesty: the country can choose to raise spending. But, if it wants to run a sound fiscal policy, this will mean substantially higher taxes” “Austerity is dead. Long live austerity” June 16

Honesty? Are the low real interest rates on sovereign debt for true, or are these not much a function, an illusion, caused by the regulatory subsidies to sovereigns? Does a 0% risk weight for the sovereign, and a 100% for unrated citizens, which is what the Basel Committee’s standardized risk weights establish, really mean nothing when it comes to allocating bank credit to the real economy?

Yes, it would clearly have been better to launch different “high-quality” public investment programs, than that dumb kicking the crisis can down the road program financed with Tarps, QEs and what have you.

But, just like saying “risk-weighted” does not mean it has really been risk weighted, saying “high-quality” does not signify for one moment that it will be of “high-quality”. In fact, all around the world, what we continuously see is a reduction in the capacity of governments to deliver high-quality investments. Could that be because of their 0% risk weight, they are now less forced to do so?

Wolf also writes: “a quarter of Labour’s promised increase in spending goes to eliminate student debt, while leaving universities far worse off. This is an irresponsible and regressive benefit in favour of future winners.” Here again remember, mentioning “future winners”, does not guarantee one iota the students will be the future winners.

You young, please, don’t listen to siren songs. The future, no matter what the redistribution profiteers promise you, cannot be redistributed before it’s been created.

PS. Students, If you want universities to better help you be future winners, pay them 50% of what they actually charge you, with some basis points in you future earnings.


June 15, 2017

Basel rules favor building “safe” basements for children to live with parents over financing “risky” job creation

Sir, Chris Watling writes “High house prices contribute to one of society’s great divides: that is between the haves and the have nots; between the older property-owning generation and younger renters unable to get on to the property ladder… Banks [when financing houses] now require substantially less capital than would have been required before Basel I and one-eighth of the capital required versus a corporate loan.” “Blame Basel capital rules for the UK’s house price bonanza” June 15.

Absolutely! The Basel Committee’s risk weighted capital requirements helps finance the “safe” basements where kids without jobs can live with their parents, but not the “risky” SMEs or entrepreneurs that could give the kids the jobs that could help them afford to buy a house… and less so at the current high credit inflated prices of houses.

How many letters have I written to you about the distortions in the allocation of bank credit to the real economy these regulations cause? Here are just some quite similar to this one. http://teawithft.blogspot.com/search/label/basements

Sir, you define yourself as “Without fear and without favour”… but the way you have silenced my arguments, only shows you running scared by some of your prima donnas with weak egos.


June 14, 2017

FT, you are so utterly blind to the systemic risks intrusive bank regulations create.

Sir, with respect to the “US Treasury’s report on financial regulation reform” of June 14 you write: “The report does not propose doing away with any part of the regulatory regime wholesale. Capital and liquidity standards, stress testing, living wills, prudential regulation and the Volcker rule are all accepted in principle. In practice, though, the report urges that they be applied with less vigour, more discrimination and greater consultation with the industry”

Well that is bad! The report should take away most of it because “Capital and liquidity standards, stress testing, living wills, prudential regulation [and credit ratings]” is nothing but dangerous sources of systemic risks, introduced by regulators wanting to play bankers instead of acting like regulators.

For instance what do you think is gained by having all banks focusing on the same risk a la mode in a stress test, while ignoring if the real economy is getting the access to credit it needs in order to remain vibrant?

What would I propose instead of all that? Perhaps 3% capital requirements on all assets to cover for bankers’ ineptitude, and 7% capital requirements on all assets to cover for unexpected events, which comes up to the 10% proposed by the Financial Choice Act for smaller banks, but that I would love to see applied to all banks.


June 11, 2017

In terms of creating systemic risks for our banking system, current regulators are the undisputable champions

Sir, former banker and banking lawyer Martin Lowy writes: “Dodd-Frank and Basel III capital rules have made banks and their holding companies stronger.” “How the next financial crisis won’t happen”, June 10

Well I sure know that the next financial crisis will absolutely not be the result of excessive bank exposures to something perceived as risky, as to what is rated below BB-, that to which regulators assigned a risk weight of 150%. Much more likely it will be from excessive exposures to something rated as safe as AAA, that to which regulators only assigned a meager 20% risk weight.

Really big bank crises, except from really extraordinary unexpected events, are the result of the introduction of something that can grow into a systemic risk.

What systemic risk do I see?

I see credit ratings, like when in 2003 in a letter published by FT I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friends, please consider that the world is tough enough as it is”

I see risk weighted capital requirements, like those that allow banks to leverage more with what is “safe” than with what is “risky”., and therefore distorts, for no good reason, the allocation of bank credit to the real economy.

I see standardized risk weights that impose a single set of weights on too many.

I see regulators wanting to assure that banks all apply similar approved risk models, thereby again ignoring the benefits of diversification.

I see stress tests by which regulators make banks test against the some few same stresses, as if real stresses could be so easily identified.

I see living wills, as perfectly capable to create systemic risks that at this moment are hard to see.

In all, in terms of creating dangerous systemic risks, hubris filled bank regulators aee the undisputable champions.

The main cause for that is that our bank regulators find it more glamorous to concern themselves with trying to be better bankers, than with being better regulators.

Regulators, let the banks be banks, perceive the risks and manage the risks. The faster a bank fails if its bankers cannot be good bankers, the better for all.

Your responsibility is solely related to what to do when banks fail to be good banks.

And always remember these two rules of thumb:

1. The safer something is perceived to be, the more dangerous to the system it gets; and the riskier it is perceived, the less dangerous for the system it becomes.

2. All good risk management must begin by clearly identifying what risk can we not afford not to take. In banking the risk banks take when allocating credit to the real economy is precisely that kind of risks we cannot afford them not to take.

As in 1997 I wrote in my very first Op-Ed. “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, but presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.”


June 10, 2017

Venezuelan creditors, what if from now on oil belongs in equal parts to the citizens and not to the government?

I refer to Jonathan Wheatley’s and Robin Wigglesworth’s “Venezuela’s Russian debt tangle heightens risk of default” June 10.

Sir, had Venezuela not have had oil, there would be no so much financing of its plain lousy governments.

Equally, had the oil in Venezuela belonged to Venezuelan private citizens and not to the government of turn, its governments would not have had access to as much credit.

Venezuela’s current constitution states: “Article 12: Mineral and hydrocarbon deposits of any nature that exist within the territory of the nation, beneath the territorial sea bed, within the exclusive economic zone and on the continental shelf, are the property of the Republic, are of public domain, and therefore inalienable and not transferable.”

What if there was a change in the constitution to: “Article 12: Mineral and hydrocarbon deposits of any nature that exist within the territory of the nation, beneath the territorial sea bed, within the exclusive economic zone and on the continental shelf, are the property in equal shares of all Venezuelan born and alive citizens, and therefore inalienable and not transferable.”

Then all the oil revenues would belong to Venezuelan citizens and be distributed to them by means of an oil revenue sharing mechanism.

Then those who current creditors of Venezuela, and who must have been perfectly aware of how lousy its government was by only looking at the risk premiums paid, would have those risk premiums to reflect the reality of the risks of lending to such lousy governments as Venezuela’s

In such circumstance could a tanker that carries oil owned by all the Venezuelan private citizens be embargoed?

Would a judge order that embargo knowing that, as a direct result of it, many Venezuelan citizens, old and young, with real names and faces, would then die because of lack of food and medicines?


June 07, 2017

Feeble regulatory minds, seeing risks in what’s perceived risky, doom our banks to die trapped in the last safe-haven

Sir, Robin Wigglesworth quotes Paul Singer of Elliott Management with: “Given groupthink and the determination of policymakers to do ‘whatever it takes’ to prevent the next market ‘crash’, the low-volatility levitation magic act of stocks and bonds will exist until it does not. And then all hell will break loose” “Calm waters raise fears of a leverage comeback” June 7.

Indeed, only an intellectual degenerating incestuous groupthink can explain current bank regulators fixation with what is perceived risky. Their risk weighted capital requirements are based on the perceptions of risk being correct, while as all logic screams for, these should be based on the possibilities of these perceptions being incorrect. The riskier something is perceived, the safer it is; and the safer something is perceived, the more dangerous it can become. “May God defend me from my friends, I can defend myself from my enemies”, Voltaire dixit.

Those regulations, by favoring so much what is perceived, (concocted) or decreed as safe, like assigning a 0% risk weight to sovereigns, cause sovereigns to be getting too much credit on too easy terms; and that banks could end up holding only sovereigns on their balance sheets. When that happens who is going to be able to kick the can forward to another safe-haven (gold?), sovereigns or their central bank agents?

Sir, our whole banking system is set on a path that with signs of “follow this safe route”, leads directly to a precipice.

You insist in keeping mum about that. There will come a day you, or at least your children, will deeply regret that.

When will regulators stop feeding us fake tranquilizers?

“Risk weighting” So we are to suppose risks have been duly considered?

“Living wills” So we are supposed to think that trustees are capable to enforce these?

“Stress tests” Tests that ignore the stress to the real economy because of what should be on bank’s balance sheets but is not, like “risky” loans to SMEs?

Dodd-Frank’s “Orderly Liquidation Authority” “Orderly”? No Sir, when the last safe haven runs out of oxygen, I assure you it is going to be anything but orderly… then all hell will really break loose.

Per Kurowski


Martin Wolf, if we are to save our pied-a-terre, that will not happen by pitting clean Obama against dirty Trump

Sir, I refer to Martin Wolf’s “Trump’s bad judgment on Paris” June 7. 

Wolf writes: “Above all, the earth is not just an arena. It is our shared home. It does not belong to one nation, even such a powerful one. Looking after the planet is the moral responsibility of all”. Precisely! I agree 100%!

But when Wolf suggests, “the remaining participants in the accord must… commission an analysis of how to deal with free riders. Everything must be considered, even sanctions.”, then I disagree, 100%.

That has clearly little to do with how to help our planet and all to do with furthering the ongoing polarization in the world, all to do with fighting it out in an “arena”.

Really, what does “free riders”, in a “non-binding” agreement, in which “no coercion was involved” mean? So if US had remained in the “framework” (because a framework is all the Paris Climate Agreement is), and not done anything, would that have been better?

I was like most against Trump (the US) pulling out of the accord, but, after it happened, I take it as the best thing that could have happened. At least now we will no longer be lulled into feeling more secure about our planet by something that might just be a dangerous illusion of a solution. Something that might just have been a huge political photo-op; and a congenial gathering of green subsidies distributors and customers. Now at least we all know better how little punch that Paris Accord really carried.

So, let’s take it from here. Let us inform the Americans that a revenue neutral carbon tax, like the one recently proposed by some republicans, might carry ten times as much environmental saving punch than the Paris Accord. Let’s inform Trump that if he helps to support a successful implementation of such plan he could become even a greater hero to the Greens than Al Gore… that he would have been touched by Abraham Lincolns’ “the better angels”.

Sir, I sincerely believe that the price signals of a carbon tax; with all its revenues distributed among citizens, instead of being redistributed by some few, is the best way to live up to our moral responsibility towards what I often lovingly refer to as our pied-a-terre. If Donald Trump helps that to come thru, I at least am more than willing to forgive most of his very much salon inappropriate behaviors.

PS. And really, what is a Paris Climate Agreement that was signed by a president but not put up for ratification by the US Congress? In 1920, it was the US Senate that said no to the League of Nations with a 49 to 35 vote.


June 06, 2017

Should financing gas chambers in Auschwitz be right if the risk premiums are right?

Sir, Steve Johnson quotes Claudia Calich, the emerging markets debt manager at M&G Investments: “with a lot of the countries [EM bond funds] invest in . . . If you start to be very strict on every country, there would be very few that are squeaky clean in terms of democracy and human rights.” “Investors bet Venezuela crisis triggers default” June 6.

What does she mean to be “very strict”? Not investing in a country because of corruption and mismanagement, in which people die for lack of food and medicines, and where human rights’ violations are committed, is that being too strict?

The world needs a sovereign debt restructuring mechanism (SDRM), and the first order of issue of such mechanism, should be to classify the credits being presented for collection into bona fide, suspicious and outright odious. 

As a citizen, I can’t wait for that date when credits given to a government, with interest rates that exceed in some substantial way those paid by other safer sovereigns, have their collection possibilities automatically restricted by a SDRM. For instance those buying bonds for 30 cents on the dollar, should not be able to present for collection more than those 30 cents.

Those knowingly financing human right violations should also be deemed accessory to those crimes. 

Sir, financiers might need credit ratings, but we citizens need ethics-ratings even more. Those ethics ratings should of course reflect the existence of accusations for violations to human rights. . 

June 05, 2017

World Bank, once again, the Basel bank regulations’ implicit risk aversion, attempts against any development.

Sir, Shawn Donnan writes: “In an interview, Paul Romer, World Bank chief economist, said the long-term effect of weak investment on developing economies was one of the main long-term challenges facing the global economy.” “World Bank warns on weak investment” June 5.

In October 2007, at the High-level Dialogue on Financing for Developing at the United Nations, in New York, I presented a document titled “Are the Basel bank regulations good for development?” It contained among many other the following paragraphs:

“It is very sad when a developed nation decides making risk-adverseness the primary goal of their banking system and places itself voluntarily on a downward slope, since risk taking is an integral part of its economic vitality, but it is a real tragedy when developing countries copycats that and falls into the trap of calling it quits.”

“The World Bank, as a development institution, should have played a much more counterbalancing role in this debate, but unfortunately it has been often silenced in the name of the need to "harmonize" with the IMF. Likewise, the Financial Stability Forum is also, by its sheer composition and mission, too closely related to the Basel bank regulations to provide for an independent perspective, much less represent the special needs of developing countries.”

“For the record, let us state that although we have made the above comments from the perspective of ‘finance for development,’ most of the criticism put forward is just as applicable to developed countries.”

“To conclude, we wish to insist that no society can survive by simply maximizing risk avoidance; future generations will pay dearly for this current run to safety.”

Unfortunately my arguments have gone nowhere. As is, the wagons circled by bank regulators to fend off any criticism, has been impenetrable to truths such as those implied in John A Shedd’s “A ship in harbor is safe, but that is not what ships are for”.

PS. 2002-2004, as an Executive Director of the World Bank I did what I could to silence those sirens singing that the risk weighted capital requirements would make our banks, and our economies, safer. I stood no chance. Basel’s siren’s song sounded much sweeter.


June 04, 2017

What causes more inequality, or feelings of poverty, some CEOs’ obscene high salaries, or some prices, like those of Viagra?

Sir, I refer to David Crow’s “Cost of Viagra increases 27% as Pfizer raises US drug prices” June 3.

I have no idea why but my doctor has ordered me a different brand, so I am not a user of Viagra. That said it was astonishing to read that one single Viagra pill is now $73.85. That price must surely only be possible because of the official protection of intellectual property rights.

There should be a difference between the protections of a pharmaceutical industry, so that it can afford develop new medicines, and the protection of an extortion racket. As is, 10 Viagra pills would, at this price, represent a fairly decent monthly Universal Basic Income.

In a world in which so many prices are going down-down-down, among others because of automation and robots, can we afford to impact this way those who have to earn less and less and less income, or stay more at home, only because of automation and robots?

Perhaps Trump, instead of thinking of building up Mexican walls, should be thinking about tearing down some intellectual property protection walls. Open ended ones, like those that allowed “Martin Shkreli to raise the price of an Aids medicine from $13.50 to $750 a pill, reflects very badly on the state and governance of our society.

About a decade ago I wrote an Op-Ed in which I held that it was not logical that profits earned by means of protected intellectual property, were taxed at the same rate than those profits obtained from competing naked in the market. That argument is still valid, especially if those extra tax revenues become tax neutral, by feeding monthly UBIs.

PS. In the same vein, now we perhaps have to add a proposal on that profits generated with the use of robots, should be taxed higher than profits generated with the help of humans.

PS. Some years ago a friend, wanting to launch little-known-me as a candidate for the presidency of Venezuela, what a "friend", suggested a populist campaign based mostly on “Free Viagra for everyone”. He argued that would have more impact that my promises of sharing out all net oil revenues directly to all Venezuelans. He might have a point.


June 03, 2017

So much needed is currently not even on politicians’ menus.

Sir, Tim Harford, desperately writes: “It is curious that the Labour party that frets so much about taxing the rich is so careless about reaching the poor… Tory policy on Brexit is nothing more than a string of Orwellian catchphrases: “strong and stable”, “smooth and orderly”, “deep and special”. Freedom is slavery; ignorance is strength… For this disheartened voter, ignorance would be bliss.” “The menu of politicians and policies is inedible” May 3.

I am not a UK voter but, if one, I would also be tempted to reach out to some form of motivated ignorance. But that said, if there is something that really drives me mad (besides the so stupid risk weighting of bank capital requirements), in the UK and everywhere, is the little interest given to prepare for the structural unemployment that is advancing day by day.

For instance, a Universal Basic Income could be useful to help guarantee social cohesion when unemployment rates go over certain limits, but it might do little to help mend any social cohesion that has already been lost.

In Labour or Tory party, who is working for the decent and worthy unemployments that will be, or are already needed?


If bank regulators in Brussels imply for instance an AAA credit rating for Greece, should Esma not also fine them?

Sir, Nicholas Megaw and Chloe Cornish report that the European Securities and Markets Authority has fined Moody’s for “negligent breaches” of the credit rating agencies regulation “Brussels slaps €1.2m fine on Moody’s” June 2.

As Jim Brunsden and Guy Chazan reported on June 1, Brussels applies a zero risk weight to the European sovereigns. That of course can only be compatible, according to the standardized capital requirements of the Basel Committee, with the absolutely clearest AAA credit ratings.

AAA is clearly a nonsensical credit rating for many European sovereigns, like Greece, and so the question remains should Esma not fine also those European bank regulators in Brussels?


June 02, 2017

With the Venezuelan bonds purchase, has Goldman Sachs committed an act punishable under Foreign Corrupt Practices Act?

Sir I refer to Robin Wigglesworth’s and Gideon Long’s “Goldman hit by ‘hunger bond’ storm after Venezuela deal” June 2.

There are plenty of persons currently in jail in the US because of acts committed against the Foreign Corrupt Practices Act (FCPA). You can read about many cases in http://www.fcpablog.com

Goldman Sachs, has just handed over about US$865 million cash to the notoriously corrupt and human rights violating government of Venezuela, in order to obtain $2.8billion Venezuelan bonds, which according to some calculations seen, if repaid, would provide GS with about a 48% internal rate of return.

So, has Goldman Sachs, de facto, unwittingly, committed the mother of all corruptions acts punishable under the FCPA? 


Since Brussels technocrats took EU members too much for granted, Brexit could perhaps turn into a better deal for UK.

Sir, Martin Wolf in reference to Theresa May’s Brexit “No deal is better than a bad deal” asks, “Why, after all, would the EU offer better terms to a non-member?” “Trade realities expose the absurdity of a ‘no deal’ option” June 2.

That is true; except for if the current membership deals are based on technocrats taking EU members too much for granted; and now waking up to the Brexit fact they should perhaps not do so.

Also, would these technocrats dare to further weaken their not too strong position by declaring a war on Britain, a war that most of the Europeans probably do not wish? Do Brussels generals really have that kind of credibility? I don’t think so.

Wolf writes: “Now Brexiters imagine the UK can refuse the EU’s terms for an amicable divorce and yet still count upon active and enthusiastic co-operation in ensuring the smooth flow of trade.”

Why can someone who like Wolf has attacked growing trumpist trade protectionism in the US, arguing it primarily hurts the Americans, yet be willing to accept the thought that trade protectionism from EU towards UK, would not hurt the Europeans too?

That is what Wolf should be informing Europeans of, so that they help to keep their hurt-egos technocrats from enforcing some stupid vengeance plans. But no, Wolf seems determined to want that UK should just take its well deserved punishment for not listening to his advice, and then shut up.


June 01, 2017

To sell the Paris Climate Agreement as a real solution to our pied-a-terre’s environment problems, that’s a disgrace

Sir, Pilita Clark writes: “Mr Trump has exposed the fragile nature of the Paris accord. Countries face no legal obligation to meet any emissions-reduction target in their national climate blueprints, including the US. Nor is there anything legally to prevent them from submitting weaker plans” “US dithering exposes fragility of Paris accord” June 1.

If so then all those who sell us the illusion of the Paris Climate Agreement being a real solution, are more in fault hanging on to it, than Trump reneging it.

I have of course not read the Agreement. Who has read it all? To me this type of global agreements too often just feeds crony statism. To me this type of global agreements becomes too often just another photo-op for politicians.

To have a chance to really dent the environmental problems of the world, we need to come up with incentive structures that are green-profiteers proofed. Otherwise we will most probably not be able to afford it.

My preferred solution is to send the right market signals by means of for instance carbon taxes, and distribute all those revenues to all citizens in order to compensate for the increased costs. That would help many citizens to contaminate less, while affording to do more of something else they could want.

Another example: The Economist writes: “Climate policy, a jerry-rigged system of subsidies and compromises, in America and everywhere, needs an overhaul. A growing number of Republicans want a revenue-neutral carbon tax. [Like the one I suggest] As this newspaper has long argued, that would not only be a better way of curbing pollution but also boost growth. A truly businesslike president would have explored such solutions. Mr Trump has instead chosen to abuse the health of the planet, the patience of America’s allies and the intelligence of his supporters.” “The flaws in Donald Trump’s decision to pull out of the Paris accord”, June 1.

The question is then: Why does The Economist not denounce the Paris Climate an Agreement for what it is, a political convenient illusion of a solution? Just because being against Trump trumps all other considerations?


So now Brussels's technocrats want to issue AAA rated securities backed with European subprime sovereigns? When will they ever learn?

With “subprime sovereigns” I do not intent to classify any sovereign in a derogatory way. I use the term strictly with reference to the fact that for the sovereigns’ creditors being able to collect their credits, some sovereigns seem, are, safer than others.

Sir, Jim Brunsden a Guy Chazan write: “Brussels has called for sovereign debt from across the eurozone to be bundled into a financial instrument and sold to investors as part of a plan aimed at strengthening the single currency area… the move would require regulatory changes to make the securities attractive. One idea would be to grant the bonds the same “zero-risk weighting” that applies to government debt in the EU, which would exempt them [banks] from capital requirements.”... “We see this in the form of preferential regulatory treatment.” “Brussels seeks new asset class of eurozone sovereign debt” June 1.

Amazing! The European Commission has not woken up to the fact that “preferential regulatory treatment” distorts the allocation of bank credit to the real economy, which is one of the prime reasons Europe got into trouble and finds it so hard to grow out of it.

Had banks needed to hold as much capital when lending to sovereigns than when lending to for instance “risky” SMEs and entrepreneurs, Greece would never ever, no matter how much it might have cheated with information, have been able to accumulate such massive amount of sovereign debt.

Were banks required to hold as much capital when lending to sovereigns than when lending to for instance “risky” SMEs and entrepreneurs, then the latter would have found it easier to satisfy their credit needs, and European growth and employment would be higher and foremost much sturdier.

When will the hubris filled obviously statist technocrats in Brussels ever learn? Europe, get rid of them!

“No problem can be solved from the same level of consciousness that created it” Albert Einstein.