November 30, 2017

Banks with better capital will not stifle investment and growth. Bank capital requirements that are not neutral to perceived-risks will

Sir, I refer to David Miles, Professor of Financial Economics, Imperial College letter in which he argues that “Better capitalized banks will not stifle investment and growth” November 30.

He is of course right, but with some caveats.

First, it has to be reasonably well capitalized banks since, going overboard on capital requirements, might reduce the margins arising from leveraging and make getting that additional capital (equity) needed quite difficult.

Second, it is a delicate matter of how going from here to there. If you impose some drastic immediate adjustments then you must be prepared to go for instance the Chilean way, where its central bank made some important capital contributions but allowed former shareholders to repay them and buy them out when they could.

But, but, but! If you insist in that capital being risk weighted, it will just not work.

Suppose you want a 100% capitalized bank, but when calculating that 100% you keep on risk weighting the sovereign with 0%. That would mean that a bank would come up with 100% of equity if lending to a 100% risk weighted entrepreneur, but would be allowed to hold zero capital (equity) when lending to the sovereign. Would that just not be 100% top down Stalinism? How much non-governmental jobs could be created that way?

So, if we are to have economic growth, and banking sector stability, much more important than how well capitalized is that they are perceived-risk neutral capitalized. 

Sir, you know how much I have been criticizing current bank regulations, but my first Op-Ed ever, in 1997, was titled “Puritanism in Banking”, and I still think that what we least need is too much of that. God make us daring!

And, since I will try to copy this letter to Professor Miles, I will hereby take this opportunity to ask him whether he has any idea of why regulators want banks to hold the most capital for when something perceived risky turns out risky? Is it not when something perceived ex ante as very safe turns ex post out to be very risky, that one would like banks to have the most of it?


Sadly, banks must now to take on board rules that were not adjusted to what caused the crisis.

Sir, Martin Arnold, your Banking Editor writes: “In the coming year, much of the alphabet soup of post-crisis financial regulation will be completed — including Basel III, IFRS 9 and Mifid II — giving the industry the most clarity for almost a decade on the rule book it must follow.” “Lenders take on board rules of a post-crisis world” December 30.

We are soon three decades after regulators in 1988 with Basel I, concocted risk weighted capital requirements for banks, and 13 years after they put these on steroids with Basel II’s risk weights of 0% for sovereigns, 20% for AAA rated, and 35% for residential mortgages. That caused irresistible temptations for banks to create excessive exposures to these “safe” assets, which resulted in the 2007/08 crisis. And yet there is almost no discussion about that monstrous regulatory mistake.

So the risk weighting is still part of the regulations; and therefore the 0% risk weighted bank exposures to sovereings keeps growing and growing; as well as is the disortion of bank credit in favor of the “safer” present and against the “riskier” future. 

In this respect if I were to title something of this sort at this moment it would be more in line of “Lenders take on board rules that have not been adjusted to the crisis and therefore guarantee a world with even larger bank crises”

The irresponsibility and lack of transparency evidenced by the members of the Basel Committee is amazing. The lack willingness of media, like the Financial Times, to pose some simple questions to these regulators, is just as incomprehensible. 

When the next bank crisis, or the next excessive exposure to something perceived as very safe blows up in our face, how will your bank editor then explain his silence on this?


November 29, 2017

What does going from a 10% to a 50% level of distraction signify for full-time employees’ real salaries?

Sir, Sarah O’Connor writes “Males in well-paid full-time employment, earning 2.5 times the median wage, are now working slightly longer hours on average than two decades ago, according to the Resolution Foundation, a think-tank.” “Robots will drive us to rethink the way we distribute work” November 29.

In Bank of England’s “bankunderground" blog we recently read: “With the rise of smartphones in particular, the amount of stimuli competing for our attention throughout the day has exploded... we are more distracted than ever as a result of the battle for our attention. One study, for example, finds that we are distracted nearly 50% of the time.”

So if 50% of the time is now spend being distracted, and since those not employed full time are not equally remunerated for distractions, that of “earning 2.5 times the median wage”, could de facto be a serious understatement.

Sir, just think about what going from for instance a 10% to a 50% distraction signifies to full time employees’ real salaries. Fabulous increases!

PS. And what is its impact on productivity in terms that less effective working time is being put into production?

PS. Or what would the real employment rate be if we deduct the hours engaged in distractions? A statistical nightmare? Will we ever be able to compare apples with apples again?

PS. And how should all these working hours consumed with distractions be considered in GDP figures?

PS. Robots will not only drive us to rethink the way we distribute work. It also forces us to think about how to create decent and worthy unemployments.


Those who because of scalability can bother us excessively should not be able to do so at a zero marginal cost

Sir, Martin Wolf writes: “Scalability means that an intangible good can be enjoyed by one person without depriving another of its benefits. In an economy where scalability — frequently turbocharged by network effects — is important, some businesses will quickly become huge. These winners may also enjoy huge incumbency advantages.”, “Challenges of a disembodied economy”, November 29.

Indeed, but also look at how a zero marginal cost allows the social media to drown us in such an excessive amount of ads, fake news and irrelevant information, which so dangerously wastes our very limited attention span.

So when Wolf writes “governments must also consider how to tackle the inequalities created by intangibles, one of which (insufficiently emphasised in this book) is the rise of super-dominant companies” let me (not for the first time) suggest the following:

Charge social media, like Goggle and Apple, a very small bothering-tax, like a hundredth of a $ cent, every time they reach out to us with something that does not originate in something specifically allowed by us, like the direct messages from our friends.

That could, at the same time it builds up funding that could be used for a Universal Basic Income scheme, which helps to take the sting out of growing inequalities, reduce dramatically the bothering of us and allowing us more of that so necessary boredom we need for creativity and thoughtfulness, which we humans so specially need now when we have to interact more and more with artificial intelligent robots.


Ms. Janet Yellen, like other recent bank regulators who have just faded away, will leave the Fed without answering THE QUESTION

Sir, you write: “The Federal Reserve can take some blame for failing to see risks building up in the years preceding the global financial crisis. But perhaps more than any other major policymaking institution in the world, the Fed has acquitted itself well in the decade since”, “The unfortunate exit of an exemplary Fed chair”, November 29.

As you might suspect, I profoundly disagree. The Federal Reserve has yet not understood (or has been willing to acknowledge it) the fact that the “risks building up in the years preceding the global financial crisis” were a direct consequence of the distortions introduced by bank regulations, primarily Basel II, 2004.

If you allow banks to leverage almost limitless when lending to sovereigns, (like European banks lending to Greece); when financing residential housing; and over 60 times to one just because a human fallible rating agency has issued an AAA rating, that crisis, just had to happen.

And since capital requirements for banks have remained higher for what is perceived as risky than for what is perceived, decreed or concocted as safe, that odious distortion wasted most of the stimulus quantitative easing and low interest could have provided.

Over the last decade, how many SMEs and entrepreneurs have not gained access to that life changing opportunity of a bank credit, only because of these odiously discriminating regulations? Who can believe that America would have been able to develop as it did, if these regulations had been in place since the time of the pilgrims?

And now Janet Yellen, like other regulators have done in the recent past, will leave the Fed without answering us why banks should hold the most of capital against what is perceived as risky, when it is when something perceived very safe turns out very risky, that one would really like banks to have the most of it.

Sir, thanks for all the help you have given me over the last decade, forwarding that question without fear and without favour.


November 28, 2017

Venezuela faces a restructuring between odious creditors and odious debtors, so it behooves us ordinary Venezuelans citizens to intervene and block any odious deals.

Sir, Jonathan Wheatley and Robin Wigglesworth when reporting on the surreal sort of restructuring of Venezuela’s debt by the equally surreal Maduro government write: “Venezuela is already a serial defaulter. It has defaulted on miners, oil companies and other enterprises whose assets it has seized without compensation. It has defaulted on unpaid suppliers to PDVSA, the national oil company. Most seriously, it has defaulted on its people, denying them access to basic foods and medicines, causing an epidemic of weight loss and turning injury or illness into a mortal danger.” “Venezuela bond repayments: dead and alive” November 28.

Sir, the creditors, if they had carried out any minimum due diligence, would have been perfectly aware their financing would not be put to any good use, so for me, all their loans, given only because of juicy risk-premiums or other profit motives, are just odious credits.

And the borrowers, knowing very well they were contracting that debt for no good purposes at all, defines all these borrowings to be odious debts.

So here we are Venezuelans citizens, with children, parents and grandparents dying for lack of food and medicines. Are we now just supposed to sit down and allow this restructuring to happen on whatever odious terms the creditors and the debtors agree on in a petit committee?

No way! As a minimum, for a starter, our General National Assembly not yet in exile needs to authorize our Supreme Court of Justice in exile, to take charge so as to at least determine what could be deemed to be bona fide, dubious, or outright odious credits.


A former Executive Director of the World Bank, for Venezuela (2002-2004)

Andy Haldane, I am an economist too, but I can still not make head or tails out of your bank regulations. Please enlighten me with BoE’s “EconoMe”!

Sir, Chris Giles writes that Bank of England’s chief economist Andy Haldane argues that economists must work harder to help the public understand and accept their message. “If economics or economic policy is elitist and inaccessible to most people, it is not doing its job,” he said. “Economics should be more accessible” November 28.

Absolutely! So please could Haldane explain to me why regulators want banks to hold the most capital for when something perceived risky turns out risky, when it is when something ex ante perceived as very safe ex post turns out to be very risky, that one really would like banks to have the most of it?

The risk weighted capital requirements allow banks to leverage differently different assets, and thereby allow banks to earn different risk adjusted returns on equity on different assets, must distort the allocation of bank credit to the real economy. Some, like for instance “risky” entrepreneurs are paying with less access to credit for the regulators favoring “safe sovereign, AAArisktocracy and house financing. That must not be helpful for creating new jobs. Am I wrong? If am not, why does this seem to be of no concern to regulators?

And talking about favoring, who authorized the economists to suddenly take upon themselves to decide that the risk weight of the sovereign was 0% and that of citizens 100%? Is that not just outrageous statism? Has that not caused governments getting credit at much lower rates that they would otherwise have gotten? Has that not caused governments to take on much more debt than they would otherwise have been able to do?

If Haldane does not know the answers to these questions perhaps he can ask Mark Carney, Mario Draghi, Jaime Caruana or Stefan Ingves.

And if those elite experts can’t provide him with a satisfactory answer, perhaps he should sit down and listen to me. I as one economist to another would willingly explain to him the regulatory lunacy he is involved with. For a first session of that, Haldane could prepare reading THIS:

PS. And at FT you are all also cordially invited. Since you have mostly ignored, and even hushed up my arguments, I know that if Haldane proves me wrong, you will all feel tremendously alleviated.


November 27, 2017

What magical misleading thinking could explain the Basel Committee’s bank regulation idiocy?

I refer to Andrew Hill’s “The magical thinking that misleads managers” November 27.

Sir, what magical misleading thinking could lay behind regulators wanting banks to hold the most capital for when something perceived risky turns out risky, when it really is when something perceived very safe turns out to be very risky, that one would like banks to have the most of it?

“Numerology…mumbo-jumbo”? Well if you read through the Basel Committee’s 2005 “An Explanatory Note on the Basel II IRB (Internal Rating Based) Risk Weight Function”, that could be it.

“Leaps of faith”? Absolutely. Believing that by allowing some few human fallible credit rating agencies to decide instead of millions of eyes, and thereby intrducing the mother of all systemic risks (as I warned in 2003 in a letter published by FT) was effectively one of the greatest centralized leap of faiths ever.

“Throw a coin and make a wish”? Believing that the risk weighted capital requirements would not distorts the allocation of bank credit can only remind me of “Three coins in the fountain”, although in that movie the girls' dreams came true.

“Chants and mantras”? The whole minute by minute growing and expanding Basel Committee’s regulations cannot but be a prime example of that.

“Human sacrifice”? Though they never ever cause a major bank crisis how many millions of entrepreneurs have not been denied the often life changing opportunity of a credit in the name of this so badly understood stability.

“Hero worship”? Just look at all those members of that mutual admiration club of technocrats who are able to promote themselves even in the face of a financial crisis that resulted from allowing banks to leverage so excessively when lending to the 0% risk weighted “infallible” sovereigns, the 20% risk weighted AAArisktocracy and the 35% risk weighted financing of houses?

Hill ends arguing that “humble deference to unpredictable and poorly understood outside forces would be healthy”. Indeed, but how is that to happen if public opinion makers, like the Financial Times, refuse to hold the regulators accountable, perhaps because they all like to be seen as part of thei exclusive network... and be invited to Davos.


November 25, 2017

Mr. Tim Harford, so you want an intriguing puzzle that might engage your curiosity? Have I got one for you!

Sir, Tim Harford writes: “Marina Della Giusta and colleagues at the University of Reading recently conducted a linguistic analysis of the tweets of the top 25 academic economists and the top 25 scientists on Twitter and found that the economists tweeted less and had fewer Twitter conversations with strangers. “Economicky words are just plain icky” November 25.

But not only might they tweet less, they might block more. I say that because I have never, as far as I know, been blocked by a scientists, but I sure have been blocked by an economists, the undercover economist Tim Harford.

Why could that have happened? Perhaps because I might have complained too much that Harford, as an economist, shoud also be out there dennouncing one of the most important economic regulatory cock-ups in world history, namely the risk weighted capital requirements for banks.

Harford writes “If we use a surprising fact as an ambush, that will provoke a defensive response; far better to present an intriguing puzzle.”

Okey Mr Harford here is one for you:

Why on earth do regulators want banks to hold the most capital when something ex ante perceived risky turns out risky? Is it not when something perceived very safe turns out ex post to be very risky one would really like banks to have it the most?

PS. But Sir, of course it is not just Tim Harford. You yourself, advertising a “Without fear and without favor”, seemingy do not dare to ask bank regulators where they got the idea of risk weighting the so dangerous AAA rated with a minimum 20%, and those by being rated below BB- made so innocous with a whopping 150%?


November 22, 2017

If Martin Wolf wants to help the poor at the bottom, why does he not help me arguing for getting rid of the risk weighted capital requirements for banks?

Sir, Martin Wolf, morphing into an activist, describes the Republican tax plan as “a determined effort to shift resources from the bottom, middle and even upper middle of the US income distribution towards the very top, combined with big increases in economic insecurity for the great majority”, “The Republican tax plan built for plutocrats”, November 22.

But, since Wolf refuses to discuss the distortions caused by bank regulators, let me here ask him, in quite similar terms: What is the risk weighted capital requirements for banks if not something that stops the “risky” bottom, middle and even upper middle of the US income distribution, from accessing those opportunities of bank credit that could help to propel them upwards?

Day-by-day it is becoming clearer to me that Martin Wolf is just another statist that thinks it is just great that sovereigns are 0% risk weighted and unrated citizens 100%.

I agree of course with Wolf in that “the reductions in corporation tax will [not] lead to a big rise in business investment”. But that, among others, is precisely because the regulators have seriously damaged one of the primary transmission channels of freed resources, namely bank credit.

What is not clear to me though is to what Wolf refers to when arguing that the rich will benefit more from tax cuts. Does he mean in paid US$ in taxes? Because if so I would say it is quite natural that anyone who is paying more $ taxes will pay less taxes when taxes are cut.

We read: “In the more cautious Senate version, households with incomes below $75,000 would be worse off.” Does Wolf want to imply these would now have to pay more in taxes? If so, I am totally on his side on this issue… but I sort of doubt that. $75,000 sounds like a quite normal civil service salary, and you usually don’t go after you own, on any side of the aisle.


True bank regulations should also not be like gambling.

Sir, I refer to Izabella Kaminska’s “True investing is not the same as gambling” November 22.

But Sir, what did bank regulators do with their risk-weighted capital requirements for banks if not gambling? They gambled on that bankers and credit rating agencies would perceive and manage risks correctly…and this even when bank crisis, when not the result of unexpected events, have always resulted from banks having ex ante perceived something as safe, but which ex post turned out to be risky.

Here again are the four possible outcomes of any bank lending:

1. Ex ante perceived safe – ex post turns out safe – “Just what we thought!”

2. Ex ante perceived risky – ex post turns out safe – “What a pleasant surprise! Another entrepreneur who makes it because we are so good bankers.”

3. Ex ante perceived risky – ex post turns out risky: How lucky we only lend little and at high rates to it.

4. Ex ante perceived safe – Ex post turns out risky: “Holy Moly now what do we do? Call the Fed for a new QE?”

The role of a bank regulator would of course be to work solely on the possibilities that banks did not perceive risks correctly or, if they did, did not manage these perceptions correctly.

And in that respect, the safer something is perceived the more dangerous it can become, and the riskier something is perceived the safer it becomes. Just the same reason for why so many more die in car accidents than in motorcycle accidents. 

The saddest part though is that even if bankers or credit rating agencies perceived risks correctly, the final results of all this would be bad. That because any risk, even if perfectly perceived causes the wrong actions, if excessively considered.

Bankers consider perceived credit risk when determining the size of their exposures and the risk premiums they should collect… but there, after 600 years of banking, suddenly the regulators invented that exactly the same perceived risks needed also to be considered in their capital too. And, since then, what is perceived as safe is getting way too easy credit while, what is perceived as risky, like SMEs and entrepreneurs are not getting the credits the real economy need them to get.

Sir, come one, don’t be so scared, live up to your motto of “Without fear and without favor”. Dare request from any regulator, for instance from FSB’s Mark Carney, an explanation for Basel II’s risk weights: that of a meager 20% for the so dangerous AAA rated, and a whopping 150% for the so innocous below BB-


What would you as a bare minimum call creditors knowingly financing a government that in itself constitutes a brutal violation of human rights? Odious?

Sir, John Paul Rathbone, Robin Wigglesworth and Jonathan Wheatley, with respect to the surrealistic debt-restructuring initial steps in Venezuela quote Hans Humes of Greylock Capital, who is forming an investor committee with “Ultimately, there is going to be more money made in Venezuela than even in Argentina”. But the authors also rightly conclude in “The geopolitical and humanitarian consequences are likely to be larger still”, “Caracas plays its last cards” November 22.

Sir, “Food is in short supply” does not even begin to describe the tragedy.

Look at Venezuela as a prison. The food and medicines supplies it receives should be more than enough to keep all inmates healthy, but, since the guards have stolen so much of it, many prisoners, many children among them, are dying. And, in order to be able to steal more, the guards also took on huge debts in the name of the prison. And now the original creditors, or those who bought in at a later stage, and who all had all the possibilities of knowing very well what was going on, but that turned a blind eye to it when the interest rates offered by the guards were so irresistibly juicy, they want to be repaid. Will the guards do so? Will the prisoners allow that?

I have for decades called for Venezuela’s oil revenues, lately around 97% of all Venezuela’s exports, to be shared out to all its citizens, as the only way to guard against any odious or just plain dumb exercises of centralized statist power.

So what would happen if now the Venezuelans agree, in a referendum, on doing just that and then proceed to carry out the necessary changes in its constitution; and asks the IMF or the World Bank, with the assistance of other banks, to set up an oil revenue distribution system that keeps all oil exports invoiced in the name of Venezuela’s 30 and so million citizens? I am no lawyer but would a judge in New York approve the embargo of Simoncito’s part of oil, that if received would help to feed and keep Simoncito healthy?

Desperate times calls for desperate solutions, but perhaps some desperate solutions carry the potential of turning into magical solutions. For an oil cursed nation like Venezuela, that might just be what opens up its future to a much better tomorrow.

But the rest of the world could also benefit immensely. We quite frequently hear about the need for a sovereign debt restructuring mechanism, SDRM. If such mechanism started by clearly establishing the fact that most odious debts have its origins in odious credits. There often is prohibition against usury, but even more important for all us citizens all around the world, and especially for those generations of citizens coming after us, to have some sort of mechanism that disincentive the award of odious credits to governments.

In reference to that I am begging Venezuela’s National Assembly to request that Venezuela’s Supreme Court of Justice in exile initiates a process destined to carefully revise the origin of all Venezuela’s credits to see if they can be deemed legitimate or not.


November 21, 2017

Jockeying for position to currently advise Venezuela on its debt restructuring could have serious legal, or at least reputational consequences

Sir, Robin Wigglesworth, with respect to Venezuela’s debt writes: “Any restructuring will be a Herculean task, given US sanctions” “Debt restructuring battle brews over Venezuela” November 21.

It is not only the US sanctions. Since many, or probably most Venezuelan consider those debt origination in odious or at least totally non-transparent credits we have not the faintest trust in that negotiators helping the government to restructure is helping us.

So any negotiator now would have blacklisted himself, for those restructuring negotiations that can only begin in earnest when the Maduro government is gone.

Also I cannot understand that, for instance one of the prime renegotiation advisors you mention like the “mysterious art-loving Mexican billionaire called David Martinez”, can be so naïve so as to believe that the threat of US sanction to Americans will not be extended to anyone substituting for Americans.

In summary you do not advise governments that are violating basic human rights without the possibility of facing very serious consequences for that. As a minimum they should be aware that many of us Venezuelan will, when we can, try to recoup any odious restructuring fees paid to them… and keep them away forever from Venezuela

Personally I am much in favor of the Venezuelan Supreme Court of Justice in exile, requested by the Venezuelan National Assembly, initiates the first stage of any debt restructuring, namely classifying all those debts in bona-fide, dubious or odious. 


If you allow banks to earn higher risk adjusted returns on equity on mortgage lending than when lending to entrepreneurs, bad things will sure ensue

Sir, Jonathan Eley writes: “in the UK…younger people especially are being priced out of the market while their parents and grandparents benefit from decades of above-inflation rises in home values. The ruling Conservatives, traditionally the party of home ownership, now finds itself shunned by millennial voters frustrated by spiralling housing costs” “Why Budget fix will not repair market” November 21.

And among the long list of factors that has distorted the market in favor of houses Eley includes: “Mortgage securitisation facilitated further growth, as did the Basel II reforms cutting the risk weights applied to real estate. This made mortgage lending less capital-intensive for banks.”

This Sir is one of the very few recognitions, by FT journalists, of the fact that risk weighting the capital requirements for banks distorts the allocation of bank credit.

Indeed, Basel I in 1988 assigned a risk weight of 50% to loans fully secured by mortgage on residential property that is rented or is (or is intended to be) occupied by the borrower, and Basel II reduced that to 35%. Both Basel I and II assigned a risk weight of 100% to loans to unrated SMEs or entrepreneurs.

But the real bottom line significance of “mortgage lending [being] less capital-intensive for banks”, is that banks when being allowed to leverage more with mortgages than with loans to SMEs and entrepreneurs, earn higher expected risk adjusted returns on equity with mortgages than with loans to SMEs and entrepreneurs, and will therefore finance houses much much more than SMEs and entrepreneurs, than what they would have done in the absence of this distortion.

As I have written to you in many occasion before, this “causes banks to finance the basements where the kids can live with their parents, but not the necessary job creation required for the kids to be able to become themselves parents in the future.”

And the day the young will look up from their IPhones, and understand what has happened, they could/should become very angry with those regulators that so brazenly violated that holy intergenerational social bond Edmund Burke wrote about.

I can almost hear many millennials some years down the road telling (yelling) their parents “You go down to the basement, it’s now our turn to live upstairs!”

Eley also quotes Greg Davies, a behavioural economist with: “People like houses as an investment because they are tangible. They feel they understand them far more than funds or shares or bonds.”

But the real measurement of the worth of any investment happens the moment you want to convert it into current purchase capacity. In this respect people should think about to whom they could sell their house in the future, at its current real prices.

PS. In June 2017 you published a letter by Chris Watling that refers exactly to this, “Blame Basel capital rules for the UK’s house price bonanza”.

What most surprises me is that regulators don’t even acknowledge they distort, much less discuss it… and that the Financial Times refuses to call the regulators out on this… especially since all that distortion is for no stability purpose at all, much the contrary.

It is clear that no matter its motto of “Without fear and without favor”, FT does not have what it takes to for instance ask Mark Carney of BoE and FSB, to explain the reasoning behind Basel II’s meager risk weight of only 20% to the so dangerous AAA rated and its whopping 150% to the so innocous below BB- rated.


November 20, 2017

Anyone jumping ship on the delusion that risk-weighted capital requirements make banks safer and economies better, has a better chance to survive

Sir, Wolfgang Münchau discusses many delusions held by both Brexiters and Remainers, and argues correctly: “To make the best of Brexit, the UK will need to embrace a more entrepreneurial and innovative economy” “An old-fashioned economy heads towards a downfall” November 20.

But when he writes: “For Brexit to succeed the UK will end up becoming more — dare I say it — European”, I disagree.

That because when Münchau holds that Britain “has an entrepreneurial culture to build on”, that is unfortunately no longer the case. No country with an active “entrepreneurial culture” would ever have allowed the de facto anti entrepreneurial risk-weighted capital requirements for banks.

Sir, if I had to choose between a Britain that did not hold back its risk takers, and one that was comfortably living off a larger European market then, if thinking about my grandchildren, I would without any doubt prefer the first one.

As I see it the European Union, governed by unelected risk adverse technocrats, who like old soviet central planners paint from their desks roads to the future, is doomed to fail… and that no matter how much “Universities… work more closely with industry”. In that Europe, the faster you jump ships the better.

If I were a British citizen I would instead be calling out to Europe proposing a different EU. Who knows what answer I would get from Poland, Italy, Spain, Portugal and others? Why for instance should they stay with those who most benefit from a Euro made weaker by the weaker?

PS. For those who do not know me in the context of any European Union and Euro debate, perhaps the following Op-Ed could help as an introduction. 


November 17, 2017

The safest route for UK might be to take to the seas in a leaky boat, abandoning a safe haven that is becoming dangerously overpopulated.

Sir, Martin Wolf writes: “A significant generational divide has opened up. Those aged 22-39 experienced a 10 per cent fall in real earnings between 2007 and 2017. They were also particularly hard hit by the jump in average house prices from 3.6 times annual average earnings 20 years ago to 7.6 times today. Not surprisingly, the proportion of 25-34 year olds taking out a mortgage has fallen sharply, from 53 to 35 per cent.” “A bruising Brexit could shipwreck the British economy” November 17.

Sir, I would argue that has a lot to do with the fact that banks are allowed to leverage much more their equity when financing “safe” home purchases than when for instance financing job creation by means of loans to “risky” SMEs and entrepreneurs.

Because that means banks can earn much higher expected risk adjusted returns on their equity when financing home purchases than when instance financing job creation by means of loans to SMEs and entrepreneurs… and so they do finance much more home purchases than risky job creations.

But Martin Wolf does not think so. He thinks bankers should do what is right, no matter the incentives. I think that is a bit naïve of him.

The way I see it, one of these days all the young living in the basements will tell their parents. “We’ve been cheated. You move down and we move upstairs.”

And it will be hard to argue against that. My generation has surely not lived up to its part of that intergenerational holy social contract Edmund Burke wrote about. 

Wolf ends with “The UK has embarked on a risky voyage in a leaky boat. Beware a shipwreck”. No! I would instead hold that its bank regulators made it overstay in a supposedly safe harbor that is therefor rapidly and dangerously becoming overcrowded.

“A ship in harbor is safe, but that is not what ships are for”, John A Shedd.

Sir, I have no idea if Martin Wolf has kids but, if he had, would his kids have grown stronger if he had rewarded them profusely for staying away from what they believe is risky? I don’t think so.


Leonardo da Vinci, smiling, must be harboring great gratitude to the Fed and ECB for helping his Salvator Mundi to become so highly valued.

Sir, I refer to Josh Spero’s and Lauren Leatherby’s “Record price sparks hunt for Da Vinci painting buyer” November 17.

Surely Leonardo da Vinci wherever he find himself must be smiling and extending his deepest gratitude to Fed’s Janet Yellen and ECB’s Mario Draghi for their QEs and ultra low interest rates. That has allowed him see his Salvator Mundi valued at US$ 450 million much earlier than he could have expected.

And Janet Yellen and Mario Draghi and their colleagues must surely be smiling too. Since Dmitry Rybolovlev bought that painting in 2011 for $127.5m, its current price hints at being successful at reaching an inflation rate target they never dared dream of.

The art curious still do not know who the buyer is, but be sure the redistribution profiteers are also looking after these US$ 450 million to find out how that money escaped their franchise.

Since the latter will surely soon again be talking about inequality I take the opportunity to advance my usual question of: How do you morph such a valuable piece of art into street purchasing power again; that can be used for food and medicines, without the assistance of another extremely wealthy?


What if banks could earn their highest expected risk adjusted returns on equity where they are most needed, like in Blackpool?

Sir, I just read Sarah O’Connor’s harrowing description of what is going on in Blackpool “Left behind: can anyone save the towns the economy forgot? FT Magazine, November 16.

It all sounds like Blackpool belonging to what we read more and more about, that termed as scrap land or junk land.

Sir, can we really afford to abandon those places to who knows who or to what knows what? If we do so what truly bad (or good) things could brew there? We might have some unexplored tools to help stop that or at least not to worsen it.

For instance, our banks, by means of the risk weighted capital requirements for banks are currently allowed to leverage more their equity when lending to what is perceived as safe than when lending to what is perceived as risky; and so banks earn higher expected risk adjusted returns on equity on what is perceived as safe than on what is perceived as risky; so banks, naturally, lend much more to what is perceived as safe than to what is perceived as risky.

That is doubly stupid. First because why would you like to help those who are perceived as safe and that because of that already have more access to credit to have even more access to bank credit? Likewise why would you like to cause those who are perceived as risky and who because of that already have less access to credit to have even less access to bank credit? In other words “safe” London earns banks higher ROEs than “risky” Blackpool.

And secondly because from a bank stability point of view you are acting against what history proves, namely that those perceived as safe are a hundred times more dangerous to bank systems than those perceived as risky. In other words London is riskier to the bank system than Blackpool.

So let us suppose we instead based those risk weighted capital requirements, and the distortion they produce, on where we think bank credit could most be needed or most productive. Then we could perhaps arrange it in such a way that a bank lending to an entrepreneur in Blackpool would be allowed to leverage more than when lending to an entrepreneur in London. And then Blackpool could have a better chance to regain some of its former luster or at least not lose it all.


What if the Norwegian citizens had had the chance to manage their own individual oil funds or share of oil revenues?

Sir, I refer to David Sheppard’s “Norway fund to sell off oil shares” November 17

At first sight we are of course all impressed with that the Norwegian Oil Fund has been able to accumulate US$200.000 per Norwegian. 

The question is though, had the Norwegian oil revenues been paid out to and invested directly by the Norwegians, would they in average have more or less than US$200.000, and would the Norwegians, in average, have been stronger citizens as a result of having to take on that responsibility on their own?

And when we read that what we always thought as the Norwegian Oil Fund or the Norwegian Government Petroleum Fund, is now known officially as the Government Pension Fund Global, the natural question we have is if all that money is now only to go to pensioners? If I was a young Norwegian with ideas of my own and in need of capital, I am not sure I would look too favorably at that possibility.

And let’s be honest about the results. Much of it, or perhaps even most of the financial returns obtained, which are perhaps more than the oil proceeds injected, have been direct consequences of US and Europe having kicked the 2007-08 crisis can down the road, injecting huge amount of liquidity with QEs which, together with the ultralow interests maintained, have inflated all financial assets.

Sir, I was appointed the first diversification manager of the Venezuelan Investment Fund created in 1974, basically a fund very similar to the Norwegian Oil Fund. It took me only two weeks to become convinced it would not work, and so I left.

All this sort of centralized accumulations of wealth sooner or later loose contact with the final beneficiaries and with their original purpose and fast (Venezuela) or little by little (Norway) begin functioning more in terms of the wants and needs of those managing it.

When we now start reading about how that Norwegian fund begins to assign more and more value to issues like sustainability and ethics, which of course is good, we do wonder though how much of that is more based on managerial show-off than on a real mandate from its final beneficiaries.

Again, if I was that young Norwegian in need of capital, or just wanted to construct my own retirement nest, I can easily hear me saying… Great, you do all that but, before you start, give me my share. 

And let’s face it. One reason Norway’s government have been able and willing to set aside oil revenues in the fund is that they receive other type of compensations, like gas/petrol consumption taxes. Norway has the highest gas prices in the world, about $2.40 per liter (Venezuela less than $1 cent per liter)

I hear you Sir. “Here is just a Venezuelan being envious of the $200.000”.

Of course I am envious but, believe me when I say, that as a defender of oil revenue sharing, I would much have preferred my fellow citizens to have only a tenth of that amount, but in the process have learned more of how to stand on their own, and freeing themselves from having to depend on redistribution profiteering governments or fund managers.

PS. What about the Norwegian Fund selling off oil shares? Sounds reasonable but their current 6 per cent invested in the oil and gas sector is not that exaggerated either. Can you imagine what the Norwegians would say if Norway runs out of oil and the Fund stands there with no investments in oil?


November 16, 2017

Edward Luce, what do you mean, is Mark Zuckerberg not paying the taxes he should pay, or is he just no taxed enough?

Sir, I come from a nation, Venezuela, where those in power have wasted hundreds of times more fiscal revenues than the amount of taxes citizens might have evaded. So I am no fan of the redistribution profiteers.

Edward Luce writes: “America’s new economy elites tend to cloak their self-interest in righteous language. Talking about values has the collateral benefit of avoiding talking about wealth. If the rich are giving their money away to good causes, such as inner city schools and research into diseases, we should not dwell on taxes. Mr Zuckerberg is not funding any private wars in Africa. He is a good person. The fact that his company pays barely any tax is therefore irrelevant.” “The Zuckerberg delusion” November 16.

What does Luce mean? Is Zuckerberg not paying the taxes he should pay or is he not taxed sufficiently. If the first Zuckerberg should be fined or even go to jail, if the second Luce is close to being defamatory and should suffer some consequences. 

And Luce also holds “The next time Mr Zuckerberg wants to showcase Facebook, he should invest some of his money in an actual place.”

What on earth does Luce mean? That Zuckerberg does not have his money invested in an actual place? That Zuckerberg keeps his wealth all in cash stashed away under his mattress?

I am clearly against how much rents are derived from monopolistic positions, and would of course like to see that kind of rent capturing to be diminished. But I also believe that once wealth has been created, and that wealth has been allocated to different assets, one should not come to the conclusion that redistributing these would actually result in something better.

It is so typical for wealth-redistributors to suggest, like Luce does, that Zuckerberg would do better funding “a newspaper to make up for social media’s destruction of local journalism” without given a single thought to what would then have to be defunded.

What is most conspicuously absent in the aggressive let’s redistribute the wealthiest wealth proposals, is an explanation of how that is done and of what that implies.

For instance, let us assume Mr Zuckerberg has a $200 million dollar Picasso hanging on the wall. How do you convert that painting into food, health services, education or money for the poor, without having to find another wealthy buyer of that Picasso?

And, if you did cash in the $200 million, how much would reach the less wealthy and how much would just enrich the redistribution profiteers… perhaps making them the neo-wealthy?

The fact is that if Zuckerberg had a $200 million dollar Picasso he has, in a sort of voluntary tax, frozen alternative purchasing capacity on his wall. In this case leading for art to be seen as a good investment, and most probably down the line causing some artists down to get some more income for their art. 

But Sir you would also probably agree with Luce in that journalists are worthier than painters. And I don’t hold that against you… because that’s life. Let anyone not wanting to redistribute something more to himself, cash if you are poor and goodwill if you are Zuckerberg, throw the first stone.

PS. I am an ardent defender of a Universal Basic Income because I find that to be the most efficient way to finance, among others, the creation of decent and worthy unemployments. But that redistribution method also needs to be clear on the implications of what is being redistributed. How much would exist in the Frenchman Thomas Piketty’s Paris’ Museum of Louvre, had it not had been for the existence of the odiously wealthy?


November 15, 2017

Climate-change fight profiteers capture governments (and perhaps FT too). Only citizens can really fight climate change.

Sir, you write “The UN issued a stark warning last month on the scale of the challenge, noting that even if governments act on their plans to cut or slow emissions, national pledges so far add up to only a third of the reductions needed to meet the goals of the Paris accord. Negotiators meeting in Bonn this week are supposed to be crafting rules to ensure countries step up their efforts.” “A sharp reality check on the climate challenge” November 15.

Forget it! The Paris agreement was just another great photo-op. If you really want to be able to do what it takes to save our pied-à-terre, you have to keep out the few big green profiteers able to lobby governments (and perhaps You too), and incorporate all the citizens in that quest.

How? Huge national carbon taxes with all its revenues shared out equally to all citizens. The moment a citizen gets a check and is himself turned into a small profiteer of the fight against climate change (and of the fight against inequality) all changes.

Sir, you have published a letter of mine before describing this type of solution, but you might be mightily targeted by those green profiteers too. So beware!


Martin Wolf, we sure don’t need a Basel Committee for Large Technological Companies Supervision

Sir, Martin Wolf ends his discussions about the monstrously large technological companies (Apple, Alphabet, Microsoft, Amazon and Facebook, Alibaba, Tencent and Samsung) with: “What are the implications? They are that our futures are too important to be left to the mercies of the technology industry alone. It has done magical things. Yet nobody elected it master of the universe. Policymakers must get an intellectual grip on what is happening.” “Taming the masters of the tech universe” November 15.

Does Wolf really believe some probably self appointed technocrats should be able and capable enough to stand in for the current masters of the tech universe, for all these to work more smoothly and safer without any unexpected consequences?

I am reminded of AEI’s Alex J. Pollock’s 2015 article “Martin Wolf’s childlike regulatory faith”. That article referred to Wolf’s “naïve faith in the future superior knowledge and future ability of central bankers and other bureaucrats successfully to tell other people what to do”.

Sir, just look at what those who appointed themselves as the Regulation Masters of the Universe of Banks have done:

They have allowed banks to leverage differently with different assets. As a consequence banks have different capability to obtain risk-adjusted returns on equity with different assets. This has dangerously distorted the allocation of bank credit to the real economy, in favor of what could be leveraged the most. Now instead of banks wanting savvy loan officers to maximize their ROE, they look mostly for equity minimizers to do that.

And, by considering the risk of the banks assets per se, and not the risk those assets represent to the banks, they got their whole risk-weighting totally wrong. A clear example of that is Basel II’s risk weight of only 20% for the dangerous AAA rated and of 150% for the so innocous below BB- rated. Sir, have you ever seen more inept Masters of the Universe?

Would the banks left alone to the markets be able to leverage 62.5 times to 1 only because an AAA to AA rating was present? No!

Would the banks left alone to the markets be able to lend to sovereigns without any capital at all as Basel II’s 0% risk weighting of sovereigns implies? No!

Would we have suffered to 2007-08 crisis had it not been for these regulations? No!

Do I suggest we should leave the tech monsters to do what they want? No, but I don’t think markets will allow them to reign alone and do what they want forever either… things do change, just look at GEs and Siemens.

For instance I can feel some ad-blockers around the corner that could help us users to charge Google and Facebook something for them using our own preferences to earn their advertising revenues.

And I can also smell additional taxes coming up in the future, like for instance a minuscule cost for each advertising connection in social media, which would make sure the marginal cost of exploiting our limited attention span is not zero. But these taxes will hopefully be shared out to all by means of universal basic income mechanisms instead of increasing the franchise value of the redistribution profiteers.

And to combat “people of ill” engaging in “deliberate dissemination of dangerous falsehoods”, much could be helped just by means of having an independent credible register that guarantees us who do not want to engage with unknown strangers, that behind a communication stands a correctly identified and not hacked real person.

PS. Here are some questions I have on tweets and tweeting etiquette that I tweeted.

If without any bad intentions I have re-tweeted a tweet that turns out to be fake news or fake and damning accusations, could I be sued?

If I re-tweet a tweet that I know or should know contains fake news or fake damning accusations, should I be sued?

Don’t we need a sort of ISO quality standard on tweeting that we can adhere to?

Don’t we need somebody to guarantee us that a tweeter is a real identifiable person that has not been hacked?


November 14, 2017

For Britain’s and EU’s sake, Brexit negotiations should not be left exclusively in hands of Leavers and Brusselites.

Sir, most of the opinions on Brexit I have read in FT over the last year, seem to me have more to do with Remainers wanting it to turn out so bad so they can gorge on the “we told you so”, than with making the best out of something difficult.

In the same vein, on EU’s side, it seems to me that the Brusselites want to negotiate more in order to satisfy their by Brexit vote hurt egos, than with making the best out of something difficult.

Janan Ganesh writes in “The real saboteurs of Brexit are its own amateur leaders” November 14. So, if Leavers do not have what’s needed to negotiate Brexit well, as, that does not exculpate the Remainers from helping out in any which way they can… (or move out of Britain)

Gideon Rachman writes in namely: “Imposing a humiliating settlement on Britain might even seem economically advantageous. But the long term political and strategic consequences of a bitter Brexit are much harder to calculate.” “Britain is at the mercy of Brussels” November 14. And so, in a similar vein, the Brusselites need to be continuously reminded of that they could also be hold accountable for a bad Brexit.

If I were a British national and a Remainer, the first thing I would do is to launch a campaign messaging the following:

“Europeans since Britain will remain close to you… and since you could be next, it behooves you to keep an eye on your Brusselites so that Brexit goes well for all of us. The last thing we need in Europe at this moment is a neo-Versailles treaty.”

PS. As a Polish citizen, I would argue: “Brusselites, remember that many of us in EU have more in common with Britain than with some of our other Europeans”


November 13, 2017

Now, ten years after, have not all quantitative easing and low interest rates just kicked the crisis can down the road?

Sir, Martin Wolf writes: “A… criticism is that easy money policies have worsened inequality, especially of wealth. But keeping the post-crisis economy in recession in order to reduce wealth inequality would have been insane. In any case, wealth inequality matters less than inequality of incomes, where the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term. Above all, the worst form of inequality is to leave millions of people stuck unnecessarily in prolonged unemployment.” "Unusual times call for unusual strategies from central banks" November 13.

We are now into ten years of post-crisis. How can Mr. Wolf be so sure that if painkillers like Tarp and quantitative easing had not been prescribed, that we would now be in a worse position in terms of unemployment and in terms of inequality? Perhaps that all just kicked the can down the road, a can that could begin to violently roll back on us.

Sir, in August 2006 you published a letter of mine titled “Long-term benefits of a hard landing”. In it I wrote: 

“Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.”

I agree with that “wealth inequality matters less than inequality of incomes” but when Wolf then holds that “the effect of raising asset prices is to lower returns for prospective owners, so improving inequality in the longer term”, it would seem he would also agree with the benefits of a hard landing… that is as long as it is not on his watch.

In my Venezuela we have seen how millions of citizens who had reasonable expectations for the future, are now in desperate conditions. They have learned the hard way that no matter how much they might hold in assets, this means little if at the time you want to convert your assets into actual street purchasing capacity, there is no one there to buy these. And, as we sure have learned, to move from very good to very bad can be lightning fast. 

And I will keep on arguing… if government and regulators prioritize the financing of the sovereigns and of houses so much more than the financing of SMEs and entrepreneurs, we will be heading to a future of much poverty, lived out in an abundance of less and less maintained houses.

Wolf ends with: “given the instability of finance, today’s low neutral interest rates and the unwillingness of governments to use fiscal policy, the willingness of central banks to adopt unconventional policies may be all we have to manage the next big downturn.

Yes we might be in dire need of “unconventional policies”, but not necessarily from the central banks.

For instance we should urgently think of creating decent and worthy unemployments, to face the possibility of a structural lack of jobs. For that I would begin studying how to tax robots and artificial intelligence, and or how to reduce the margins of the redistribution profiteers, in such a way that it permits us to design and fund a universal basic income.

The UBI could initially be small, perhaps just US$ 100 per month, something to help you get out of bed, not so large as to help you stay in the bed, but the system has to be in place before social fabric breaks down, or before populists make hay of our problems.


November 11, 2017

Is allowing banks earn the highest risk adjusted returns on equity with what’s “safe” a nudge, a sludge or a grudge?

Sir, Tim Harford writes “Nudge, sludge or grudge, we can change this. And we should start by asking ourselves whether when it comes to news, information and debate, we have made it difficult to do the right thing — and all too easy to stray.” “Nudging and the art of darkness” November 10.

Art of darkness? How and by whom were our bank regulators nudged into believing that stupidity that what bankers perceive as risky is dangerous and that what is perceived by them as safe is safe?

Because as a consequence we got the risk-weighted capital requirements for banks that allow banks to leverage much more with what is perceived as safe than with what is perceived as risky; which means banks will earn higher risk adjusted returns on equity with what’s “safe” than with what’s “risky”; which means banks will, dangerously for the bank system, lend too much against too little capital to what’s safe, and, dangerously for the real economy, lend too little to what is perceived as risky like SMEs and entrepreneurs.

PS. When I try to see what @TimHarford is up to, I am given the message “You are blocked from following @TimHarford and viewing @TimHarford’s tweets”. Does Tim Harford believe it is so easy to get away from my arguments?

PS. What would Templar Grand Master Jacques de Molay burned in 1307 say about a 0% risk-weightof sovereign Phillip IV?

PS. “50 Things That Made the Modern Economy”, and just 1 That is Bringing it Down: Regulatory Risk Aversion