September 28, 2018

2006 and 2007, in Op-eds on Venezuela, I already had to reference Rwanda. That’s how late it is.

Sir, Luis Almagro writes, “As an international community, we have failed to live up to our responsibilities in Venezuela… We must address the corruption that is starving an entire country’s population, and provide humanitarian assistance to those who are desperately in need. We must act — it is already too late” “The world has a responsibility to protect the people of Venezuela”, September 28.

How can we Venezuelan’s not be extremely thankful for Luis Almagro’s support in the OAS? For a full decade, 2005-2015, we had to suffer Almagro’s predecessor José Miguel Insulza’s shameless silence on what was going on in Venezuela, even his support of its regimes and its buddies.

When Almagro now refers to former US president Bill Clinton once telling the people of Rwanda: “all over the world there were people like me sitting in offices, day after day after day, who did not fully appreciate the depth and speed with which you were being engulfed by this unimaginable terror”; I must point out that already 2006 and 2007 in two Op-Eds published in Venezuela’s leading newspaper, El Universal, before I was censored by the government friendly new owners’ of that paper, I had to refer to Rwanda. That’s how late this all is.

In 2009, in a similar Op-Ed, addressed to OAS and its Inter American Commission of Human Rights (IACHR) I put forward the case that when gasoline, in a country with so many needs, was basically given away for free, an odious violation of economic human rights was being committed. 

In July 2015, I formally denounced that to IACHR, ending my accusation with: “Let me assure you right now, at this moment, the official price of a liter of milk is around 300 times higher than the price of a liter of gasoline ... and if that is not an economic crime against humanity, what is?”Sir, I am still waiting for a response.


September 25, 2018

What we have is not by a long shot economic liberalism, it is much more statism, and of the crony kind.

Sir, Martin Wolf refers to Yascha Mounk of Harvard University arguing “that undemocratic liberalism, notably economic liberalism, largely explains the rise of illiberal democracy: ‘vast swaths of policy have been cordoned off from democratic contestation’, [carried out] by international agreements created by secretive negotiations carried out inside remote institutions.” “Saving liberal democracy from the extremes” September 25.

Hold it there! The Basel Committee for Banking Regulations, with Basel I of 1998 decided, without any real public consultation, that the risk weights for those risk weighted capital requirements it itself concocted, were to be 0% the sovereign and 100% the citizens. What has to do with “economic liberalism”? Nothing! To me it is pure unabridged statism… that is unless it is derived from pure unabridged stupidity.

Ignoring that allows Wolf to opine, “What is true is that poorly managed economic liberalism helped destabilise politics… and to argue, “Elites must promote a little less liberalism” 

Again, no! Mr. Wolf (for the umpteenth time), we are not living a time of “poorly managed liberalism”, we are living thru times of expertly camouflaged statism, that which is so beneficial to the redistribution profiteers and to those of the private sector who love to engage in crony statism.

Sir, all journalists, even those considered its elite, have a duty to denounce that; less they might be accused of covering it up. I mean should not journalists be the citizens’ frontline for any “democratic contestation”? 

How many times have I asked Martin Wolf to use his influence to ask the regulators: “Why do you want bank to hold more capital against what’s perceived as risky and is therefore less dangerous to our bank system, than what is perceived as safe and that, precisely because of that, becomes so much more dangerous to it? Hundreds? Has he dared to ask it? Not that I know Sir. Though perhaps he just did not like the answer or the non-answer 


The one most worthy and in need of a “teachable moment” is the European Union itself.

Gideon Rachman“fears that Britain is heading towards what counsellors call a “teachable moment”, otherwise known as a traumatic experience that forces people (or nations) into a fundamental reassessment.” “Britain is poised to learn a hard Brexit lesson” September 25

To that purpose Rachman mentions, “Greece experienced not triumph but humiliation – as its government was forced to accept the bailout that it had just rejected.”

Indeed, but the one who would best have been helped by a “teachable moment”, that would be the EU itself; which could have happened if only Greek citizens had sued EC, for allowing banks to lend to the Greek sovereign against zero capital of their own, which of course doomed the Greeks to their tragedy.

Does Britain or any EU nation really want to end up like Greece? I believe not. For that not to happen all Europeans need to call out their authorities on much more, instead of silently swallowing EU’s marketing efforts; thankful for being able to freely visit each other; something that when you get down to it does not really require a European Union for it, as neither does free trading, as neither does being able to work or reside in any EU nation for that matter.

How long will techno/bureaucrats, in EU or anywhere be able to extortionate more power for themselves, or increase the value of their redistribution franchises, by offering the citizens goodies these could obtain by other simpler means?

For instance the day an unconditional Universal Basic Income is adopted, that day we will be able to rebalance much more power in favor of citizens and lessen that of those all who engage in the crony statism that is killing us slowly. 

Does a teachable Brexit moment preclude something very good coming out from it? I don’t think so; I have too much respect for the Brits. Perhaps they can even help to save EU.


September 24, 2018

Does Britain still have sufficient resolve capacity? If yes, perhaps a no-deal Brexit could be a good time to exercise that muscle.

Sir, Wolfgang Münchau though he states“If the UK were to crash out of the EU I doubt the bloc’s leaders would sit down to negotiate” he also a bit contradictory opines“the EU has a much lower political pain threshold for a hard Brexit.” “A no-deal Brexit creeps closer” September 24.

Even though the debates on Brexit seem to have been politically skewed to only mention Britain suffering from Brexit, in any which shape it comes, I agree with Münchau on that the EU could also suffer a lot of political pain.

I am not a Brit. Way back I spent a year in London practicing at a now sadly extinct merchant bank, and studying at London Business School and London School of Economics. I have also had English corporations as clients, and of course I have many good friends there. So let me say the following from the heart.

If Britain has the needed resolve capacity to take on a no-deal Brexit then, having to use it could help to strengthen its resolve capacity for the many other probably even larger challenges awaiting them and all of us around the corner. If Britain does not have it, then accommodating to EU wishes, will de facto also weaken its general inventory of resolve capacity.

All that is made worse by the fact that in many ways many of EU’s “successes” seem more the result of heavy marketing by the European Commission, than grounded on real results. For me that EU has not been able in twenty years to really tackle the challenges posed by the euro; and that after its own authorities assigned a risk weight of 0% to Greece, it left that nation to pay on its own for the over-indebtedness that had to result, makes it clear that something very serious is amiss in the EU. In fact, when I see some of its promo material such as regulating the entrance fees to a monastery in Romania I have even caught myself thinking of a Banana Union.

At the time of the Winter Olympics, I was blown away when I saw the enthusiasm of Italy’s Soffia Goggia singing her national anthem after getting a gold medal. Surely few would sing the European anthem that way. And though I know, after looking it up on the web, that Maryland USA, were I live, has an anthem I have never ever heard it.

Sir, creating a Union is something that also needs a lot of heart put into it. Do those hearts exist sufficiently in Britain or in Europe? If the answer is no, then perhaps it would not be contrary for Britain to exercise some of its resolve capacity now. Like with any other muscle, if you do not use it you lose it. 


September 22, 2018

The pulmonary capacity of banks went from unlimited, through 62.5, 35.7 to 12.5 times of allowed leverage. Where do you think bubbles were blown?

Sir, I refer to John Authers review of “Ray Dalio’s” “A Template for Understanding Big Debt Crises” September 22, 2018.

I have not read the book, and something in it could apply to other bubbles but, if Dalio left out mentioning the distortions produced by the risk weighted capital requirements for banks, those that caused the 2008 crises, he would surely have failed any class of mine on the subject.

Sir, let me be as clear as I can be. 100%, not 99%, 100% of the bank assets that caused the 2008 crisis were assets that, because they were perceived as especially safe, dumb regulators therefore allowed banks to hold these against especially little capital. 

The allowed leverages, after Basel II, that applied to European banks and American investment banks like Lehman Brothers were:

AAA rated sovereigns, including those the EU authorities authorized, like Greece, had a 0% risk weight, which translated into unlimited leverage.

AAA rated corporate assets, were assigned a risk weight of 20%, signifying a permissible 62.5 times leverage.

Residential mortgages were assigned a risk weight of 35%, translating into a 35.7 allowed leverage.

Of course, after the crisis broke out, any few “risky” assets banks held, like loans to entrepreneurs, those that banks could only leverage 12.5 times with went through, (and still do), a serious crisis of their own, when banks began to dump anything that could help them improve that absolutely meaningless Tier 1 capital ratio.


September 21, 2018

In the case of Greece EU violated a fundamental principle of a Union... solidarity.

Sir, Jem Eskenazi in his letter writes about EU’s “fundamental principle of integrating a fractured continent into a peaceful whole”“EU is right to protect its fundamental principles” September 21.

I agree but EU authorities have egregiously violated that principle in the case of Greece. 

Given Greece’s historical trajectory as a debtor country, for purposes of the capital requirements for banks, it could perhaps have been assigned a 200% risk weight. Instead some of EU’s head-honchos, I have no names, there usually are no names behind these decisions, decided to risk weigh Greece 0%. 

That, in very simple terms, meant that European banks did not need to hold one single euro in capital when lending to the sovereign of Greece. So of course European banks could not resist the temptations of lending massively to Greece, and of course the Greek government did not have the strength to resist such offers, and so of course it all ended up in a tragic over-indebtedness.

But did EU recognize its role creating this mess and has really paid up for its mistake? No! So now all newborn Greeks will have to grow up in a land burden by a monstrous mortgage, more than € 30.000 for each one of them,unless they decide to emigrate. That is no way to treat a member of a union.

Neither have EU authorities, like the European Commission, dedicated itself sufficiently to solve the immense challenges the euro poses, busying themselves instead with so many other minutia and issues that are none of their business.

There will soon be 20 years since the euro was adopted, and at that time I wrote an Op-ed titled “Burning the bridges in Europe” that should give me some rights to opine. 

I do not believe EU authorities, like the European Commission, has dedicated itself sufficiently to solve the challenges posed by the euro and which, if left unresolved, could lead to a tragic break up of EU, with immense consequences to the world. I have seen it though engaging in minutia, like negotiating entry fees for tourists to Romanian monasteries, and which has only lead me to think about a Banana Union. 

Sir, I would not have voted for Brexit but now I am not really sure. Lately, some of the discussions remind me of passengers in a lifeboat trying to negotiate their future with the captain of the Titanic, in this case Commander Michel Barnier.

PS. I forgot to mention the fact that the euro is not a real domestic currency for any eurozone nation, which makes the 0% risk weight even harder to explain.

PS. again, even with a hard Brexit, if the euro challenges are kept unresolved, Britain might end up having left EU in the nick of time


September 19, 2018

The silenced conversation on the risk weighted capital requirements for banks.

Sir, Thomas Hale writes, “From the eighties onwards, a focus on capital constraints on bank balance sheets encouraged banks to sell mortgages and other loans through securitisation. The regulatory framework meant that profitability had become at least in part a function of state-directed regulatory rules around capital — a fact that persists today. For this reason, lending against a house might be preferable to lending to a business, even if the former represents, for whatever reason, a greater risk.”, “The broken conversation about financial regulation”, Alphaville, September 19.

Hale’s “even if the former represents, for whatever reason, a greater risk” does not explain the whole problem because, being perceived as safe, and therefore subject to some regulatory subsidies, is precisely what can most make this house-lending dangerous to our bank systems.

The safety of the banking sector is also a secondary issue because, for the long term good of the economy, lending to “risky” entrepreneurs seems to be preferably than the “safe” financing of house purchases.

Hale writes: “Discussion of post-crisis regulations really only take place in extremely rarefied and specialist settings… there are a few people talking about regulating the banks, but the conversation is mostly inaccessible.”

Inaccessible? Read some of the over 2.800 letters that I have written to FT over the years, which includes even some to Thomas Hale, related precisely to the problem with the risk weighted capital requirements for banks; those that distort the allocation of bank credit; those that are based on the flawed theory that what’s perceived as risky is more dangerous to bank systems that what’s perceived as safe.

These letters, even when I could show some credentials as having formally spoken out against these regulations while being an Executive Director at the World Bank, in times of Basel II preparations, were for all practical purposes ignored. Someone in FT told me that I was obsessed with that problem. Of course I am, and as a grandfather I should be. But much more obsessed has the Financial Times been in ignoring it. 

Sir, a lot of internal soul searching on the why of FT’s silence on the risk weighted capital requirements for banks, should be a much-needed exercise for a paper that as its motto has “Without fear and without favour”.

I was also told to write a book. Why should I, the only book I have written “Voice and Noise”, and that contains some clear pointers to this problem, I believe that not including those I purchased to give away, sold only 51 exemplars.

But perhaps there might be a future book based on all the letters to the Financial Time that are included in this my TeaWithFT blog.


September 18, 2018

To prevent the next unpreventable financial crisis, let us at least try better and more accountable bank regulators.

Sir, Axel Weber a co-author of the Group of Thirty report writes: “Following the global financial crisis, we have significantly improved the resilience of the financial system, strengthened the capital and liquidity positions of banks and increased our ability to deal with failing lenders.” “Preventive measures will not stop the next financial crisis” September 18.

I have been arguing, for more than a decade, that what primarily caused the crisis, were the distortions in the allocation of credit produced by the risk weighted capital requirements. AS that distortion has not been eliminated, and given that generally higher capital requirements might on the margins even intensify those distortions, not enough has been done to improve the resilience of the financial system; nor that of the real economy on which so much the real long term financial stability really depends on.

So, to prevent the next crisis we must prevent having regulators who believe that what’s perceived as risky is more dangerous to our bank system than what’s perceived as safe. 

There’s no reference at all to that distortion in the Group of Thirty report that Mr Weber helped to author, though that should perhaps not surprise us. Looking at the members of that mutual admiration club, one could suspect that all have a vested interest in keeping that distortion as one that shall not be named. 

In an Op-ed of 1998 I wrote: “In many cases even trying to regulate banks runs the risk of giving the impression that by means of strict regulations, the risks have disappeared. Sometimes it is good faith... sometimes it is only pure faith… History is full of examples of where the State, by meddling to avoid damages, caused infinite larger damages”

But in that Op-ed I also wrote, “I do not propose, not for a moment, that the State abandons completely the regulatory functions, much the opposite, what I propose is that it assumes it correctly”

Sir, the State assuming correctly its regulatory functions must, sine qua non, include holding the regulators accountable for their mistakes, not promoting them, and much less allowing them to keep on regulating, covering up their own mistakes.

By the way, when is FT going to stop having such a prominent role in that cover-up?


September 17, 2018

A world obsessed with Best Practices may calcify its structure and break with any small wind.

Sir, Nicholas Dorn in his letter “Drive for global banking conformity increases systemic risk” of September 18, refers to your leader article, “Waning co-operation will make the next financial crisis worse”, and MEP Molly Scott Cato’s letter “Global finance can work if rulemakers co-operate”, September 14. Dorn writes:

“Converging international financial regulation encourages similar business models and greater homogeneity of finance, raising systemic risk”.

“No one knows where the next crisis is going to come from. The more useful question is how the propagation of crises through the system can be minimised”

“The plain implication is the need for greater variation in finance, so that such risks as do arise cannot so easily ripple through the global ensemble. What is desperately needed, therefore, is not bland global conformity but more variation between important regulatory regimes.”

I could not agree more. In April 2003, as an Executive Director of the World Bank, I made the following formal statements at the Board, which relate directly to those fundamental points Dorn raises.

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind.”

“Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg.”

What else can I say? Well perhaps that that statement also included:

“Basel dictates norms for the banking industry that might be of extreme importance for the world’s economic development. In Basel’s drive to impose more supervision and reduce vulnerabilities, there is a clear need for an external observer of stature to assure that there is an adequate equilibrium between risk-avoidance and the risk-taking needed to sustain growth”

Sadly Sir, as I have written to you umpteenth times, a different purpose for banks than just being a safe place where to stash away cash (and implicit to help fund the sovereign) is nowhere to be found in all the voluminous official writings about bank regulation.

Was I able to get my message thru? No! I guess the attraction of that with risk weighted capital requirements the regulators would be able to make our banks safer, was such that not even FT was (is) able to resist the songs of Basel Committee’s sirens. 


If only a cost benefit analysis had been performed on the risk weighted capital requirements for banks

Tim Harford while reviewing Cass Sunstein’s“The Cost-Benefit Revolution” mentions, “In 1981, Ronald Reagan signed Executive Order 12291, requiring administrative decisions to weigh the costs and benefits of action and maximise net benefits.”, “A valuable study of a quiet victory for technocrats”, September 17.

How sad the risk weighted capital requirements for banks were no subjected to such a cost benefit analysis.

On the cost side, one would have to include the possibility that, since it would impose a tariff, by means of higher capital requirements, on the lending to the risky, and therefore de facto create a subsidy for when lending to the safe, that this could seriously distort the allocation of bank credit to the real economy… financing too much the safer present and too little that indispensable riskier future.

And, when reviewing its supposed benefit, that of making the bank system safer, one would have had to consider the possibility that, since the risky would then have to pay higher relative risk premiums than usual, that this could make them even riskier; plus the possibility that since the safe would get more credit at lower rates, that meant the safe could get too much credit at too low risk adjusted premiums, and banks could build up that type of excessive exposures to the safe that has always been the stuff bank crises are made off.

Adding then to the costs these possible negative benefits would certainly have caused this silly and dangerous regulation to be rejected… and the 2007-08 crisis avoided.

Hartford mentions that “Hayek’s objection to central planning is that it cannot work because the planners will never have enough information” I agree, but I am also sure that central planning often fails, not for lack of information, but simply because of them not understanding they lack information; and all there planning carried out in a group-thinking mutual admiration club.

In the “The forger’s spell”, a book by Edward Dolnick about the falsification of Vermeer paintings, the author makes a reference to having heard Francis Fukuyama in a TV program saying that Daniel Moynihan opined “There are some mistakes it takes a Ph.D. to make”. And Dolnick also refers to George Orwell’s comment, in “Notes on Nationalism”, that “one has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.” 

Sir, time and time again I find reasons to be reminded of that book.


The direction into which banks go remains the same as the one before the crisis.

Martin Arnold, discussing the weakening of European banks when compared to the American quotes John Vickers, the former Chair of the UK's Independent Commission on Banking (ICB)with, “You had in effect a huge taxpayer-backed subsidy for risk-taking and that ended in tears. So pulling back from that is directionally a good thing” "How US banks took over the financial world", September 16.

Sir, do you see how little the world has learnt? The huge taxpayer-backed subsidy was not at all for risk-taking but for the excessive build up of exposures to what was perceived as safe, and against which regulators therefore allowed them to hold especially little capital.

“So pulling back from that is directionally a good thing” No! There has unfortunately not been any change in directions. By keeping the risk weighted capital requirements, the banks are still pushed towards what is perceived, decreed or can be concocted as safe, and away from what is perceived as risky.

The reason for it? The fact that the real causes of the bank crisis have been classified by those responsible for these, as something that shall not be named. And Sir, FT, sadly, is complicit in such cover up. In doing so FT, sadly, is absolutely not living up to its motto.


Tier one capital ratios is a game invented by regulators for banks to play.

Sir, Jonathan Ford mentions “An average tier one capital ratio of 8 per cent —. An accounting measure of their soundness, it meant banks could lose that proportion of the value of their risk-weighted assets before their loss-absorbing capital was spent.” “Financial fragility lurks behind a confident façade” September 17.

No, not really-really so. Let us, just for the example suppose that a bank carries only very “safe” corporate assets rated AAA to AA assigned by the regulators a risk weight of 20%. Based on the Basel II basic capital requirement of 8%, that meant it needed to hold only 1.6% in capital against those assets. That would give the bank a tier one ratio of 8%... but how much could it afford to lose on its assets that had been risk weighted before its capital was completely gone? Not 8%, but 1.6%.

The risk-weighted assets only give a correct indication if the perceived risk reflected are correct and if bankers will manage those perceived risks correctly. What are the chances of that? Quite slim, especially when banks have all the incentives to minimize equity they are holding, something that makes it easier for them to maximize the return on equity to their shareholder (and of course the bankers’ own bonuses)

In other words, the Basel Committee tier-one bank capital ratio, based on risk-weighted assets, as if risks were known, is just devious and dangerous false information that feeds a false sense of security. Nothing of what accountancy can misreport beats that. Worse, by distorting the allocation of credit, much more than concealing realities, it changes realities… on a global scale.


September 16, 2018

The world will come to deeply regret central bankers avoided a cleansing hard landing in 2008... and opted instead for kicking the crisis forward (and upwards)

Sir, Merryn Somerset Webb asks: “The consequences of those solutions found in 2008, one of which was to make rich people richer in the hope they would spend more, look like they could end up neutering capitalism — the greatest poverty destroying system ever. Was avoiding a few more years of recessionary misery after 2008 worth that?”, “A post-crisis cure that has stored up economic pain” September 15.

Somerset Webb then proceeds to contrast the fortunes of a middle-aged man with a large mortgage in central London in 2008 and an equity portfolio [who] has had a brilliant decade, with the hardships of cash savers and pensioners suffering the impacts of low interest rates, and the many tenants who know they can never save enough for a house deposit. She is, sadly, so absolutely right.

In 2006, when troubles started brewing, I wrote a letter that was published by FT and in which I briefly but clearly (I think) exposed the benefits of a hard landing

When the FED, and later ECB, decided that the best thing to do was to kick the crisis can forward, and proceeded with a huge stimuli package that included foremost quantitative easing and ultra low interest rates, I accepted it. What was I to do? 

But what I never thought would happen was that all that stimuli would be injected into the economy, without eliminating the distortions that had created the crisis in the first place. And I refer here of course, for the umpteenth time, to the risk weighted capital requirements for banks; those that favor banks lending to what is perceived or decreed safe, like AAA rated securities, residential mortgages and sovereigns; and to stay away from the risky, like entrepreneurs.

Because of that, the stimuli had no chance of yielding sustainable economic result and we are now fretting and waiting for that huge growing by the minute can to roll back, with vengeance, on us, on our children or on our grandchildren.

Somerset Webb opines that “the political conversation these days focuses not, as it surely should, on wealth creation but on long-term wealth redistribution: new property taxes; rises in capital gains taxes; more corporate taxes; workers on boards; the nationalisation of industries in the UK; higher minimum wages; maximum wage ratios; the limiting of the rights of people who are non-resident for tax purposes, and the like.”

I agree. After besserwisser statist regulators have messed it up so completely, the last thing we need is for redistribution profiteers to expand the value of their franchise.

As I see it some of our priorities are:

First, to work our banks out of that corner into which regulators have painted them in, something which, as it includes a statist 0% risk weight for sovereigns, is easier said than done.

Second, initiate, even with very low amounts an unconditional universal basic income scheme. That will allow us to begin creating those decent and worthy unemployments we will need, before society begins to break down.

Third, stop the populist from promising heavens, by asking them to explain clearly how wealth, mostly invested in assets, could be redistributed without unexpected negative effects.

Sir, you know I am from Venezuela. I have seen my homeland taken to pieces in less than two decades, and the many Chavez and Maduro there are in the world frightens me. I guarantee you they will stop at nothing once they begin.

PS. Thank God Lehman Brothers collapsed when it did. Can you imagine if the AAA rated subprime mortgages securities craze, that regulators allowed banks to leverage a mind-blowing 62.5 times with, would had gone on for one or two years more?

September 14, 2018

Nothing helps other populist quacks to surge, than allowing your own populist quacks free reigns.

Sir, you write “If mainstream politicians can show their policies work, unlike the quack remedies peddled by political insurgents, they have a chance of wooing voters back. If not, they will be eclipsed by today’s populists — or worse ones waiting in the wings.” “Waning co-operation will make the next financial crisis worse” September 14.

That is one hundred percent true. But the best way to fight what “quack remedies” are peddled out there, is to get rid of the quack remedies peddled by your own populists.

Such as that one marketed by the current populist bank regulators who insist they can make our bank systems safer with their risk weighted capital requirements for banks.

These only distort the allocation of credit, expelling true risk-taking into the shadows while dangerously building up especially large bank exposures against what’s especially perceived or decreed as safe, against especially little capital.

Have you FT done enough to expose that quackery? I certainly do not think so. Much the contrary, you seem to have set your mind on helping the regulators to cover up their mistakes.


September 13, 2018

Banks, except for limited liquidity purposes, should not be dabbling in sovereign bonds

Sir, Reza Moghadam vice-chairman for sovereigns and official institutions at Morgan Stanley, in order to “provide more stimulus to slower-growing economies” proposes that “ECB should lengthen the maturity profile of the bonds it holds of slower-growing economies [as] Other things being equal, a flatter yield curve is more stimulative, as it encourages investment, and, by raising the price of long-dated bonds, strengthens the capital position of banks that hold them.” “A new twist in the ECB’s reinvestment policy”, September 13.

That reads as Moghadam hopes that ECB, indirectly, in a veiled way, helps to capitalize banks (and his department shine). It should not do so.

In my mind, if we want the real economy to stand a chance of sturdy and sustainable growth, banks should instead, little by little, be made to reduce the financing of public debt, most specially of its own sovereign, that to which they have been guided by very statist very low capital requirements. 

As fast as possible, banks should be allowed to hold the same capital when lending to entrepreneurs and small and medium businesses, as they are required to hold against sovereigns, residential mortgages and AAA rated securities. Only that way do the banks stand a chance to allocate credit efficiently to the real economy. 

In 2004, coming from a developing country, in a letter published by FT I asked: “How many Basel propositions will take before regulators start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.” That clearly applies now also to developed nations.

PS. Sovereign bonds, if so safe, at interest rates not subsidized by regulations, should primarily be available for pension funds and insurance companies.


September 12, 2018

No coroner has asked for a postmortem examination of the global financial crisis to be performed by a truly independent pathologist.

Sir, Nouriel Roubini writes:“As we mark the 10th anniversary of the global financial crisis, there have been plenty of postmortems examining its causes, its consequences and whether the necessary lessons have been learnt” “Policy shifts, trade frictions and frothy prices cloud outlook for 2020” September 12.

Yes, many postmortems but none performed by a truly independent pathologist. 

Had that occurred he would have established that absolutely all assets that caused the crisis were those banks were allowed by their regulator to leverage immensely, because these were perceived, decreed or concocted as safe.

And from that he would have reported, not a lack of regulation but missregulation; and not excessive risk taking but excessive exposures to AAA rated securities, residential mortgages and 0% risk weighted sovereigns, like Greece.

And after such a report it is clear there would have been a total shake up of that group-thinking mutual admiration club known as the Basel Committee for Banking Supervision.

But since that report would have contained so many of truths that shall not be named, it never saw light, and consequentially the lessons have not been learned. 

Therefore the distortions in the allocation of credit have remained; something which has caused all the mindboggling large stimuli, like Tarp, QEs, fiscal deficits, growing personal debts that anticipate demand, and ultralow interests, to only result in kicking the crisis can forward and higher.

Sir, I have never been a bank regulator but from very early on I disliked much of what little I was seeing; and as an Executive Director of the World Bank I formally warned in 2003 against “entities such as the Basel Committee, accounting standard boards and credit rating agencies introducing serious and fatal systemic risks”

When later I discovered aspects like the runaway statism that was reflected into risk weights of 0% the sovereign and 100% the citizen; and the Basel II naiveté of allowing banks to leverage 62.5 times assets only because these had been rated AAA to AA by human fallible credit rating agencies, I could just not believe we had fallen so low.

Now, 10 years after the crisis, sadly, I am still waiting for any important authority to ask the regulators: 

“Why do you want banks to hold more capital against what by being perceived as risky has been made more innocous than against what by being perceived as safe poses so much more dangers to our bank system. Have you not heard about conditional probabilities?”


Sheer regulatory stupidity and statism caused the financial crisis. But that shall not be admitted!

Sir, Lord Adair Turner writes: “The financial crisis began because of dangerous features within the financial system itself. Massively leveraged investment banks engaged in socially useless trading of huge volumes of complex credit securities and derivatives… The excessive risk-taking was allowed by bad regulation justified by flawed economic theory.” “Banks are safer but debt remains a danger” September 12.

Turner, like all other involved, does just not tell it like it is! 

The “massively leveraged investments of banks” were caused, 100%, by the simple fact that regulators allowed for these.

The “socially useless” in complex securities were mortgages awarded to poorer house buyers in the US, the subprime sector. 

The “excessive risk-taking” was in fact an excessive risk aversion that led to the excessive build up of bank exposures to what was considered, decreed, or concocted as safe. 

Yes Turner mentions “bad regulation justified by flawed economic theory”, but there was none of that, there was only sheer stupidity. Like when regulators allow banks to leverage 62.5 times only because a human fallible credit rating agency has assigned it an AAA to AA rating.

And Sir, assigning a 0% risk weights to the sovereign, like to Greece is not based one iota on economic theory but all on flawed statist ideology.

Turner is right though when he writes that the “economic growth has been anaemic despite massive policy stimulus… “That poor performance reflects… inadequate capital regulation.”

Indeed, the distortions that the risk weighted capital requirements produced in the allocation of bank credit to the real economy that have not even been admitted much less were eliminated. “Debt burdens shifting around the world economy from private to public sectors” are just one symptom of those distortions. 

In fact by having raised the floor of bank capital requirements with leverage ratios, on the margins, the roof, the distortions of credit risk weighted capital requirements could be worse than ever.

Turner consoles us with “A deep economic recession, made worse by a large debt overhang, could occur even if not a single big bank went bankrupt or needed to be rescued with public money.”

Not true a deep economic recession, a dysfunctional economy is as dangerous as can be for the banks and for us. That is why the most important question that regulators need to answer before regulating banks is: what is the purpose of banks. Except for being safe mattresses to stack away cash there is not on word on this in the whole immense Basel Committee compendium on rules.

“The increasing role of real estate in modern economies is also crucial.” That is because, by means of giving house purchase access to credit on preferential conditions, a house is no longer just a home it has also become an investment asset. The day houses return to being home only it is going to hurt, a lot. 

“Rising inequality”… with capital requirements that favor the “safer” present over the riskier future, how could that be avoided?

PS. And Sir, you know it, FT has in many ways been complicit in the cover up of our mistakes stories peddled by regulators and their colleagues.


September 08, 2018

In preparation for a Brexit disaster, should Brits go down to Venezuela?

Sir, Tim Harford nervously, anxiously, writes, “Most likely, Britain will emerge from Brexit negotiations scratched and bruised but largely intact, proudly declaring that the ordeal was a brilliant shortcut, then fumbling for a map and compass. But, while that is the most plausible result, the risk of a total train wreck remains”, “Deal or no deal, the costs are clear and present” September 8.

“Imagine you are organising a wedding for — say — March 29 2019…[and] your chosen caterer, you love this caterer’s food, prices, and service, boldly declares that it may be unable to supply the food” 

Oh what a horror! Perhaps in preparation for such travails Harford and other Brits should take a trip down to Venezuela to learn how to do without food or medicines.

Or, does not a real Brexit disaster contain the potential of constituting a tremendous opportunity to nurture a national sense of solidarity and purpose… like the Blitz during World War II did?

Like if post-Brexit customs process take much longer, could that not create more jobs for humans or sparkle automation initiatives a la Amazon that could bring much higher productivity down the line.

Of course a hard landing Brexit could create many problems, but I am quite confident that the Britain I know, or at least the one I knew, would be perfectly capable to handle the challenges. And, if not, then sincerely Brexit is, by far, not Britain’s biggest problem.

Sir, and looking cross the channel, I would much prefer having to confront a bundle of Brexit problems, than having to create the too much delayed responses to the challenges posed by the euro so as to stop it from breaking up the European Union.


September 07, 2018

If only inflation had also measured the price of houses and not just rentals, a lot of problems could have been avoided.

Sir, Jamie Smyth reports on “the end of a five-year expansion, which saw house prices in Australia’s biggest city rise 70 per cent and household debt surge above 120 per cent of gross domestic product — one of the highest levels in the developed world.” “End of Australia housing boom sparks fear of disorderly crash” September 7.

In the housing sector inflation is solely measured based on the rentals, which surely lag house prices. In 2006, in a letter that FT published, I asked: “Who on earth has decided for that the increase in the price of houses is not inflation? And so what should perhaps be argued is that really our monetary authorities have not been so successful fighting inflation as they claim they have been.”

If inflation had also partly measured house prices, it would not have shown such low figures, and then inflation targeting central banker would have had to tighten monetary conditions, and bank regulators, their credit and capital requirements conditions. 

How central bankers can just turn a blind eye to it could have something to do with that a great majority, or perhaps all of them, are house owners, and therefore only see good in the value of their houses going up. Now when things are getting out of hands, let’s make sure they are not given any preferences, so that they can learn the lesson in ways that helps them to remember it.

The political convenience of helping house buyers with preferential access to credit only results in house prices going up, and thereby having to provide even more preferential credit. Of course Saul Eslake of University of Tasmania is right arguing, “a gradual deflation of property prices, though painful for some, will do more social good than harm.”

Sir, as I have often written to you, much better that helping young buyers with affordable credits to buy houses is helping them to afford houses, c'est pas la même chose.

A house used to be a home; now authorities made these homes and investment assets. The journey back to being solely homes will hurt, many, a lot. The alternative of inflating ourselves out of the mess could be even worse.

PS. And when push comes to shove are not shares just another type of assets to be included in inflation calculations?


The priority of those who committed the mistakes that caused the financial crisis has been the cover up, not the corrections

Sir, Gillian Tett, similarly to like Martin Wolf wrote a couple of days ago, expresses surprise and concerns for the fact that so many things that were supposed to be corrected or at least bettered after the financial crisis seem worse today. She lists the level of debt and leverage, the market share of TBTF banks, the size of the shadow banks, and that no few bankers directly related to the crisis have been jailed. “Surprising outcomes of the financial crash”, September 7.

But how can one be surprised by so few corrections and betterments when those supposed to correct and better it remain being those who committed the mistakes, and have not been held accountable one iota for their mistakes? 

But how can one be surprised by so few corrections and betterments when in the aftermath of the crisis so many truths were classified as those that shall not be named, and consequently arduously silenced, like for instance:

Lack of regulations: Wrong! Total missregulation. Regulators for their risk weighted capital requirements for banks used the perceived risk of banks assets, those that bankers were already clearing for, and not the risk that bankers would perceive and manage the risks wrongly. They seemingly never heard of conditional probabilities.

Excessive risk taking: Wrong! It was the regulators excessive risk aversion that gave banks incentive to build up excessive exposure to what was perceived safe. Like allowing banks to leverage assets a mind-blowing 62.5 times only because some human fallible credit rating agencies had assigned it an AAA to AA rating.

Greece did it: Wrong! EU authorities did Greece in, when assigning a 0% risk weight to its debt. Is the statism implied in assigning a 0% risk weigh to the sovereign and one of 100% to the citizens discussed? No! There are too many interested in benefitting from crony statism for that.

Sir, Ms. Tett ends with “predictions are best presented with a dash of humility — and the knowledge that what does not happen can sometimes be even more significant than what actually does.”

Indeed but since “that what does not happen” could be much a result from a lack of questioning, to understand it could also require loads of humility from journalists. Capisce FT? 


September 06, 2018

The worse the mortgages packaged, the higher the potential of securitization profits was (is)

Sir, FT’s big read by Mark Vandevelde and Joe Rennison “The story of a house” September 6, leaves out two important facts:

First: Christopher Cruise, who ran popular courses in mortgage origination, is quoted with “You had no incentive whatsoever to be concerned about the quality of the loan or whether it was suitable for the borrower” 

But yes you did, only in a direction quite different than usual. The worse the borrower and the worse the mortgagor, the higher the potential of profits of packaging it in a securitization sausage bound for a high credit rating. All involved in that securitization would profit, immensely, except of course those who were being packaged into that sausage. Imagine, if that sausage obtained an AAA to AA rating, US investment banks and European banks were allowed by the regulators to leverage 62.5 times their capital with these.

Second: “Société Générale, the French bank, was one of those that took out insurance against a collapse in the value of Davis Square, buying exotic derivatives contracts from the insurance group AIG.”

That was not solely for insurance. Because AIG was AAA rated, whatever lower rated securitized mortgages it added its signatures to also gave the banks the possibility of a mindboggling 62.5 times leverage. 

Profit potential: 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 mortgage for $510.000. This would allow you and your partners in the set-up, to pocket a tidy profit of $210.000

Sir, credit rating agencies using fallible humans did not stand a chance to get it right! 


Three reasons to break the bank-sovereign doom loop: Safety, market signals and fighting crony statism

Sir, Thomas F Huertas, when commenting on Isabel Schnabel’s “How to break the bank-sovereign doom loop” of August 29 presents good reasons for why impose some capital requirements on banks when holding sovereign debt, in order to make the bank system safer. “Bank holdings of sovereign debt need scrutiny” September 6.

But making the bank system safer is not the only reason for why that should happen. 

The fact that banks need to hold less capital against sovereign debt translates into a subsidy that: a. impedes the market to send the right interest rate signals on these debts and b. favors the sovereign’s access to bank credit over that of the citizens… something that could only be of interest to redistribution profiteers or those wishing to engage in crony statism.

The horrible problem regulators now have is, after painting themselves into a corner with the 0% risk weight how do you get out without detonating that sovereign debt bomb?

PS. In November 2004, in a letter published by FT I asked: “how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector?” August 29,  I sent FT the following letter commenting on Isabel Schnabel’s article. As I am considered obsessed with the issue, it was of no interest to the editor.


If EU does not face and solve the challenges posed by the euro, it will break down.

Sir, you write, “Joining the euro meant losing the ability to depreciate its currency — long Italy’s safety valve when its competitiveness failed to keep pace with its neighbours.” “Italy needs real economic plans, not empty slogans” September 6.

On the eve of the euro in an Op-Ed I wrote, “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that EU authorities must have known was the main challenge the euro posed. And of course it is not only about Italy. Without the euro the Deutsche Mark would have revalued and Germany would not have its current trade surplus.

But what have the European authorities done to face up to that challenge? Basically nothing, just empty slogans. Instead EC have even dared to keep busy with helping to solve cases like persuading church authorities to establish non-discriminatory entry fees for the monasteries... that's acting like a Banana Union.

But, as if that was not enough they also went and risk weighted the capital requirements for banks for all EU sovereigns at 0%, which means that market interest signals on sovereign debt have been artificially lowered, and so that EU banks can easier finance any disequilibria... and that even though all Eurozone sovereigns denominated their debt in a currency that is not really their domestic (printable) one.

Sir, irresponsible EU authorities are dooming that beautiful dream of the European Union, to turn into a real nightmare… and I am truly surprised by how little that fact has played out in all the discussions on Brexit.

PS. Though Greece should perhaps have been risk-weighted 200%, EU authorities assigned it 0%. As a consequence, Greece took on too much debt; and EU ignored its responsibility for it. Now each newborn Greek carries a huge mortgage. Is that how a Union should behave? I don’t think so.

PS. I first read about that monastery fees issue in a brochure that the then European Commissioner for Internal Market and Services, Michel Barnier, handed out in June 2011 during a conference in Washington at the Brookings Institute.

"MR. KEROVSKY: Yes, my name is Pere Kerovsky. Europe is there -- is what it is because of a lot of willingness to take risks, and in fact partisan songs often include “God make us daring,” and Pope John Paul II asked us to fish in deep waters, not settle for the (inaudible). But the last 20 years we have had bank regulations that are based on perceived risk and that have introduced a risk adverseness into the system, obviously a crisis that detonated in triple A-rated land and sovereign is not a crisis because of excessive risk taking but because of excessive adverseness of risk. You still are going the same route. Does this mean, really, that Europe has called it quits? Has capitulated and doesn’t want to really go forward because they’re giving up their willingness to take the risks needed? 

MR. BARNIER: I was amused by your first reference to fishing in deep water. I was a fisher’s minister (laughter), so I’m very interested in that. There’s less and less fish in deep waters, you know that. Watch out. 

Don’t count on me to say it’s business as usual. It’s not possible. Perhaps it is what certain bankers wish or -- but it’s no longer possible for citizens. We are not there to prevent risk-taking. We’re there to prevent excessive risk-taking. The payers are not the ones who are taking risk; it’s the taxpayers. When I see how compensations and bonuses have been calculated with riskier and riskier systems since the riskier the more paid you were, I think it’s one of the reasons of the crisis, and you know it. Who paid in the end? Taxpayers here and elsewhere. But we’re not there to prevent risk-taking. Everybody has to assume the risk responsibilities and pay the price, and we have to know who is doing what. 

I don’t see how a general system, which is not there yet, in food transparency would prevent risk-taking, but I think we should take risk, and I take risk in my planning, but those who take risks must be ready to accept that it is well known and then assume the responsibility.” 

Sir, I hope you understand by now how far Michel Barnier was from understanding the risk of excessive regulatory risk aversion, that which caused the 2007-08 crisis explosion, because of especially excessive exposures by banks, against especially little capital, to what was perceived or decreed as especially safe.


September 05, 2018

Privatizations of public services, which could have been very good, just ended up as cozy crony statism deals.

Sir, Hannah Roberts discussing privatizations in the Italy of 1990’s writes, “The state turned to private entrepreneurs, offering favourable terms to extract the maximum possible capital from the sale”, “Inquest on Italian privatisation” September 5.

I do not know much about Italy, but that describes perfectly the problem from which we in Latin America suffered a lot when many of our public services were privatized. The concessions, instead of being awarded to those who offered the best and cheapest services to the users, were awarded to those who offered the most immediate income to the redistribution profiteers of turn.

The government got the money, and we consumers were set up to have to repay all that money, at high expected return on equity rates, with higher tariffs or prices. It was, as I so often publicly denounced it, a hidden taxation through privatization.

Andrea Cioffi, undersecretary at the ministry for economic development and a Five Star senator is quoted with, “There has always been a tendency to favour big companies, backed by pressure groups. Italy in the 1990s was like Yeltsin’s Russia when public companies were given to the oligarchs. Everyone was looking out for their friends, rather than the public interest.” 

Sir, twice is “crony capitalism” mentioned in this piece. When are we going to use the correct term of crony statism?


A Universal Basic Income could turn many marginal jobs into decent employments.

Sir, Sarah O’Connor writes: “One of the defining economic challenges for today’s policymakers is how to make service sector jobs more decent, with better pay, security training and opportunity for progression”, “Payday lender’s demise will not free workers from the labour trap” September 5.

I do not agree. Few years ago I wrote that before our policymakers invest (waste) scarce resources trying to guess were the markets are going and create jobs, we need to build the floor and create decent and worthy unemployments. 

“Better pays” raises the bar, something that could even kill jobs. A Universal Basic Income, that could start at a very low and absolutely sustainable level, could help many to reach up, more decently, to whatever jobs were available.

That would allow employment to be much more “the answer to financial distress, not the cause of it.”


September 04, 2018

What would happen to the yield curve if regulators dared to increase, ever so little, their current 0% risk weight for US Treasury debt?

Sir, Megan Greene discusses how the yield curve the spread between long- and short-term bonds may be influenced by, “The US Treasury is currently borrowing more money to finance predicted big budget deficits and it has mainly done so with short-term debt… and global quantitative easing has created a seemingly insatiable demand for five- to 10-year Treasuries, pushing down yields.” “How central banks distort the yield curve’s predictive power”, September 4.

But that’s not all the distortion in force. The risk weighted capital requirements for banks might distort even more; we recently saw how Greece was taken down by the 0% risk weigh EU authorities assigned to its debt, which caused European banks to drown in it, until they got rescued, by the victim Greece having to take on even more debt.

If the US, in face of its ever growing public debt, suddenly sees it as its responsibility to increase the risk weight of it, so that the interest rates send more correct signals, then I would hold that the rate on all longer term bonds would immediately shoot up, and many banks around the world would stand there with huge losses on their books. 

I here you “That will just not happen? Yes, they have with that 0% risk weight painted themselves into a corner but, sooner or later, there needs to be some adults in the room who start working against having to face a scenario of total collapse; this time with much less tools available than the last time they kicked the can down the road in 2007 2008 … or at least so we hope… or at least so we pray.


Myths, and truths that shall not be told, is why so little has changed since the financial crash

Sir, Martin Wolf writes: “The financial crisis was a devastating failure of the free market… The persistent fealty to so much of the pre-crisis conventional wisdom is astonishing.” “Why so little has changed since the financial crash” September 4.

Myths and truths that shall not be told, so that regulators shall not be held accountable, is the cause of that, not the failure of markets that were not free by a long shot. Here follows some of the more important of these.

Lack of regulations: Wrong! Total missregulation. Regulators for their risk weighted capital requirements for banks used the perceived risk of banks assets, those that bankers were already clearing for, and not the risk that bankers would perceive and manage the risks wrongly. They seemingly never heard of conditional probabilities.

Excessive risk taking: Wrong! It was the regulators excessive risk aversion that gave banks incentive to build up excessive exposure to what was perceived safe.

Greece did it: Wrong! EU authorities did Greece in, when assigning a 0% risk weight to its debt.

But Wolf is correct when arguing, “Today’s rent-extracting economy, masquerading as a free market, is, after all, hugely rewarding to politically influential insiders”

Because yes, crony statism is all around us, beginning with the “We governments guarantee you banks, and then assign ourselves a 0% risk-weight so you need not to hold any capital when lending to us, and so then you can return the favor by lending to us. 

Sir, Wolf concludes: “If those who believe in the market economy and liberal democracy do not come up with superior policies, demagogues will sweep them away”. That is right! But let us not ignore that “We will make your bank systems safe with our risk weighted capital requirements” was and is pure unabridged besserwisser demagoguery.

PS. Of course journalists who refuse to ask regulators the right questions since they are scared that if they do they will never be invited to Davos and Jackson Hole gatherings are also part of the explanation.


Political correctness is just another type of authoritarianism that can also bring on revolts.

Sir, Gideon Rachman writes, “In 1989, liberal and nationalist causes were allied in the struggle for democracy in eastern Europe. Now the two ideologies are opposed. The battle between liberalism and nationalism is being waged internationally. It is also unfolding on the streets of small towns in Germany.” “Protests in Germany echo beyond borders” September 4.

No! I do not think this is a battle between liberalism and nationalism, although that might be what polarization profiteers want us to believe. That because there are a lot of “nationalists” that are true liberals, but only wish that some outlier expressions would be somewhat more considerate to their national traditions and interests.

For instance, with respect to migration, is it wrong, for a German, a Swede or any other national, to make a difference between those migrants who believe that “When in Rome do as Romans do”, and those believing “When in Rome I do as I bloody want to do”?

I would say no, but have the moral besserwissers allowed Europeans thinking so? No!

Rachman holds: “Germany has long nurtured as a bastion of liberal values.” Again that is what those defining in the public debate what the liberal values are, wants us to believe. Some of the out of this world liberal values, do not have it in them to ever become bastions… I hope.

Sir, sincerely, I feel sorry for all those minorities who I will not name, but who have been led and egged on by political correctness profiteers into overplaying their cards. When the tide turns, many nationalists will be there for them… again within reason.

PS. Political correctness could, in the best of cases, be a type of Neo-Victorianism... but, unfortunately, it seems more to have become the Neo-Inquisition of our days.


September 01, 2018

When will someone invited dare to pose the question that shall not be made at a Davos or Jackson Hole gathering?

Sir, Gillian Tett writes: “The International Monetary Fund calculates that between 1970 and 2011, the world has suffered 147 banking crises... But whatever their statistical size, the pre-crisis period is marked by hubris, greed, opacity — and a tunnel vision among financiers that makes it impossible for them to assess risks.”, “When the world held its breath” September 1.

Sir, and why should regulators, who impose risk weighted capital requirements for banks, and stress test these be less affected by that “tunnel vision”? 

If regulators knew about conditional probabilities, if they absolutely wanted and dared to distort the allocation of bank credit, they would have set their risk weights based, not on the perceived risks of assets, but on how bankers’ perceive and manage risks.

Tett quotes Alan Greenspan with “I originally assumed that people would act in a wholly rational way, that turned out to be wrong.” Shame on him, had he just done his homework, he would have known that what was perceived as risky never ever causes financial crises, that is always the role of what was thought as very safe.

Tett also quotes Paul Tucker, the former deputy governor of the Bank of England with, “There is a dynamic which pushes banking and the penumbra of banking to excess, over and over again”. That “dynamic” force was the regulators pushing bankers into excesses, for instance by allowing them to leverage 62.5 times if only an AAA to AA rating issued by human fallible credit rating agencies was present.

Tett recounts: “One day in the early summer of 2007, I received an email out of the blue from an erudite Japanese central banker called Hiroshi Nakaso”, who warned her “that a financial crisis was about to explode because of problems in the American mortgage and credit market.” 

Tett was astonished, though she did, by then, not disagree with the analysis. May 19th 2007 I wrote the following letter to FT, which was not published.

“Sir, after reading Gillian Tett’s “A headache is in store when the credit party fizzles out” May 19, it is clear we should all go down on our knees and pray for that she is right, in that it is only a headache that is in store for us. 

As for myself I have serious doubts that the consequence of this blissful-ignorance-bubble resulting from our hide-and-not-seek the risks with derivatives, is unfortunately going to be much more painful than that. When that day comes though, before putting the sole blame on the poor bankers earning their luxurious daily keep; I suggest we look much closer at the responsibility of our financial regulators.”

Sir, sadly, that suggestion has been way too much ignored until now. 

“Why do you require banks to hold more capital against what by being perceived as risky is made less dangerous to our bank systems, than against what by being perceived as safe, poses so many more dangers?” That is the questions that seemingly shall not be asked by anyone who markets his name in the debate and does not want to risk being left out from Davos or Jackson Hole gatherings.