Most of those who either preach or negotiate free trade are just like a Peeping Tom in a nudist camp.

Sir, Alan Beattie, referring to the possible escalation of trade wars writes: “At the time the WTO is most needed, its failings become ever more manifest. Without reform, the organization itself will suffer severe, possibly fatal, collateral damage from the US-China struggle” "A global trading system under fire” October 22.

Beattie also quotesPascal Lamy, a former head of the WTO: “Whether we like Trump or not — and I do not like Trump, I think he must be credited with one thing, which is to have put this issue of WTO reform on the table.”

Having been busy denouncing failed and dangerous bank regulations, I have not followed WTO for more than a decade but, back in 2006 and 2007, I remember Grant Aldonas, Fred Bergsten and Martin Wolf already opining strongly on the need for WTO to reform.

The reforms requested were not only about efficiency… they were about the real core of free trade.

For instance Grant Aldonas held that the success of any reforms, depended on “WTO negotiators recognizing where the conventional mercantilist approach has taken them [so as to] turn around, head back up the road and chart a new course to achieve the development goals that were their original destination” “Why trade negotiators need driving lessons” May 3, 2006.

In a letter, I agreed stating “Currently trade negotiations, instead of opening the doors to the greener pastures we all wish for, feels more like someone corralling you in, to brand you.”

Grant Aldonas later also suggested a “plurilateral agreement among all WTO members willing to move directly to free trade on a global basis”, “A fresh free trade agenda for Doha”, July 13, 2007.

Again I agreed: “Just like in a nudist camp, we need to separate the real nudists from the Peeping Toms. Only this would allow us to conform a true and honest free trade core. It is clear that many of those who profess a belief in free trade fake it, since how could you otherwise explain the sort of perverse satisfaction many show from entering into negotiating processes that hinders the free trade from really advancing. The true spirit of free trade does not stand a chance against these saboteurs and who are simply too scared of taking off their protections, but want to enjoy the view anyhow.”

When Martin Wolf in April 2007 opined “If free trade is really as good as we say it is, then why should we negotiate about it”, I responded: “Indeed,you do not go to a nudist camp to play strip-poker!”

Sir, most of those holier than thou free-traders bashing President Donald Trump for imposing restrictions on trade, are just like a Peeping Tom preaching the merits of nudity, for other.

WTO bureaucrats also help make WTO inutile, as a result of many of them being engaged, primarily, in the protection of their own turf.

Protectionism comes in all colors and shapes. Those tariffs and subsidies imbedded in the risk weighted capital requirements for banks, are many times more costly to the world than any trade tariffs Trump can come up with.

PS. I myself must confess that, even though I am in principle all for free trade, I often find myself worrying about that all deficits and surpluses are not made equal, some are better, some are much worse.

@PerKurowski

What extraordinary things since the crisis have central banks achieved? Having kicked the can down the road?

Sir, Alan Beattie writes: “By being prepared to embrace the radical in the face of ill-informed criticism… — central banks have achieved extraordinary things since the global financial crisis. It would be most peculiar if now, when the pressure on them has abated, they mistakenly returned to a model of monetary policy rooted in the pre-crisis era.” “Central banks have a duty to come clean about inflation” September 23.

Sir, since the global financial crisis have really central banks achieved extraordinary things for most? I am not so sure. In many ways it seems they have only dangerously kicked the crisis can forward, while leaving in place the regulatory distortions that caused the crisis

But indeed let’s come clean about inflation. What would the inflation be if:

Most stimuli had not gone to increase the value of what is not on the Consumer Price Index

If there had not been so much credit overhang resulting from anticipating demand for such a long time.

If there had not been an ongoing reduction in the costs of retailing much of what is recorded on CPI.

If non-taxed robots and other automations had not put a squeeze on costs

Then the inflation could have been huge… so what are central bankers so fixated on the CPI?

PS. What would the inflation be, if the I-phone was in the CPI? J

@PerKurowski

Donald Trump, with a huge political bounty on his head, poses little real threat to that dry hide global trade is.

Lately, every day, I have gotten, I don’t know why, at least ten offers to be part of the bringing Donald Trump down effort, asking me of course to help pre-finance it. There’s no doubt there’s a huge bounty offered for Donald Trump’s political head.

Then in Venezuela, when referring to complex issues, we also have a saying that goes: “You step on one corner of the dry hide, and up goes the other!”

Sir, and that is why I refuse to believe Alan Beattie when he writes that “Fate of free trade depends on the whims of one man”, referring to President elect Donald Trump, January 17.

Trade is a dry hide, you save some jobs here, and you lose some there, and you need to convince some consumers to pay for it all. To then go against free trade, after globalization has brought forward so many of its offerings, and when having a huge bounty on your political head, sounds like a true mission impossible. In fact, were Trump to manage to do so; it would be difficult to ascertain whether Trump is too smart or the bounty hunters too bad.

PS. Sir, Beattie refers to a possible role of WTO. That shows he does not know how much WTO has already been left behind by trade realities. (Sorry WTO technocrats, its not my fault)

PS. In the 1870s, they did not have container-ships, or so much interdependence on the production of parts, or so many consumers shopping on the web.

PS. Are there no threats then to global trade? Oh yes, but Donald Trump's trade policies, is not one of these.

@PerKurowski

Allow the SMEs and entrepreneurs to help build up the economy, and bridges to somewhere will follow.

Sir, Alan Beattie writes “The IMF, transformed from an agent of neoliberalism to a Gosplan-style advocate of public works, also supports a government investment push”, “The less appealing way to abolish boom and bust” April 11.

IMF, in Chapter IV of its recent World Economic Outlook of 2015, titled “Private investment: What’s the hold up” acknowledges: “Firms with financial constraints face difficulty expanding business investment because they lack funding resources to do so, regardless of their business perspectives” (page 11); “financially dependent sectors invest significantly less than-less dependent sectors during banking crisis” (page 15).

Yet the primary “Policy Implications” reached by the study is: “a strong case for increased public infrastructure investments…[and] for structural reforms…for example reforms to strengthen labor force participation and potential employment, given aging populations. By increasing the outlook for potential output, such measures could encourage private investments” (page 18). 

And only then, almost as an afterthought, is it that the IMF puts forward: “Finally, the evidence… suggests a role for policies aimed at relieving crisis-related financial constraints”.

What “suggests a role”?

How on earth can IMF consider public infrastructure investments more important for the economy than relieving financial constrains?

One explanation could be that the study includes only data that “cover public listed firms only” and not data about “unlisted small and medium sized enterprises” (page 13). Clearly, if you do not study those most in need of access to bank credit, then you will of course not be able to measure the real importance of relieving financial constrains.

The second explanation is that IMF’s professionals insist in covering up for the mistakes of colleagues, the bank regulators. That is because relieving the real financial constrains, requires exposing how the current credit-risk-weighted equity requirements for banks odiously discriminates against the fair access to bank credit of those who most need it, like the SMEs and entrepreneurs.

Sir, the most important thing to do is to get rid of the regulatory distortions so as to enable banks once again to allocate their credit more efficiently to the real economy. If that is done, then you might find places whereto bridges should be construed. Otherwise the risk of building too many bridges to nowhere, is just too big for any economy to manage.

@PerKurowski

The IMF and the World Bank did not listen then… and, unfortunately, they still do not listen enough

Sir Alan Beattie in “Watchdog says IMF missed crisis risks” February 10 makes reference to ignored warnings such as those delivered in 2005 by Raghuram Rajan, the then chief economist of the fund, and which mentioned the threat of widespread financial instability.

Mr Rajan was far from being alone in that. I myself, as an Executive Director of the World Bank, in a formal statement at the Board in 2004 said: “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”

No one wanted to listen then… the real problem though is that most still don’t. (And this would include also FT)

To reform financial regulations we need to reform the Basel Committee.

In May 2003, as an Executive Director of the World Bank, I told those many present at a risk management workshop for regulators the following with respect to the role of the Credit Rating Agencies. “I simply cannot understand how a world that preaches the value of the invisible hand of millions of market agents can then go out and delegate so much regulatory power to a limited number of human and very fallible credit-rating agencies. This sure must be setting us up for the mother of all systemic errors.” And this I repeated over and over again, in FT, even in a formal statement at the Board.

Now as reported by Alan Beattie and James Politi in “IMF points to danger of ‘over-reliance’ on credit ratings for sovereign debtors” September 30, the IMF is finally admitting “Policy makers should work towards the elimination of rules and regulation that hardwire buy or sell decisions to ratings”

That is good, better late than never. But the real question that needs an answer is why on earth it had to take a financial crisis of monstrous proportions to reach a conclusion that should have been apparent to any regulator from the very beginning.

I saw it happen in front of my eyes and I know why it happened. As I wrote in a letter published in the Financial Times in November 2004, it was the result of the whole debate about bank regulations being sequestered by the members of a small mutual admiration club.

Therefore if there is now something even more important than rectifying the faulty financial regulations, that is to break up the Basel Committee and make absolutely sure it represents a much more diversified group of thinkers. That would have at least guaranteed that the basic question of what the purpose of the banks should be would have been put in the forefront before regulating them. Current regulations do not contain one word about that.

Besides me there were not plenty of experts who raised the question of whether the credit rating agencies should have such a prominent role and made many other valid criticisms. These persons should participate in designing and putting in place the needed reforms. It is simply unacceptable that the reforms that carry with them such huge global implications are implemented exclusively by Monday morning quarterbacks.

The Euro or the EU?

Sir Alan Beattie is right deriving “Lessons for the Greek crisis from Philip II of Spain” May 1. Greece is of course much better of keeping all the help they can get for the morning after than for the night before… especially when in this the night before, though very late, it is so hard to discern any morning light.

Only a speedy restructuring of Greece´s debt can avoid having to choose between the Euro and the EU.

Serious intentions or just a one night stand?

Sir Jonathan Wheatley and Alan Beattie in “Brazil taxes foreign portfolio flows in bid to stem exchange rate rise”, October 21, make a reference to the Chilean capital controls, and it is important to understand that these were of quite different nature than Brazil’s tax.

Chile’s capital controls, intelligently, wanted to make certain that the foreign investments flows wanting to go in into Chile, as pretenders, had serious long term intentions, and were not just looking for any one night affairs. It was therefore based primarily on freezing the use of funds for one year, so as to assure a proper courting.

Compared to that, Brazil’s 2 percent tax, just raises the price of having an affair in Brazil. And what is 2 percent in these days of hedge-funds fees if the signorina is beautiful?

Tear down the walls of that club of mutual admiration... even if it takes a civil war!

Sir Alan Beattie in “Good question, Ma’am. But some people did see it coming” November 15, does not explain why those people were not listened to. The truth of it all was that the whole issue of bank regulations, the numero uno of financial regulations, was captured by a club of likewise thinkers coming from likewise life experiences with likewise PhDs from likewise universities and that all teamed up in a cosy small club of mutual admiration where no questions were asked out of politeness or just because they were none.

When Beattie now asks us “Let’s just try and get through this one without a civil war, shall we?” I totally disagree. It behoves us all to break down the walls of that club and let other mind-frames into the world of financial regulations, even if it takes a civil war. And with this I mean real other minds and not some same other-minds just because they come from different geographical areas.

Ma’am. Please be careful with Alan Beattie says. He might be one of the silencers. Who knows? They are all around us!

What bond of trust is he talking about?

Sir Alan Beatty titles his report on Congress hearings about the credit agency’s role in this current crisis quoting Henry Waxman the chairman of the of the US House of Representatives oversight committee saying that the rating bodies “broke bond of trust” October 23.

Hold it there… what bond of trust is he talking about? Most market participants were never aware of the existence of any bond of trust, except perhaps of one with their regulators. Most market participants simply thought that the credit rating agencies knew what they were doing. And why should they not think so when even the financial regulators thought so?

FT… how come?

Sir I refer to your Special Report World Economy 2008 published with occasion of the meetings of the World Bank and the International Monetary Fund in Washington this week.

In it Paul J Davies in "High noon chimes for collateral with no name" says "A system that simply trusts in collateral without regards to its particulars is one that fosters the creation of ever more hideously complex problem". Since the principal reason for the current turmoil is not that the system trusted too much the collateral but that it trusted too much others to do their job of analyzing it, I would have worded it instead as "A system where participants are led to believe so much in the opinions of some few credit rating agencies…"

Also Norma Cohen in “Race against the storm” mentions that “The infection in the credit markets, by all accounts, began with mortgages, specifically those to borrowers with poor and patchy credit” but this completely ignores the fact that most of the market did not lend to borrowers with “poor and patchy credits”, most of the market bought AAA rated securities.

UNCTAD for instance is perfectly clear about what has happened and in their policy brief titled "The Crisis of the Century", released on October 6 they state "There are a few quick regulatory fixes that can be taken at both the national and international levels. The first is to reassess the role of credit rating agencies. These agencies, which should solve information problems and increase transparency, seem to have played the opposite role and made the market even more opaque."

Now in your 12 page special report, surprisingly, the credit rating agencies are referenced only once, and that is when you have to report on the opinions of Christine Lagarde, France’s finance minister.

How come? What strange and dark silencing forces are in action at the Financial Times? They seem to be much present at the World Bank and IMF meetings too.

I have saved a copy of this Special Report by the Financial Times as evidence… though I do not know of what, yet.

Does winning but not getting the expected odds paid out really make it a loss?

Sir Prof Louis T. Wells commenting on March 14 on Alan Beattie’s article “Concern grows over global trade regulation” March 12 hints at what I have always found as one of the most intriguing questions in matters of foreign investments. If you require a high rate of return to invest in one country and thereafter you obtain a lower return but that is perfectly in accordance with your expectation of returns in lower risk countries should you be satisfied or should you feel let down because the risk did not materialize?

Having said that and returning to Mr Wells´ real issue, the validity of international arbitrary courts and proceedings, let us also never forget that those that in the long run are mostly hurt by closing down courts and proceedings are those that being weak most need them…and they should therefore be the ones most careful with not shooting the messengers.

It behoves us all to stand up to the bank regulators

Sir Martin Wolf in “The Fed must weigh inflation against the risk of recession” September 26 mentions “It would be wonderful if those responsible for this most absurd financial crisis could be punished” but for that to happen we need to dare to go to the real bottom of the crisis.

In this respect what most stand out in the Global Financial Stability Report, September 2007, published by the International Monetary Reform is the absolute reluctance by the bank regulators to accept that they, through their regulations, might indeed have been the largest de-facto suppliers of financial systemic risks. The minimum capital requirements imposed by them on banks around the world and their empowerment of the credit rating agencies as the marines in charge of driving out all risks from banking, no matter what, is the true genesis of the problems we now face.

Am I upset? You bet! When reading IMF admonishing the investors with that they “have an obligation and responsibility to understand the dynamics and liquidity risks associated with the products they buy… and they should not assume that the simple letter provided by the rating agencies show equivalent risks as those for hither asset classes” and blithely ignoring that they themselves use those same simple letters interpreted in very simple ways when imposing rules on the banks is frankly shameful.

In November 2004 the Financial Times published a letter of mine titled “Basel is just a mutual admiration club of fire-fighters trying to avoid a bank crisis at any cost”, where I complained that the regulators were so one-track-minded fighting the risks of banking that they blithely ignored all other issues related to the responsibility of banks, such that perhaps some type of financing could be more beneficial to society and therefore merit taking on more risks. Now, they are not only not delivering on the risk elimination front but worse they are even showing a certain willingness of, though in a hole, to dig deeper.

Alan Beattie in “Master of the Universe (Retired)” September 22, when writing about the memoirs of Alan Greenspan “The age of turbulence” references the central bankers with “They would regard themselves as something like the Jedi Council – an ascetic elite who through innate wisdom and arduous training are entrusted with maintaining order”. Be they the wise and the trained the recent experiences still tells us other humble earthlings that if there is any ounce of wisdom within ourselves we now need to stand up to these bank regulators and ask them, or better yet order them to take a better look at their own role in the mess.

Sir, all of us have of course fully supported the independency of the central banks but if they do not have it in them the character to generate sufficient internal criticism and make the debates public then, unfortunately, because of the many dangers from incest, we perhaps need to revisit this whole independency issue.

PS. Paul Volcker’s courageous and honorable 2018 confession: “The assets assigned the lowest risk, for which capital requirements were therefore nonexistent or low, were those that had the most political support: sovereign credits and home mortgages.”

Vulture funds

Sir, I write to you with respect to Alan Beattie´s “'Vulture fund' in Zambia debt case gain”, February 16.

I might not like it too much if a vulture-fund-manager invited any of my daughters out to celebrate a killing in Zambia debt but, having said that, neither am I so sure that the world would be a better place without the vulture funds.

That some can find opportunities in buying uncollectible loans and squeeze fortunes out of them when others have decided to clean up their books, is just part of the circle of life, and part of the same market mechanism which signals how much, or how little, the loans are worth, since the price of a loan indicates the expectations of collecting on the loan and not the expectations of collecting on a “pardoned” loan. Yes, the vulture funds are into an ugly business, cleaning up among corpses, but, by their sheer presence, they might perhaps even help to reduce the number of corpses.

Most, or perhaps all of the scholar papers on the restructuring of sovereign debt, state as the explicit purpose of the whole exercise, that of enabling the countries to regain access to the international capital markets again (something like the torturer waking up his fainted victim) and so, if you really need to pick on one, you might also choose to do so at that moment in the circle when the new born debt-overhang-ridden countries gets thrown out to start defending itself again from the many dogs-of-finance out there.

There is so much written about freeing up the countries in order for them to access the markets while comparatively so little about how they should go about to avoid repeating the same mistakes that perhaps I should even frown when it is a regular investment banker who knocks on my door and asks for my daughter. I mean what is some hundred of percents on some few millions when compared to some basis point on a couple of billions.

PS. Nonetheless we should not allow vulture funds to be able to collect on really rotten odious credits