While Venezuela does not share out oil revenues directly to its citizens it is doomed to fail, over and over again.

Sir, I refer to your “Venezuela’s threatened December election” November 19.

You write: “Chavismo once saw itself as a global revolutionary force.” Absolutely but there were way too many around the world that supported that view.

You write: “Today, incompetence and corruption have revealed it to be merely a cynical charade.” Absolutely, but it is also a cynical charade to believe that a country, in which its government receives 97 percent of all abundant exports will not, sooner or later, embrace incompetence and corruption.

@PerKurowski ©

http://theoilcurse.blogspot.com

The most important investors for the economy of tomorrow, are those who act on its margin, like SMEs and entrepreneurs.

Sir, Martin Wolf writes: “Because corporations are responsible for such a large share of investment, they are also, in aggregate, the largest users of available savings”. And he lashes out at corporations for not doing enough investments. “The corporate contribution to the savings glut” November 18.

Yes, corporations are the largest users of available savings, but that does not mean they are those who move the investments on the margin. Those most important, on the margin investors, are those tough risky risk-takers we need to get going when the going gets tough. And those are the ones who have their fair access to bank credit blocked by the credit risk weighted capital requirements for banks… since banks will always preferentially access to assets against which it has to put the least of its own equity for… especially in times of scarce regulatory bank capital.

I know that Martin Wolf does not understand or does not want to admit the distortions in the allocation of bank credit that credit-risk weighting regulation does, but that does not make it one iota less distortive.

PS. Amazing. Martin Wolf even suggests we should think about taxing retained earnings to force corporations to invest and not of getting rid of those regulations that block the access to bank credit for investments. Much of that corporate cash is in banks and in the unproductive "safe havens"

@PerKurowski ©

What? “ROE is not a meaningful measure of performance”? If you are a shareholder it sure is.

Sir, Oliver Ralph writes: “Most big banks use their own assessments of risk when calculating RWAs, and there is no clarity about how they do so. “Flawed return on equity metric will not be shaken off easily” November 17.

There might not be clarity about the “how they do so” but there is no doubt about the why they do so. It is to lower the equity requirements, so that they can earn as high as possible expected risk-adjusted returns on assets. Just like kids would promote the nutritional value of ice cream and chocolate cake and negate steadfastly that of broccoli and spinach.

Of course the return on equity ROE is one of the most important measures they are and good luck to anyone trying to raise capital saying it isn’t so. Oliver Ralph is perfectly clear when stating “Ignore it at your peril”.

Bank ROE has of course mutated as an information tool. Nowadays it is very difficult to establish how much of it is produced from real banking… how much from over-leveraging banking, and how much from pitifully bad risk weightings.

Suffice to see the zero percent risk weights for sovereigns. Those sovereigns who in our face announce inflation targets so that can repay us with currency worth less… those which already mention the need of increasing taxes in order to repay their debts.

@PerKurowski ©

Mifid 2 could be creating dangerous risks promoting Systemic Important Research Institutions

Sir I refer to Laura Noonan’s “Deadline looms for banks to get their research arms in order” November 17.

We read “European rules, known as Mifid 2, will reshape the way analysts report on companies and how the research can be priced and circulated to investors… going from quantity to quality… banks to become more selective in the sectors they deal within an environment where clients will no longer support the 60-70 research teams that cover each major European industry… number of analysts publishing Emea research for the 12 top banks fell 17 per cent from 2007 to 2014.”

What are these busybody regulators doing? Don’t they understand what systemic risk is all about? And now they are pushing for Systemic Important Research Institutions, SIRIs.

Don’t they understand that going from quantity to quality often just entails going from the open market into even less transparent small mutual admiration clubs? Did they not learn about the systemic risks of giving information power to few like when they gave it to the credit rating agencies?

Quality? Quality is a result of the diversity that includes many “un-qualified” players but who could suddenly bring forward fresh perspectives, or be making those insolent questions required for having a chance at sustainable quality.

Did they not do enough damage to financial research when they subordinated the importance for banks of getting the risk premiums right, to getting the equity required low?

The more I read about what arrogant and hubristic regulators are up to, the more I feel we have to put faith in shadow organizations to be able to help our grandchildren to a livable future.

@PerKurowski ©

Why is real fear of credit risks not as transitory as fear of terrorism?

Sir, Tim Harford writes about when recalling a flight taken after “watching the Twin Towers of the World Trade Center collapse on television”, he was “in a state of mortal fear”, but how that fear seems so foolish to him now. And that’s because “each year an American citizen has a one in 9,000 chance of dying in a motor vehicle accident, and… Even in 2001, the chance of an American being killed by a terrorist was less than one in 100,000”, “Nothing to fear but fear itself?” November 14.

Harford then argues: “Perhaps the true impact of terrorism is psychological… The terrorists’ best hope lies in provoking and overreaction. Too often they succeed”

Absolutely. And the question then is: What terrorism impacted our current bank regulators into believing so much that those who are perceived a risky credits cause more damage to our banks, than those who perceived as safe can turn out to be very risky?

The worst part of that belief is that seemingly it is not as transitory as Harford argues fear to more normal terrorism to be. Today, years after the explosion of what was considered safe by regulators, like AAA rated securities and loans to Greece, we still have much higher capital requirements for banks against what is perceived as risky than against what is perceived as safe.

@PerKurowski ©

There’s a difference between unwanted recessions and recessions resulting from having other priorities than growth

Sir, Robin Harding asks whether we should use the term recession for an economy that is decreasing as a consequence of demographics. “Recession is a word in need of a rethink” November 14.

He sure has a point and perhaps we should measure economic growth on a per capita basis.

In the same vein, may I express doubts on whether we should use the term recession when the decreasing economic growth is a direct consequence of calling it quits… meaning not wanting to risk what we already got in order to get anything better.

Because, calling it quits that is what bank regulators did, when they allowed banks to earn higher risk adjusted returns on what is perceived ex ante as safe, than on what is perceived as risky.

I mean should there not be a difference between an unwanted recession and a recession that results from prioritizing other wishes?

Most current “recessions” are not unexpected consequences they are the natural results of someone meddling with the markets.

@PerKurowski ©

Yes! Central banks must be made accountable

Sir, Alex J Pollock, of American Enterprise Institute in Washington, asks that “Central banks must be made accountable”, November 13.

Absolutely! I totally agree: “there is zero evidence that these central bankers have superior knowledge, obvious that they have no superior insight into the future, and dubious that they command superior virtue.”

Anyone thinking that by distorting the allocation of bank credit in favor of those perceived as ex ante as safe, and which discriminates against the fair access to bank credit of those perceived as risky, will make the bank system safer, has not the slightest idea about what he is doing.

Not only are bank crises always the result of excessive exposures to what is perceived as safe but turn out to be risky; but also the strength of the real economy is a direct function of banks lending intelligently to those perceived as risky, like to its SMEs and entrepreneurs.

Let me just name some of these failed regulators that should be held accountable: Jaime Caruana, Mario Draghi, Stefan Ingves, Alan Greenspan, Ben Bernanke and Mark Carney.

@PerKurowski ©

No President Obama. No country with bank regulations based on credit risk aversion can speak of having a bold voice

Sir, Barack Obama writes “the US is ready to lead a global effort on behalf of new jobs, stronger growth, and lasting prosperity for all our people well into the 21st century. “America’s bold voice cannot be the only one” November 13.

He mentions: 1. “fiscal policy that supports short-term demand and invests in our future”; 2. “boost demand by putting more money into the pockets of middle-class consumers who drive growth”; 3. “more inclusive growth by lowering barriers to entering the labour force.” 4. “high-standard trade agreements that actually benefit the middle class” 5. “greater public investment… through new private investment in clean energy.”

Nowhere does he make a reference to the need of getting rid of bank regulations that are blocking the risk-taking needed to achieve sustainable economic growth.

The pillar of current bank regulations is the credit-risk weighted capital requirements for banks; more risk, more capital -less risk, less capital. Since banks, when deciding on risk premiums and amounts of exposure, already clears for credit risk, this results in an excessive consideration of credit risk. Any risk, even though perfectly perceived leads to the wrong results if excessively considered.

And therefore, in words attributed to Mark Twain, we now have banks that lend you the umbrella, much faster than usual if the sun is out, and take it away, much faster than usual if it seems like it could rain. In other words our bank’s, by having been given permissions to leverage much more with what is perceived as safe, earn much higher risk-adjusted returns on equity when lending to the safe are, consequentially, behaving more risk-averse than ever.

If one wants banks to be constructively bold, then one should set the capital requirements based, not on pitiful credit risk weights, but on daring purpose weights, like for instance based on “clean energy” and job-creation ratings, and SDGs in general.

And this will not cause the banking sector to become unstable, just the opposite. Never ever are major bank crisis the result of excessive exposures to something perceived as risky when placed on the balance sheets of banks… only of something ex ante perceived as safe that ex post turns out risky.

PS. This is also a civil rights issue. These regulations that double down on credit risk, discriminate against the rights of the risky, like SMEs and entrepreneurs, to have fair access to bank credit.

@PerKurowski ©

If Britain’s monarchy received 97% of all export revenues, would you just be arguing strengthening your institutions?

Sir, Francisco Rodriguez, the chief Andean economist at BofA Merrill Lynch Global Research, one who provides investors with advice on whether to lend to Venezuela or not, one who has often recommended financing the Bolivarian Revolution, because the interest rates were attractive, writes that Venezuela’s “system could work very well when commodities prices (oil) were on the upswing but became problematic when oil prices started declining” "Lessons from Venezuela at a time of economic unease”, November 12.

The solution Rodriguez suggests, not only for the current government but also for “the country’s opposition if it manages to reach power”, “is probably to be found in a mixture of institutions that gives broad authority to the executive branch to make economic adjustments when these are necessary, but places effective limits on its political authority through a strong and autonomous judiciary and other bodies to hold power to account”.

As if that is possible in a country in which the government is the recipient of over 97 percent of the nations exports.

If in Britain the monarchy received over 97 percent of that nations exports, would you be arguing strengthening the institutions, or getting those revenues out of the governments hands and into the hand of British citizens?

Let me assure you that in Venezuela when oil prices are on the upswing, we citizens become less and less relevant to the governments; in fact we turn into a nuisance to them.

Now when oil revenues and borrowing capacity is dropping dramatically, the Government might even need all those young Venezuelans who they forced to migrate in order for them to have a chance of a better future.

There is but one way to give our nation a chance for a sustainable better tomorrow, and that is distributing all the net oil revenues among all the Venezuelans; and so that governments serve us instead of serving themselves.

PS. I am supposing that the title was placed by FT. We Venezuelans all know that the tragedy our country is facing goes worlds beyond "an economic unease"

http://theoilcurse.blogspot.com

@PerKurowski ©

John Reed, competing on equal terms with equal capital requirements, traditional and investment bankers can be friends

Sir, John Reed writes that combining traditional banking and investment banking into a universal banking is inherently unstable and an unworkable model “Our universal banking mistake”, November 12. 

Reed argues: “Mixing incompatible cultures… make the entire finance industry more fragile…Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward. In addition, investment banking organisations tend to organise and focus on products rather than customers. This creates fundamental differences in values.”

Reed might have a point, but, in my opinion, the main reason for the system being fragile is because regulators treat the different activities differently. With the credit-risk weighted capital requirements for banks, some are allowed to leverage their activities much more on equity than others. That introduces distortions that are impossible to clear for.

Apply one single capital requirement for all assets, for instance 8 percent, and the leveling of the internal playing field would strengthen the system and help to drive out many of those cultural differences. 

PS. Could farmers and the cowboys be friends, if treated so differently?

@PerKurowski ©

Why does not FT, “without fear”, debate the distortions the credit risk weighted capital requirements for banks cause?

Sir, Martin Wolf writes that if that if “hysteresis” — the impact of past experience on subsequent performances” is the cause for the economy failing to recover its “Possible causes [could] include: the effect of prolonged joblessness on employability; slowdowns in investment; declines in the capacity of the financial sector to support innovation; and a pervasive loss of animal spirits” “In the long shadow of the Great Recession” November 11.

For more than a decade I have tried to explain for Mr. Wolf that, if you allow banks to hold less capital against assets that ex ante are perceived as safe than against assets perceived as risky, you allow banks to make higher expected risk adjusted returns on equity on safe assets than on risky, and that of course will decline the willingness of the financial sector to support innovation and erodes the animal spirit. When banks make the good returns on equity, on for instance financing houses, why on earth should they go an finance what requires them to hold more capital and is therefore harder to achieve good ROEs for?

But Martin Wolf, and FT, has never wanted to accept that as a serious source of distortion in the allocation of bank credit. I have never understood why. I dare him, or FT, or any bank regulator for that matter, to a public debate of that issue… come on, show us some of the “without fear”

Thomas Hoenig the Vice Chairman of FDIC has recently said: “Using simple leverage measures instead of risk-based capital measures eliminates relying on the best guesses of financial regulators to guide decisions.” I pray he is able to convince his colleagues of that. The world has had more than enough of that reverse mortgage regulators imposed and that makes banks finance more the safer past than the riskier future.

When I think of those millions of young people who will never get a chance of jobs that help them fulfill dreams, thanks to these hubristic and outright incapable regulators, I get so sad and mad.

PS. Here is a letter that Washington Post published today.

@PerKurowski ©

Failed bank regulators, Mario Draghi, FSB, should not be given a chance, ECB, to cover up for their mistakes, Greece

Sir, Ferdinando Giugliano, Sam Fleming and Claire Jones write: “Mr Draghi is adamant that rules, not politics, have dictated its approach to Greece and other member states.” “Peak Independence?” November 9.

Thomas Hoenig’s the vice chairman of FDIC in a speech delivered on November 5 stated: “Some sources of risk undoubtedly have been fed by current regulations designed to direct banks’ activities in accordance with regulators’ views. For example, banks levered up on sovereign debt of nations such as Greece due to the zero risk-weighting given by “risk-based” rules.”

Clearly FDIC’s vice chairman agrees with what I have been saying for years, namely that it was the Basel Committee, and their associates, who did Greece in.

Mario Draghi the now President of the European Central Bank and the former chairman of the Financial Stability Board, should never have been placed in a position where he could try to cover up for his participation in the mistakes that brought Greece down.

As is the fatal credit risk weighted capital requirements for banks still conspire against all Greek SMEs and entrepreneurs having fair access to bank credit, in order to help their land crawl out of the hole its in.

PS. When I think about all those “risky” who because of regulators have not had fair access to bank credit in order to try to create the new jobs the new generation need… I get so… sad/mad

@PerKurowski ©

“Wishful thinking” should not be used to make unforgivable dumb thinking more socially acceptable.

Sir, Tim Harford discusses several experiments on how wishful thinking can influence the outcome. In most of these the sufferer of wishful thinking consequences is the wishful thinking himself. But, when Harford mentions: “Perhaps a belligerent politician or union leader would find his or her position strengthened by a strike. A general might desire a war. Lawyers might profit from urging their clients to go to court.” he is clearly referring to bad wishful thinking, “When wishful thinking becomes wasteful”, November 7.

So let me ask? How wishful was it not of regulators to think that by interfering with some capital requirements based on credit risk they could stop banks from failing without distorting the allocation of bank credit to the real economy? Or, if it was not wishful thinking, was it pure dumb unforgivably irresponsible thinking?

How wishful was it not of regulators to think that they did not need to look back at history to see what caused bank crises because it sufficed to look at the ex ante perceived credit risk of the assets? Or, if it was not wishful thinking, was it pure dumb unforgivably irresponsible thinking?

How wishful was it not for regulators to think they could empower some very few human fallible credit rating agencies, to decide how much capital banks needed to hold, and that these were not going to be captured? Or, if it was not wishful thinking, was it pure dumb unforgivably irresponsible thinking?

Whenever the concept of wishful thinking might be used to sort of make unpardonable dumb thinking more socially acceptable, I have a problem with it.  

@PerKurowski ©

Those who have no business interfering should not be allowed to use that a consequence was unintended as an excuse

Sir, Robin Wigglesworth writes: “Overlaying safeguards on an immensely complex financial system may have the unintended consequence of making it more intricate and therefore more fragile” "Regulators seek ways to stem fragility caused by hyper-fast trading", November 7.

Again there is that reference to “unintended consequence” which seems always ready to serve as an excuse for any kind of dumb and mindless interfering. An example:

Never have bank crises resulted from lending out too many umbrellas when it rained, they have all resulted from lending out too many umbrellas when the sun was shining radiantly.

But nevertheless bank regulators decided that, in order to make banks safe, they had to give them even more incentives to lend out the umbrella when the sun shines and to take it back hurriedly when it looked that it might rain. And so they imposed credit-risk weighted capital requirements for banks; more risk more capital – less risk less capital.

And of course the result was excessive bank exposures to what was perceived as safe, this time aggravated by banks holding specially little capital against it… was that an unexpected consequence?

And of course the result is excessive few bank exposures to what is perceived as risky, like SMEs and entrepreneurs, something very dangerous for the real economy… is that also an unintended consequence.

And then the regulators decided that a few human fallible credit rating agencies were going to decide on the riskiness of credits.

In January 2003, in a letter published in the Financial Times I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”

And yet many present the ensuing disaster with the AAA rated securities backed with mortgages to the subprime sector in the US as an “unintended consequence”. Have they no shame? Are we so dumb we allow them to get away with that?

@PerKurowski ©

The Basel Committee by favoring the safe old hurts the chances of the risky new economy to germinate.

Sir, John Authers writes: “That so many public companies are choosing to pay out cash rather than reinvest it is therefore disquieting… Companies are getting less cash than they used to, they are not optimistic that they can invest it productively and so they are choosing to deploy it in a way that weakens the chances of sales growth in the future. Not encouraging.” “Follow the cash trail for clues to the growth outlook of companies” November 7.

Disquieting indeed but is it so much worse. Public companies, though many will surely and hopefully be around for many decades or even centuries, do still represent the old economy. The new economy, that is to be born out of the efforts of new entrepreneurs and SMEs, those who might yet not even be dreaming about a public level.

And so that bank regulators, by requiring higher capital requirements when lending to the risky new than when lending to the safer old, hinders the nascent new economy fair access to bank credit, is truly tragic and unpardonable.

When have bank crises resulted from many seeds failing to germinate? These have all resulted from what was thought of as solid trees suddenly falling down. The Basel Committee is treating new grass as bad weed.

Sir I am sorry if I sound like Chauncey Gardiner again.

@PerKurowski ©

The Basel Committee’s instructions: Banks, ignore poverty, jobs, sustainability and inequality and just focus on credit risk

Sir, Andrew McAfee, gives us his take on the tragedy that “Lots of the traditional jobs for these people are disappearing in the rich world, and wages for remaining workers are pretty stagnant… and the middle class is being hollowed out in country after country” “Boredom and vice can be deadly in a life without work” November 6

And I hold that is in much the result of bank regulators giving an overriding importance to banks avoiding credit risk and not caring one iota about any other purpose of our banks.

And Sir, by silencing me, you fully support those absolutely inept regulators. The truth will catch up on you… on the web I have already over 2.000 letters to you on that subject and which you have ignored, because you so mono-thematically cannot accept the idea of technocrats having been so mistaken.

Not long ago, one of your famous columnist replied to one of my letters with the following:

“IT IS NOT TRUE that risk-weighting is the only reason for the crisis… To argue that it is implies, as I have told you, that allowing banks to make certain loans compels them to do so. But there is no such coercion: if the risks are high, they should not, in their own interest, make the loans. Nor is it the case that risk-weighting prevented banks from lending to small enterprises. The reason that they did not (and do not) do so is that it IS ACTUALLY risky to do so, relative to the perceived return.”

You see, evidently your columnist does not understand that if you can leverage your risk adjusted return much more when lending to the safe, and thereby obtain a much higher relative risk adjusted return on equity when lending to the safe, you will simply not lend to the risky, like to the SMEs and entrepreneurs.

Or let's put it this way. Two borrowers with exactly the same risk profile. To one the bank is allowed to lend leveraging 12 to 1, to the other 30 to 1. Who do you think the bank is going to lend to the most and the cheapest?

Or let's put it this way. Two borrowers with different risk profiles, but offering the same risk and cost adjusted margins. To one the bank is allowed to lend leveraging 12 to 1, to the other 30 to 1. Who do you think the bank is going to lend to the most and the cheapest?

Sir, do you want me to arrange a Finance 101 for your columnists and reporters?

PS. I was thinking a lot of that boredom and vice that McAfee refers to when I wrote "We need worthy and decent unemployments" 

@PerKurowski ©

The inactivity and passivity the BoE’s Monetary Policy Committee reflects must despair the upcoming generations.

Sir, I read twice your “The Bank of England augurs a year on hold”, and twice Richard Barwell’s “The great Monetary Policy Committee mystery”, November 6.

My conclusion is that were I 40 and some years younger, about to start working and thinking about a family, I would not be looking with kind eyes on the inactivity that is there reflected... 25 bp up or down or no change at all.

But, if I also knew that bank regulations, by means of capital requirements, were in Mark Twain’s terms giving banks further incentives to lend the umbrella when the sun was out, and to take it away when it looked like it was going to rain, then I would really be pissed off. What do these bank regulators mean? Is the avoidance by banks of perceived credit risks, more important than my future?

And from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975, I would quote to those respectable and so political correct bank regulators the following:

“For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]..

It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent…

The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

Bank regulators do you not know that the upcoming generation is already living new economic Wild West realities, made worse by having to suffer these under the thumb of a West Coast type bank regulatory establishment?

@PerKurowski ©

If VW were a pupil in the European Boarding School… whom would we blame, VW or the headmaster of that school?

Sir, Richard Milne at the end of his report of Volkswagen’s woes writes: VW makes about the same number of cars as Toyota – but has almost double the number of workers – 593.000 to 344.000”, I guess then that 249.000 workers would not be in total agreement with the titling of the report: “System failure” November 5. You just cannot have the cake and eat it too.

It must be quite clear that to overcome such a competitive disadvantage, VW had to resort to other means… in this case clearly not so elegant or legal means. Do I condone it? Of course not, but let's keep the debate real. The trade off between carbon emissions and jobs is very much out there in the real world.

But let us now also suppose VW was a pupil in the European Boarding School. If it had acted this way, blatantly infringing regulations during years… whom would we blame, VW or the headmaster of that school?

Or should 249.000 potential Toyota workers want Toyota bosses to cheat on the headmaster too?

@PerKurowski ©

The only bank credit-allocation taking place, in UK and China, is based on credit risk weighted capital requirements

Sir, David Pilling when writing about deregulation of bank interest rates opines that: “China now needs a better allocation of capital. It needs less money to be pushed into heavy industry, and more into services and innovative industries, many of them outside state control.” “Beijing cannot control babies or banks” November 5.

No Mr. Pilling, as long as China follows the dictates of the Basel Committee, as seemingly it does, that type of “better allocation” of bank credit does not exist. With the credit risk weighted capital requirements, the only real allocation, or more correct misallocation of bank credit that exists, is favoring what is perceived as safe and hindering the access to bank credit of what is perceived as risky. And of course that applies to UK too.

And Pilling also mentions: “Ending financial repression is an important step in the right direction”

No Mr. Pilling. The real financial repression, the one resulting from favoring with ultra low or no capital requirements for banks when holding assets of sovereigns, and which started in 1988 with the Basel Accord, is alive and kicking, even in your UK.

PS. What the Basel Committee has done is not much different from China trying to control babies.

@PerKurowski ©

Those willing to cut a deal with the real owners of limited attention spans for ads, will come out ahead.

Sir, I refer to Jeevan Vasagar and Robert Cookson’s report “Axel Springer winning fight against ad-blockers” November 4,

And on Axel Springer’s website I found that: “Axel Springer finds the business model of ad-blocker services to be unlawful. This applies to both the blocking of advertising on publishing websites as well as to the ’whitelisting’ service, which publishers can pay for to free themselves of the advertising block, which is an extortionate approach according to Axel Springer.”

And I was left wondering… why is it unlawful to block the way into my limited attention span and not to enter into it?

So now, if we want to have access to BILD we have to accept the ads, or subscribe to it paying 2.99 Euros per month. Hold it there; is not my limited attention span worth anything?

I have figured out that I have about room for 64 30-second ads per week which makes about 256 per month. And I have decided that my using up that limited attention span should be worth about 1 Euro for any 30-second ad to me; on which I would accept to pay a 30 percent commission for managing my preferences.

And so now my calculations are: First is access to BILD worth 3 Euros per month to me, and, if so, should I pay BILD in cash, or with 3 30-seconds attention spans?

But what if BILD cheats and wants to pump more pieces of attention spans out of me?

And so here’s my proposal. BILD if you have an article I am interested in, and I read it, then I will look, with interest, at any 30 second ad you send me. And, if you sell that to a client who is sufficiently interested in me to pay me 1 Euro, you can keep 30 percent of it, in order to split it any which way you want between yourself and the writer of that article.

And then of course I am going to rank how well BILD is my interests and my need of intellectual diversity.

Current business model are based on the assumptions that we the recipients of ads have unlimited attention span and that is simply not true… you should look at my inbox even after the span filter has done its job.

I foresee throat-cutting competition for attention spans for ads, and those cutting a deal with the owners of it will come out ahead.

And if the BILDs of the world do not want to make that kind of deal with us ad viewers, I am sure many ad-blockers– duly authorized by us – would love to do so.

And Sir, any good results BILD is reporting now, are as pyrrhic as can be.

@PerKurowski ©

Something dysfunctional is hindering FT from living up to its motto of “Without fear and without favour”

Sir, Martin Wolf holds that “The relentless decline in the proportion of prime-aged US adults in the labour market indicates a significant dysfunction. It deserves attention and analysis. But it also merits action.” “America’s labour market is not working” November 4.

There is a whole lot of things that do not work as we want them to work, and there are certainly many major dysfunctions causing that, and clearly not only in America.

For instance one truly major dysfunction is that our banks, those who should allocate credit as efficiently as possible to the real economy, have been awarded huge incentives, not to manage perceived credit risks, but to avoid credit risks.

That is so because even though banks consider credit risk when deciding on the size of exposures and interest rates, the regulators decided those same perceived credit risks should also determine the capital banks needed to hold. The end result of that regulatory nonsense is of course too much bank credit to what is perceived as safe, and too little to what is perceived as risky… and, among the risky, we find the SMEs and entrepreneurs, precisely those who have the best chances of delivering new jobs.

That dysfunction which started in 1988 with a major destructive tsunami known as the Basel Accord, in which the regulators amazingly set the risk weights of sovereigns to zero percent, and that of the private sector at 100 percent, has been in crescendo ever since.

The regulators have just not been able to understand that even a perfectly perceived credit risk, leads to imperfect results, if excessively considered.

But that dysfunction might be topped by an even worse dysfunction, namely that of the academia and other influential actors, like journalists, simply not daring to accept the possibility that regulators could have made such a fatal blunder, and therefore keeping silent about it.

Sir, since during the last decade I have written Martin Wolf over 250 letters about that problem, which I accept is slightly dysfunctional in its own way. But, the only time Wolf publicly acknowledged these was when in 2012 he wrote: “As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk. For this reason, unweighted leverage matters.”

And yet, even describing the argument that showed that the regulators, with their more risk more capital – less risk less capital, could be 180 degrees off mark, he left it at that.

Sir, I am sorry to say but there seems to be something very dysfunctional at FT that hinders it from living up to its motto of “Without fear and without favour”

@PerKurowski ©

Stop bank regulators from distorting bank credit allocation to the real economy, based on their anxiety de jour.

Sir, Barney Jopson and Gregory Meyer report, “The Fed wants to use capital charges to discourage banks from risky activities involving hazardous materials that could threaten their survival in the event of a catastrophe… like costly disasters such as tanker spills or gas pipeline explosions.” “Banks face capital call for commodity disaster costs”, November 4.

With their credit risk weighted capital requirements for banks regulators already discourage banks from lending to those perceived as risky, like SMEs and entrepreneurs, now they also want to discourage lending to what could produce a gas spill or a gas explosion. Where will all this risk aversion end?

When will they realize that something perceived risky like handling hazardous materials is by definition much less risky to the banking system than something that has an AAA credit rating?

Banks should of course hold capital against unexpected losses but regulators should of course also have the intellectual capacity to understand that the really dangerous unexpected, has much greater potential to appear among what is perceived as safe, than among what is perceived as risky.

Please let us have an 8 to 10 percent capital requirement on all bank assets based on that regulators simply do not know what they do, instead of having them to distort the allocation of bank credit based on their anxiety de jour.

@PerKurowski ©

The bank regulatory absurdity, and the journalistic irresponsibility of FT ignoring it are both of epic proportions.

Sir, Angus Deaton writes: “the role of politics needs to be understood, and built in to any careful interpretation of the data. We must always work from multiple sources, and look deep into the cogs and wheels.”, “Statistical objectivity is a cloak spun from political yarn” November 3.

Indeed and among those most responsible for “looking deep into the cogs and wheels” must be the press, the journalists. But too often they don’t.

For instance, during the last decade I have sent the Financial Times over 2.000 letters that on my Tea with FT blog have the label of “subprime banking regulations”.

In these letters I have argued that the credit-risk weighted capital requirements for banks, introduce a regulatory credit-risk aversion that dangerously distorts the allocation of bank credit to the real economy. And because the risk weights are based on the intrinsic riskiness of the assets, and not on the risk for the banks of those assets, it does not help the banking system to become any safer, in fact, just the opposite.

For instance Basel II had a basic 8 percent capital requirement. That, when risk weighted 20% for what was rated AAA to AA, resulted in a 1.6 percent capital requirement, an authorized 62.5 to 1 leverage. And, when risk weighted 150 % for what had a credit rating of below BB-, it resulted in a 12 percent capital requirement, an authorized leverage of 8.3 to 1.

Sir, explain to me, what kind of analysis can justify that loans to those rated below BB-, always awarded in much smaller amounts and with much higher risk premiums, are 7.5 times riskier than huge exposures, with very low risk premiums, to what is AAA to AA rated? 

When have ever those rated below BB- represented more dangers than those rated AAA and who could have a too good credit rating?

Minds capable of such regulatory nonsense should clearly not be allowed to regulate our banks… or promoted to other important posts. Bankers might quite often be dumb, but in general they are not suicidal.

Sir, the Basel Committee’s regulatory absurdity is of epical proportions. And FT’s journalistic irresponsibility ignoring that absurdity is equally of epical proportions.

On April 24, I thought you had finally understood what all was about, when you published your “Banking cannot prosper within a culture of fear”, but seemingly I was wrong.

PS: The capital requirement for banks when holding AAA to AA rated sovereign debt was set at zero percent in Basel I and II. If a bank held only these safe assets, with current negative interests, this would break the bank in just a few days.

@PerKurowski ©

That’s it Lucy Kellaway. Keep them honest.

Sir, setting of course aside the pay package of £8.25m a year, I would not like to be in Jes Staley shoes having to face those who when meeting him discreetly look away after having read Lucy Kellaway’s “Barclays boss needs to ditch his inexcusable focus on value”

Good for her. To reveal haughty arrogant stupidity among the powerful is the absolutely most important role journalists have.

That’s the “Without fear and without favor” spirit we expect from the Financial Times. I have sure been missing a lot of it lately.

@PerKurowski ©

Banks are dangerously overpopulating the traditional save havens of widows, orphans and pension funds.

Sir, Attracta Mooney quotes Pascal Blanqué, deputy chief executive of Amundi, stating: “QE has proved a mixed blessing. It prevented a 1929-style depression after the collapse of Lehman Brothers in 2008. But it has also delivered unintended consequences for longterm investors. The challenge for policymakers is to address them.” “QE ‘acted like an opaque tax’ on pension funds” November 2.

Again someone is speaking about unintended consequences, instead of referring to what obviously should have been expected consequences.

With QEs injecting liquidity into safe investments; with bank regulations awarding huge incentives through the capital requirements for banks to finance what is safe; with bank regulations awarding additional huge incentives through liquidity requirements for banks to hold what is safe, and with sovereign debt having been decreed as ultra-safe and assigned a zero risk weight, there can be no doubt that the financial safe havens of the world are bound to become dangerously overpopulated. Where is a widow or an orphan to take refuge nowadays… in Argentinian railroad projects?

@PerKurowski ©

The Euro and number of EU’s members are physical problems. Regulatory risk aversion ruins part of Europe’s soul

Sir, Wolfgang Münchau refers to “the introduction of the euro [and] the EU’s enlargement to 28 members from 15 a couple of decades ago” as the “Two big mistakes that ruined Europe” November 2.

Of course that created problems. But those problems are nothing compared to what bank regulators did when they told the banks: “We allow you to make immense risk-adjusted returns on equity, as long as you finance what is safe, like the sovereigns, the housing sector and the AAArisktocracy, and stay away from financing the risky, like the SMEs and the entrepreneurs. Because that is exactly what the Basel Committee instructed with its credit-risk weighted capital requirements for banks.

The Euro and the number of EU’s members that represents tangible problems. Regulatory risk aversion is ruining a vital element of the soul of Europe.

Münchau considers EU’s “leaders are intellectually not ready” to run the world’s second-largest economy. Given that Münchau clearly does not understand the distortion in the allocation of bank credit current regulations cause, may I express some doubts about his intellectual capacity too?

@PerKurowski ©

http://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

Nothing could have predicted the financial crisis more than economics… the question is where were the economists?

Sir, Martin Sandbu writes: “The economics profession lost a lot of lustre when its practitioners failed, with only a few exceptions, to foresee the global financial crisis of 2008… it also added to the credibility of those who have long argued that economics is a deeply flawed discipline, built on a misrepresentation of people as selfish beings and ideologically constituted to conclude in favour of free-market policies.” “New model economics”, October 31.

That must be because Mr Sandbu is unaware of what happened. Bank regulators allowed banks to leverage much too high on assets that were perceived as safe; and so banks made too high risk adjusted returns on equity holding assets perceived or decreed as safe; and that of course caused, as any economic 101 course teaches, banks to create too large and dangerous exposures to what is perceived as safe… and for the economy equally dangerous scarce exposures to what is perceived or decreed as risky.

And so the problem had nothing to do with economics, it had all to do with economist not looking at regulations…. perhaps they thought that handwork was unworthy of their fine minds.

@PerKurowski ©

If only we had truly disconnected silos the current crisis would not have happened

Sir, Gillian Tett writes: “Eight long years ago the top managers of western banks learnt the hard way just how damaging fragmentation can be; most notably, banks such as UBS suffered big losses in the financial crisis because they were divided into so many silos that it was impossible for top managers to get an overview of risks.” “Some new hires for a more connected Deutsche Bank”, October 30.

I am not specifically referring to Deutsche Bank but “No! Dear Ms. Tett No!”. The silos were not fragmented… they were very connected, by means of bank regulations, specifically by means of the portfolio invariant credit risk only based capital requirements for banks. Had the silos really been disconnected, we would not have had the systemic crisis, “eight long years ago”.

And that’s is why in 1999 I wrote in an Op-Ed “the possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause its collapse”

And that is why, in 2003 as an Executive Director of the World Bank, I formally stated: "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.”

Sir, the problem with Gillian Tett, and many others, is that they are captured in their own non-fragmented silo… and of course, so am I too... only that my silo is a bit wider J

@PerKurowski ©

Martin Wolf. An essential component of an Edmund Burke intergenerational holy bond must be the willingness to take risks

Sir, Martin Wolf appeals to Edmund Burke when stating, “the value of tried and tested institutions ought to guide any Conservative government. The BBC is a great legacy from past generations. It must be passed on even stronger into the future.” “A public broadcaster is the property of the people not the elite” October 30.

Absolutely, BBC is to be defended and those who out in the world have heard it shine light on some very dark moments, should be its staunchest defenders.

But that said, I do not think Martin Wolf has really earned the right to appeal to Edmund Burke’s assistance. Burke in his “Reflections on the French Revolution” wrote: 

“Society is indeed a contract…. It is to be looked on with other reverence; because it is not a partnership in things subservient only to the gross animal existence of a temporary and perishable nature. It is a partnership in all science; a partnership in all art; a partnership in every virtue, and in all perfection. As the ends of such a partnership cannot be obtained in many generations, it becomes a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born. Each contract of each particular state is but a clause in the great primæval contract of eternal society, linking the lower with the higher natures, connecting the visible and invisible world, according to a fixed compact sanctioned by the inviolable oath which holds all physical and all moral natures, each in their appointed place. 

This law is not subject to the will of those, who by an obligation above them, and infinitely superior, are bound to submit their will to that law. The municipal corporations of that universal kingdom are not morally at liberty at their pleasure, and on their speculations of a contingent improvement, wholly to separate and tear asunder the bands of their subordinate community, and to dissolve it into an unsocial, uncivil, unconnected chaos of elementary principles.”

And one of the main components of such an intergenerational holy bond must be, no doubt, the willingness to take risks. That willingness that an immoral Basel Committee has seen fit to restrict, by imposing their absurd credit-risk-only weighted capital requirements for banks… those on which Martin Wolf keeps mum.

@PerKurowski ©

How should the UN’s SDGs interact with the enormous demographic challenges now discussed by IMF and World Bank?

Sir, Martin Wolf writes: “a combination of new technological opportunities and new approaches to a deal opens up fresh opportunities… to curb risks of catastrophic climate change” “The upside of addressing climate change” October 28. Let us pray that is so.

But both the World Bank and the IMF, when now in October 2015, they discuss the huge demographic challenges the world face, they also report on a sort of low-tech tool that will seemingly also be helpful addressing climate change, namely lower fertility.

IMF, in its Staff Discussion Note of October 2015, “The Fiscal Consequences of Shrinking Populations” writes: “Declining fertility and increasing longevity will lead to a slower-growing, older world population... This, in turn, contributes to a more sustainable pattern of development and reduced pressures on the environment.”

And the World Bank, in its advance of the “Global Monitoring Report 2015/2016: Development Goals in an Era of Demographic Change” mentions: “Demographic trends and related policies will have implications for the global environment and for the effectiveness of adaptation and mitigation strategies. Family planning and reproductive health policies may help mitigate the negative effects of climate change by reducing population growth, especially in pre- and early-dividend countries. Education is not only likely to lower fertility, it can also have a major impact on the effectiveness of measures aimed at tackling the negative effects of climate change…”

And the UN’s SDGs does include, as Target 3.7, to “By 2030, ensure universal access to sexual and reproductive health-care services, including for family planning, information and education, and the integration of reproductive health into national strategies and programs”

Otherwise the SDGs, except for some minor references, in target 11.2 to the need of improved public transport for older persons, and in 11.7 to providing access to green and public spaces for older persons, seems to completely ignore the demographic challenges IMF and World Bank reports on.

It will be very interesting to see how the SDGs and demography will complement each other and or compete for scarce resources.

@PerKurowski ©

Holier than thou extreme political correctness causes incorrectness, and that is only human

Sir Gideon Rachman quotes Der Spiegel with “Germany these days is a place where people feel entirely uninhibited about expressing their hatred and xenophobia.” “The end of the Merkel era is within sight” October 27.

I do no know about Germany but, when I visited Sweden earlier this year, what I felt was a lot of inhibitions to express even the slightest indication of not being fully comfortable with many foreigners in their small cities, many of them in public places begging.

Clearly not being allowed to vent normal human reactions builds up pressures that, sooner or later, will make humans explode.

@PerKurowski ©

And some say I am obsessive and monothematic about the risk-weighted capital requirements for banks. Hah!

Sir, Patrick Jenkins writes about “banks’ unhealthy obsession with ROE numbers — which can be a recipe for inefficient, potentially toxic short-termism. An obsessional focus on generating high ROE numbers in the boom times drove bank bosses to shrink equity to dangerously low levels, contributing to the severity of the financial crisis” “Regulator plays part in Credit Suisse chief ’s quiet revolution” October 27.

Why? What is unhealthy with trying to generate high ROE numbers in boom times if that is what your shareholders want? If you do not do that they will fire you or the bank will be consolidated into another bank.

And why only lay the blame on “bank bosses” shrinking “equity to dangerously low levels”, when it clearly was regulators who authorized European banks to leverages bordering on 50 to 1? That is if only banks leveraged with what was safe… with what caused the financial crisis.

And what can be more short-termism, than regulating banks without even defining their purpose, and so not caring one iota about if these allocate credit efficiently to the real economy.

And then some say I am obsessive and monothematic about the dangers of the risk-weighted capital requirements for banks. Hah! 

No wonder I have to keep hammering on against that much more generalized monothematic obsession of wanting to blame the banks for all bad that happened and happens… an obsession probably based solely on a deeply held dislike of bankers.

@PerKurowski ©

Compared to the misallocation of bank credit in Europe, Brobdingnagian inflation concerns sounds truly Lilliputian

Sir, Wolfgang Münchau writes: “Central bankers are conservative types. But they should have a rational interest in preventing a loss of their credibility.” I ask, should not Wolfgang Münchau also have a rational interest in that? “Draghi must be more unconventional to boost the euro” October 26.

This data is found on the web:

The fatality rate per 100 million vehicle miles traveled in motorcycles is 21.45

The fatality rate per 100 million vehicle miles traveled in cars is 1.14

In 2011 in the US, 4,612 persons died in motorcycle accidents

In 2011 in the US, 32,479 persons died in vehicle accidents

And so, even though travelling by motorcycle is about 20 times riskier than cars, cars cause about 7 times more deaths than motorcyclists. That is of course because the riskier something is perceived, the more care is taken to avoid the risk.

And yet Wolfgang Münchau, finds nothing wrong with bank regulators having decided on higher capital requirements for banks when lending “the risky” motorcyclist of the economy, SMEs and entrepreneurs, than when lending to “the safe” car drivers, sovereigns and corporations with high ratings… even though clearly dangerous excessive lending to the latter is much more likely to occur.

Sincerely, against the fact that Europe’s bank are not allocating credit efficiently, and this is murdering Europe’s chances for a strong economic revival; Münchau’s and Draghi’s 0.63 per cent, 0.88 percent, 0.9 per cent and 2 percent Brobdingnagian inflation worries, sounds as Lilliputian as it comes.

@PerKurowski ©

Shrink & Sage, here is the latest key I am trying to open that lock that stops Financial Times from understanding.

Sir, The Shrink &The Sage’s ask: “Must we get to the bottom of things?” October 24. Of course we must… especially when it really matters.

The Shrink refers to “Steve de Shazer [recommending that instead of looking] more and more effort into finding out why the lock is as it is or why it doesn’t open… we should be looking at keys” Indeed that is what I have done in my TeaWithFT.

I have for a long time, by means of over 2.000 letters to the editor, been looking for the key with which make the Financial Times understand the true horrors of current bank regulations. Seemingly I have not found on yet, but in words of The Sage, I will keep on looking for what is under the turtle.

The latest key I have been trying out is the following:

Data found on the web:

The fatality rate per 100 million vehicle miles traveled in motorcycles is 21.45

The fatality rate per 100 million vehicle miles traveled in cars is 1.14

In 2011 in the US, 4,612 persons died in motorcycle accidents

In 2011 in the US, 32,479 persons died in vehicle accidents

And so, even though travelling by motorcycle is about 20 times riskier than cars, cars cause about 7 times more deaths than motorcyclists. That is of course because the riskier something is perceived, the more care is taken to avoid the risk.

And yet no one at The Financial Times seem to find something wrong with bank regulators having decided on higher capital requirements for banks when lending “the risky” motorcyclist of the economy, SMEs and entrepreneurs, than when lending to “the safe” car drivers, sovereigns and corporations with high ratings… even though clearly dangerous excessive lending to the latter is much more likely to occur… and even though that clearly must lead to a dangerous misallocation of bank credit to the real economy.

What are my chances this key will work? I guess slim, I guess I will just be told I am being boringly monotonous again.

@PerKurowski ©

In this cynical age why do some, like Gillian Tett, trust so much the bank regulators to know what they are doing?

This is data found on the web:

The fatality rate per 100 million vehicle miles traveled in motorcycles is 21.45

The fatality rate per 100 million vehicle miles traveled in cars is 1.14

In 2011 in the US, 4,612 persons died in motorcycle accidents

In 2011 in the US, 32,479 persons died in vehicle accidents

And so, even though travelling by motorcycle is about 20 times riskier than cars, cars cause about 7 times more deaths than motorcyclists. That is of course because the riskier something is perceived the more care is taken to avoid that risk.

Sir, Gillian Tett after informing “that some online reviews by Amazon were fake or, more accurately, that authors could pay for a positive review” ends with “What is really interesting is that faith in the cyber crowd seems so resilient to scandals… online reviews will continue exerting a spell and act as a reminder of how we blindly trust things — even in a cynical age.” “Why we trust the cybercrowd” October 25.

Bank regulators have decided on higher capital requirements for banks when lending “the risky” motorcyclist of the economy, SMEs and entrepreneurs, than when lending to “the safe” car drivers, sovereigns and corporations with high ratings… even though clearly dangerous excessive lending to the latter is much more likely to occur.

Ms. Tett: In this cynical age, and even after the financial crisis, produced exclusively by excessive lending to what was perceived as safe, how come you still put so much trust in regulators, so as to ignore all my letters explaining their horrendous mistake?

@PerKurowski ©