December 20, 2014
Sir, I refer to Alison Mason letter “Bankers see nothing from the client’s perspective” December 20.
In it she correctly mentions that too much attention is given to what the bankers need and want, and no attention is given to what bank borrowers need and want. And for that to change, “it requires a cultural shift back to a previous way of thinking of banks as intermediary between those who have capital and those who need it”.
I agree, but since there is not a word in current bank regulation that indicates what is the purpose of the bank, it would at least be a very good start if regulators had to explicitly state one, and then try to regulate in accordance.
As is regulators think the only role of banks is to avoid taking risks, and so they allow banks to hold very little capital (equity) against what is perceived as absolutely safe, when compared to what they need to hold against what is perceived as risky.
And banks love it of course, since that way they are able to obtain higher risk-adjusted returns on their equity when financing “the infallible” than when financing the risky.
“The infallible” meaning sovereigns, housing finance and member of the AAAristocracy also love it, since that way their bank borrowings are really subsidized.
It is of course those perceived as risky, like the small businesses and entrepreneurs who are left out in the cold. Precisely those tough risk-takers our unemployed young most need to get going, in order to avoid their going being made unnecessarily tough.
December 17, 2014
Sir, I refer to John Kay’s “Crowd-pleasing theories are no substitute for wise regulations” December 17.
In it he writes “The wisdom of crowds becomes a pathology when the estimates of the crowd cease to be independent of each other, and this is likely when the crowd is large, ill-informed or both. It is in the nature of a crowd to turn on anyone who dissents from what is already an average opinion”.
I fully agree with that but, when the crowd is too small, then the groupthink risks really sets in, and it is in the rules of a mutual admiration group not to dissent in such a way that it could reflect badly on a member of it.
And so that is why “wise” regulators are certainly no perfect substitute for crowds either.
Just look at what our current bank regulators did:
They automatically decided that risky is risky, safe is safe, and therefore banks should be required to hold more capital against risky assets based on perceived risks.
And they ignored any deliberations on that what is risky might not be risky if it is perceived as risky, while what is perceived as safe might be really dangerous if it turns out to be risky, and therefore perhaps banks should be required to hold more capital against what is perceived as safe, than against what is perceived as risky.
Why? Because that would mean that there in their club of great experts regulators they would have to admit that they really do not know much about risks, and that the market could be better at determining it, and of course “We can’t have that… can we?
Regulators wrongly believe that to increase the stability of banks, they must stimulate risk-aversion.
Sir, I refer to Martin Wolf’s “Make policy for real, not ideal, humans” December 17.
In it and with references to the World Bank’s latest World Development Report (WDR2015); and Daniel Kahneman’s “Thinking fast and slow” he writes, “most of our thinking is not deliberative but automatic; it is socially conditioned; and it is shaped by inaccurate mental models”.
Clearly, the socially conditioning of believing experts to be unable to totally get things wrong, have stopped most, Martin Wolf included, from accepting the fact that current bank regulators decided automatically with no deliberation and based on inaccurate mental models. Let me for the umpteenth time repeat the evidence:
Automatic thinking would be: Risky is risky, safe is safe, and therefore banks should be required to hold more capital against risky assets based on perceived risks.
Deliberative thinking would be: What is risky might not be risky if it is perceived as risky, while what is perceived as safe might be really dangerous if it turns out to be risky, and therefore perhaps banks should be required to hold more capital against what is perceived as safe, than against what is perceived as risky.
And an inaccurate mental model is one that is based on that the only purpose of banking is to serve as a safe mattress where to stash away our savings, while ignoring its fundamental social purpose of allocating bank credit as efficiently as possible. And because of that bank regulators did not care on iota about how with their credit risk weighted capital requirements for banks, they have caused huge distortions by allowing “safe” assets to produce much higher risk-adjusted returns on equity than “risky” assets.
WDR2015 mentions “the tendency of poor women to believe that the right treatment for diarrhea is to cut fluid intake, to stop their child ‘leaking’”.
Frankly, those in the Basel Committee, and in the Financial Stability Board, and most “experts” on regulations are just as wrong. They believe that the right thing to do for the stability of our banks (and our economies) is to stop the leakages… by increasing the risk-aversion.
Unfortunately, the power of “automatic” thinking is enormous. In July 2012 Martin Wolf wrote that I regularly reminded him of that “crises occur when what was thought to be low risk turns out to be very high risk” but, as we could see in his latest book “The Shifts and the Shocks”, he has yet not been able to internalize the meaning of it.
December 16, 2014
I have held bank regulators responsible for Greece’s excessive debt. That because anyone authorizing banks to lend to a sovereign against 1.6 to zero percent in equity, meaning being able to leverage their equity from 62.5 to infinite times to 1, must know that sovereign is doomed to end up with too much debt.
And to bet that would not happen, sooner or later, is about as a high-risk gamble on a country’s future as these gambles come… and seemingly Greece was one of the first to loose that (someone could argue fixed) bet.
And Sir, that is why I could not really make heads or tails of FT’s editorial titled “A high-risk gamble on the future of Greece” December 10, since having or not a Samaras winning or not a presidential vote seemed, in comparison, like a very minor gamble on Greece’s future.
But now in FT I also see today a full two pages advertisement by a: www.freegreece.info who states that Greece public debt to GDP, after rescheduling and concessions, is only 18%, and not some 175% purportedly reported by Maastricht Treaty.
If so, great news, but then lets pray for that some credit rating does not give Greece an AAA rating, and so that banks and other lenders find it attractive to raise Greece’s debts to, for instance the levels of Germany.
18% and 175% clearly indicates much more than a simple tomayto and tomato issue...and so can somebody put some order here, please?
Sir, I refer to your FT series “Oil: The Big Drop” December 16, in order to suggests some tweets.
Oil is 97% of Venezuela’s exports, and 75% of Russia’s. If oil prices go down 40%... bye-bye Maduro, bye-bye Putin?
Venezuela suffers shortages of basic goods & inflation of more than 63%, and yet its economy is to shrink only 3%?
Hunger or Freedom? High oil prices make Venezuela a medieval feudalism; with citizens serfs to an elected Lord of Manor
The State gets 97% of Venezuela’s exports. How much does its citizens’ relevance increase, each $1 drop in oil price?
If Europe wants high oil prices, to get high inflation, so to repay its sovereign debts, it should be institutionalized
The European taxman is scared European motorists will ask: Why does not gasoline prices go down much?
It seems like those who should have the largest vested interest in joining Opec are shale-oil extractors in the USA
Will there be new rounds of quantitative easing to bail out failed expensive oil lenders and investors?
Have green energy investors or subsidy dependents, adequately hedged against so much lower oil prices?
Ps. More tweets might follow
December 15, 2014
On bank regulations why can’t we get to the heart of its problems? Why can’t we keep political agendas out of it?
Sir, I refer to Edward Luce’s “Too big to resist: Wall Street’s come back” December 14.
Anyone who with an open mind reads Daniel Kahneman’s “Thinking, Fast and Slow” 2011, or this years “World Development Report 2015: Mind, Society, and Behavior” issued by the World Bank, should be able to understand the following with respect to current bank regulations:
Regulators (and ours) automatic decision-making makes us believe that safe is safe and risky is risky; while a more deliberative decision-making would have made us understand that in reality very safe could be very risky, and very risky very safe.
And so when so many now scream bloody murder about the influence of big banks in the US congress, because these managed to convince legislators to allow “banks to resume derivative-trading from their taxpayer insured arm”, they posses very little real evidence of what that really means… except, automatically, for the fact that it all sounds so dangerously sophisticated.
No, if there is something we citizens must ask our congressmen to resist, that is the besserwisser bank regulators who, with such incredible hubris, thought themselves capable of being risk-managers for the world, and decided to impose portfolio invariant credit risk weighted capital requirements for banks.
These regulations distorted all common sense out of credit allocation, and cause the banks to expose themselves dangerously much to what is perceived as “absolutely safe”, while exposing themselves dangerously little for the needs of our economy to what is supposedly “risky”, like lending to small businesses and entrepreneurs.
If we, based on what caused the current crisis should prohibit banks to do, it would have very little to do with derivatives, and all to do with investing in AAA rated securities, lending to real estate sector (like in Spain) or lending to “infallible sovereigns” like Greece.
Does this mean for instance that I do not agree with FDIC’s Thomas Hoenig’s objection to US Congress suspending Section 716 of Dodd-Frank? Of course not! But, before starting to scratch the regulatory surface, something which could create false illusions of safety, or even make it all much riskier… we need to get to the heart of what is truly wrong with the current regulations… Sir, enough of distractions!
And also enough of so many trying to make a political agenda and election issue out of bank regulations… as usual it would be our poor and unemployed or under employed youth who most would pay for that.
December 14, 2014
France, Italy, listen, there is something more important than “liberalization of closed products and labor markets”
Sir, You correctly refer to “the need to take aim at exactly the right problem…the bureaucratic sclerosis that chokes of innovation and growth”, “The struggle for reform in France and Italy” December 13.
And thereafter you also rightly argue that “demand-side boosts and supply side reforms are complements not substitutes”, and lend your support to structural reforms like the “liberalization of closed products and labor markets” because that would help to overcome “stagnant productivity” which was “a chronic problem well before the global financial crisis”.
But the most fundamental structural reform needed in France and Italy, and at the least in all other Western world economies, is to get rid of the distorting credit-risk-weighted capital requirements for banks, and which block bank credit from reaching where it is most needed in terms of helping the real economy to grow… productively.
And Sir, since you steadfastly keep ignoring that, I guess all those countries would be much better off listening to little me, than to big and so important You.
December 13, 2014
Sir, Brooke Masters writes: “Reckless bankers caused the financial crisis by running their businesses without a care for the long term consequences”, “Bankers will fail to win back trust with tragedy analogies” December 13.
That is reckless reporting.
Regulators, by allowing banks to leverage 50 times and more their equity with assets perceived as “absolutely safe”, while at the same time ordering a much lower leverage for assets perceived as “risky”, caused the crisis and, by not acknowledging their mistake, and thereby hindering bank credit from flowing to where it can be most productive, keeps us submerged into it.
That was indeed reckless behavior, and bank regulators did it by not caring one iota about any long-term consequences… as can easily be evidenced by the fact that they have not even defined what the purpose of our banking system is.
“I can’t breathe!” If with respect to finance somebody has the right to utter that, that is the real economy… for which risk-taking is oxygen.
Sir, I protest FT for also failing to indict bank regulators, for causing our economies to stall and fall. (Is it that you automatically must side with the police?)
December 12, 2014
Do I own a copyright of myself? If so, should I not get a cut of what’s paid when advertising is tailored to me?
Sir, I refer to your editorial on the upcoming law in Spain that indicates that “all online news aggregators will be required to pay Spanish publishers a fee for contents that they link to”, “Spain’s flawed challenge to the mighty Goggle” December 12.
I mostly agree with what you write, but I do have some question on other two related issues:
First, if online news aggregators have to pay, why do not newspapers also have to do that, for instance when they review a book… and when that review can even lead to the book not being read, much less bought?
Second, cannot it be said that I own a copyright of myself? If so, why should I not get a cut of what’s paid to Google for someone to be able to tailor his advertising to me? And also, when somebody searches me, should not Goggle collect a fee and split it 50-50 with me?
PS. By the way, if all advertising I receive is tailored to me, does that not go against my human right to be able to become someone different… perhaps even someone better… or as a minimum at least someone with a better taste?
PS. Should not Google and other public private eyes also search our permission before searching us for other to us unknown parties?
With capital buffers thin, European Banks can’t handle the higher capital requirements for small business lending.
Sir, I refer to Lex’s note on the lack demand for ECB’s TLTRO funds, “Eurozone banks: horsing around” December 12.
It holds: “You can lead a horse to water. You can put water in a tall glass, add ice, a wedge of lemon and a cute little paper umbrella. You can bring the bendy straw right up to the horse’s lips. But if the horse is not thirsty, it will not drink.”… And so “Reluctance to take cheap money gives credence to the bank’s claims that low business lending is down to a lack of demand”.
BUT, “An alternative explanation, advanced by RBS, is that the low take up highlights the bank’s lack of capital. With capital buffers thin they do not want the risk of small business lending”.
CLOSE, but not really so. The truth is that “with capital buffers thin” they cannot handle those much higher capital requirements that comes associated with the supposedly risky “small business lending”.
How many times have I explained to FT over the last few years that the current risk-weighted capital requirements for banks impede the banks to efficiently allocate bank credit? Hundreds!
PS. In my homeland, Venezuela, after 15 years of being a columnist in its most important daily newspaper, I was among the four first to be expelled without thanks, when government agents purchased that paper. That’s how it is, in a country where the government receives directly 97 percent of all the nations exports.
But how does it work in Britain? Can an editor or some other influential person, order those working in a paper, for instance in FT, to ignore the arguments of someone… for whatever reason?
Capital (equity) requirements for banks, to be correct, need to be based on the perceived credit risks being incorrect.
Sir, the risk weights in Basel II for an AAA to AA rated sovereign was zero percent; the risk weight for a corporate rated AAA to AA was 20 percent; and the risk weight for an unrated corporate, like a small business was 100 percent… and they still are in Basel III
And so it would be interesting to know where Tom Braithwaite got “the risk weights, which obliges the banks to hold more capital against the riskiest assets, were also made tougher” from, “Fed’s push for safety test the business model at US banks”, December 12.
The only real important difference between Basel II and Basel III has been the introduction of the leverage ratio, which is not risk-weighted.
Unfortunately putting the pressure on banks with the leverage ratio to increase their capital (equity) while keeping the risk-weighting in place only means those weighted as “risky” are being more discriminated against that ever.
And Braithwaite writes: The international Basel II rules required banks to hold 2 percent of common equity against risk-weighted assets. The new Base III standards announced in 2010 requires a 7 percent capital ratio by 2019”.
There are of course differences but, since Basel II established “The total capital ratio to risk weighted assets must be no lower than 8%”, while Basel III states that “Total Capital (Tier 1 plus Tier 2 Capital) must be at least 8% of risk-weighted assets at all time”, and so Braithwaite is in my opinion quite shamelessly glossing up differences that really are not that big.
And though Braithwaite correctly states “Adding more equity depresses ROE and makes it more challenging to satisfy investors” he forgets to include the caveat: [those investors who do not appreciate the commensurate reduction in risk].
Nor does Braithwaite seem able to extrapolate from the above that lending to those borrowers against who the banks are forced to hold more equity, will depress ROE the most… and so unfortunately he does not understand how that distorts the allocation of bank credit.
Sir, again, if the perceived risks were correct, banks would need no capital… and any bank in then problem should just be out of business. And that is why it is so utterly silly to have capital requirements for banks based on these perceived risk being correct.
PS. Do I imply then that those experts in the Basel Committee and the Financial Stability Board and other prominent bank regulators are completely wrong? Yes, 180 degrees!
December 11, 2014
Europe’s guardians of monetary orthodoxy should fear the printing press, while bank regulatory lunacy persists.
Sir, Reza Moghadam holds that “Europe’s guardians of monetary orthodoxy need not fear the printing press.” December 11.
Moghadam argues that the opposition to printing money” based on the lack of structural reforms is wrong, since “output did not contract at the start of the crisis because of labor and product market regulations – those have been around for decades”. In this he clearly makes a valid point.
But, when even after stating “most European companies rely on banks rather than bond markets for their capital needs”; and that “interest rates for private sector loans have not fallen as much [as yields on sovereigns]; adjusting for lower inflation they have in fact risen” Moghadam goes into a convoluted explanation of how companies, because of higher equity prices, can still benefit from a QE in which ECB buys government bonds… then he clearly shows he has not understood one iota about how current credit risk-weighted capital (equity) requirements for banks distorts the allocation of bank credit to the real economy.
Europe should always be wary of the money “printing press” but, if the printing takes place while the allocation of the resulting liquidity is distorted, then it needs to be truly scared.
December 10, 2014
In a recent OECD paper titled “Trends in income inequality and its impact on economic growth”, authored by Federico Cingano, we read the following note:
(5) With perfect financial markets, all individuals would invest in the same (optimal) amount of capital, equalizing the marginal returns of investment to the interest rate. This occurs as complete markets allow poor individuals, whose initial wealth would not allow reaching the optimal amount of investment, to borrow from the rich (infra-marginal gains from trade). If, on the contrary, financial markets are not available, and the returns to individual investment projects are decreasing, under-investment by the poor implies that aggregate output would be lower, a loss which would in general increase in the degree of wealth heterogeneity (see e.g. Benabou, 1996; Aghion et al, 1999).
Substitute “risky” for the “poor” and you should be able to understand that current credit-risk-weighted-capital (equity) requirements for banks creates an under-bank-lending to those perceived as risky that leads to a lower aggregate output, most specially that of the future, which is dependent on the risky risk-takers having fair access to bank credit.
Martin Wolf, in “Europe’s lonely and reluctant hegemon” December 10, with relation to Germany's responsibilities towards Europe tells it that “The time of thinking small is past” and that it needs to “take an assertive position in defending western values”.
Sir, I content that little is so “thinking small” than thinking that by allowing banks to hold much less capital against assets perceived as safe; and therefore allowing banks to earn much higher risk-adjusted returns on equity on these assets when compared to what they earn lending to the risky; can somehow make banks more stable, like if these lived in a vacuum isolated from the real economy, will.
And Sir, I vehemently hold that such silly risk aversion is not part of our western values, much the contrary. “God make us daring!”
And so what the Western world (including Germany) first needs to urgently realize, is that those bank regulations dooms it to stall and fall, no matter how much QE-ing, fiscal-deficiting or infrastructure constructing it does... following Martin Wolf’s instructions.
December 09, 2014
Why do so many care so much more about the risks banks should avoid, than about the risks they should take?
Sir, Martin Arnold in reference to Mark Carney’s, the head of the Financial Stability Board proposal for systemically important banks to hold more equity writes “Carney’s ‘too big to fail’ buffer represents clear progress despite doubt”, December 9.
And therein Arnold describes the proposed total-loss-absorbing capacity (TLAC) to be worth between a fifth and a quarter of risk-weighted assets.
That could mean that a bank would need to hold 25 percent in loss absorbing capacity against assets risk-weighted 100%, like loans to small businesses and entrepreneurs, while at the same time only be required to hold between 0 and 5 percent of that same sort of TLAC back up, against assets risk-weighted 0 to 20 percent, like the infallible sovereigns and the AAAristocracy.
Does Arnold really think that increased distortion in the allocation of bank credit signifies any sort of progress? He’s got to be joking... or he signs up wholeheartedly on the après nous le deluge that spoils the future of our children.
Arnold also concludes in that “it is only when the next financial crisis hits that we will find out whether Carney really has consigned taxpayer bailouts of banks to history books.” Is he aware that the taxpayers who are most going to pay for the current crisis will be our children and not we the parents... and they will have to pay those taxes mostly for nothing?
December 08, 2014
A regulatory guiding hand poses great systemic risks, and often doubles down on its mistakes, like with Basel III.
Sir, I refer to Mark Vandevelde’s “Beware the paternalist in libertarian garb” where December 8 he reviews Cass Sunstein’s book “Valuing life: Humanizing the Regulatory State”.
Vandevelde finalizes the review championing regulation and writing: “Better to acknowledge out loud that, on life’s dark prairie, the torch of freedom is something less useful than a guiding hand”.
Of course that might be true, in some cases, but at the same time he should acknowledge that a guiding hand has immensely larger possibilities to introduce dangerous systemic risks than any free market.
Just look at bank regulators who, to how banks respond to perceived credit risks by means of interest rates, size of exposure and other terms, added on their basically similar response, to the same perceived credit risks, by means of their credit risk weighted capital requirements for banks. And that of course distorted all the allocation of bank credit to the real economy.
It is ok to use the average risk aversion of nannies, that is what the market usually does, but it is sheer lunacy to add up risk aversions, which is what the Basel Committee did.
And when the market gets it wrong, it feels the pain, and it fast corrects itself; but, when regulators get it wrong, they quite often suffer no consequences, and so double down on their mistakes… like with Basel III following Basel II… and keeping credit risk-weighting as a pillar.
December 07, 2014
Central banks pushing down government borrowing costs to historic lows. Is it by wooing markets, or is it a shotgun wedding?
Sir, Ralph Atkins and Michael MacKenzie write that “the world’s biggest central banks have this year wooed financial markets, pushing down government borrowing costs to historic lows”, “Central banks take their cue from Sinatra” December 11.
Really, is it by wooing or is it more of a shotgun marriage? Since capital requirements for banks are being increased all around, but the risk-weighting that so much favors the borrowings of the infallible sovereigns remains entrenched, more than of Sinatra’s singing it makes one think of his rumored relations to the mafia.
The Basel Committee giving hints on what to do
December 06, 2014
Sir, I refer to Gillian Tett’s “When looking after baby is too serious to be left to experience” December 6.
According to an old saying, the reason why grandchildren and grandparents get along so well... is that they share a common enemy. And, in this respect, it should be clear that any grandparent who is offered a “grandparenting class” arranged by their children, should be very careful indeed.
Whenever I hear my child complaining about mine and my 3 year old grandchild’s behavior, I know everything is as it should be… or, at the very least, as I like it to be.
December 05, 2014
Sir, you refer to a bank levy that motivated banks “to slim down risky balance sheets”, as something positive, “A misguided raid on the banking sector” December 5.
But what slimming down of the balance sheets do you refer to?
The shedding of the “risky assets” backed by quite reasonable bank equity, or the “absolutely safe assets” backed by little or no bank equity?
The small and well-diversified bank exposures to those perceived as “risky”, or the huge bank exposures to those perceived as “absolutely safe”?
Sir, might it be you have really no idea about what you are talking about?
As I see it, because of the distortions introduced by their regulators, banks have been slimming down precisely what we least need them to slim down... like loans to small businesses and entrepreneurs.
And Sir, please do not get upset with me. If I held you knew what you were talking about, and so that you agreed with the shedding of “the risky” from the balance sheets of banks, that would be so much worse.
PS. Of course you are right about that plunking the banks on capital is sort of wrong as “The UK could do with having more capital”. You know that in many letters to you I have argued that, for instance, all fines levied on banks, should be paid in voting shares... as to ask for cash seems pure masochism.
December 01, 2014
Could a “Vanguard FTSE Social Index Fund” purchase debt of a sovereign like Venezuela, which violates human rights?
Sir I refer to Madison Marriage report in FTfm “Funds in cluster bomb ‘hall of shame’” December 1.
Therein “a spokesperson for Vanguard, which oversees $3tn of assets said:
“For US investors who wish to choose investments based on social and personal beliefs, we offer the Vanguard FTSE Social Index Fund, which excludes companies involved with firearms, tobacco, alcohol, adult entertainment, gambling, nuclear power, or those that violate fair labour practices and equal opportunity standards”.
Holy moly, what a mixture of issues! Questions:
How were for instance adult entertainment and gambling thrown into the same bag as nuclear power and equal opportunity standards?
Have strippers and croupiers not the right to an equal opportunity of seeing their jobs financed?
Considering the Equal Credit Opportunity Act (Regulation B) in the US, are these types of funds really legal?
Has not planet earth right to nuclear power in order to avoid having to more coal that is more dangerous for the environment?
Is there a fund that excludes countries, like Germany, which now are dismantling the use of nuclear power?
In general are there any sovereigns excluded? What about for instance the purchase of Venezuelan debt when the UN Human Rights Chief urges it to release arbitrarily detained protestors and politicians?
As a citizen, more than credit ratings, I would perhaps want to see more use of ethic and good governance ratings.
Silly and sissy regulatory risk-aversion is not compatible with a grown-up response to the Eurozone’s problem.
Sir, is a massive ECB-QE liquidity injection, by means of buying safe “sovereign debt purchases”; while keeping bank regulations which forces banks to stay away from assets perceived as risky, like lending to small businesses and entrepreneurs; all in the hope that infrastructure investments and other “safe” goodies will pull the Eurozone out of stagnation... a "grown-up response"?
Wolfgang Münchau seems to think so in his “The Juncker fund will not revive the Eurozone” December 1.
I certainly do not think that such silly and sissy regulatory risk-aversion is compatible with a “grown-up response”, nor with the Eurozone’s revived growth.
November 30, 2014
ECB’s Mario Draghi should be stopped from wasting a QE in the Eurozone, even if a straitjacket is needed
Sir, credit risk weighted capital (equity) requirements for banks make banks lend too much to what is perceived as absolutely safe and too little or at too high rates to what is perceived as risky, like to small businesses and entrepreneurs.
And while these regulations remain, banks are not able to allocate credit to the real economy in an efficient way. In such circumstances, in a Eurozone where bank credit is so important, to inject liquidity through a QE or any other similar means, would just be a very dangerous waste of resources.
But to explain that to a former chairman of the Financial Stability Board, one who refuses to understand how wrong the distorting credit risk weighing of bank equity is, is not easy… especially when he receives so much applauses from famous connoisseurs such as you Sir, “Draghi needs support on QE in the eurozone”, November 29.
A sizable QE, in terms of monetary policies, is similar to a nuclear device. Once it detonates it could take years before its dangerous radiation dissipates. And therefore QEs need to be placed in hands of those who would only use these as a last resource and when absolutely sure they would do more good than bad… not in the hands of a Dr Strangelove.
Yippee-ki-yay Europe, here comes QE!
November 29, 2014
Gauging the level of understanding of Fed statements assumes, kindly, Fed understands what it writes. Does it?
Sir, Tracy Alloway tackles the issue of “Why Fed statements have become literally harder to read” November 29, which generously assumes that the Fed understands what it writes. Can we be so sure of that?
One of the most important documents of our time is the Explanatory Note on the Basel II IRB Risk-Weight Functions issued by the Basel Committee; as with it the regulators try to explain what they are betting all of our banking system on. And, that document is such a mumbo jumbo, that the only thing I can conclude is that none of the experts and not-experts who read it understood one iota of it, and therefore did not dare to question it.
And so seemingly the rule is that the more complicated a document is, the less the chances it will be questioned. And the add-on to that would be, the more expert an expert think he is, the less likely he will confess not understanding something.
Therefore friends, given that FOMC statements currently “require reading grade levels of 18 to 19 to understand” hold on to your hats, someone might want to hide something, and we might soon be in to suffer the Chinese curse, I refer of course to that of “May you live in interesting times!”
Basel Committee and Financial Stability Board: “Beware, beware, walk with care, care for what you do, or Mumbo-Jumbo is going to hoo-doo you, or Mumbo-Jumbo is going to hoo-doo you, boom le boom le boom le boom!”… and hoo-doo our banks, and hoo-doo us. Please, we are NOT expendable!
Sir, Tim Harford’s recalls how the American statistician Abraham Wald when asked how to reinforce returning shot planes, advised to first figure out where those planes not returning had been shot, “ Learn from the losers”, November 29.
And Harford writes “It’s natural to look at life’s winners [but] if we don’t at life’s losers too, we may end up putting our time, money attention or even our armour plating in entirely the wrong place”.
Absolutely and had the Basel Committee for Banking Supervision contracted someone like Abraham Wald, they would have understood that banks did not really need to hold more equity for what was perceived as “risky” but, if anything, they needed to hold more of it for what was perceived as “absolutely safe”, because there were where the shots that brought them down usually hit.
PS. Reading this article I was also reminded of Benjamin Franklin’s beautifully counterintuitive but so correct saying of: “if you want something done, ask a busy person”.
Sir, Richard Vinen in his “The Pope is wrong – old Europe is a new world” of November 29 extols Europe’s liberal values. And I have a question for him, and for you.
During the last decades regulators have imposed on the European banks credit risk weighted equity requirements. With these they allow banks to earn much higher risk adjusted returns on equity when lending to what is perceived as “absolutely safe” than when lending to what is perceived as “risky”. And so of course return on equity maximizing banks, respond to these incentives and do not lend more to the “risky”, like to small businesses and entrepreneurs. And, given that risk taking is the oxygen of any economy moving forward, Europe is now stalling and falling.
And so my question is: do liberal values include such risk-aversion?
And I ask that because in my opinion little has turned Europe in that old granny Pope Francis refers to, that these risk-adverse regulations.
Risk-taking is for the young, for the optimists, for the believers in a bright future. Risk aversion is for the old, the pessimists, for the ones who do not dare to bet what they have today in order to get a better future.
What a pity Pope Francis did not in his speech to the European Parliament remind Europe of The Parable of the Talents.
November 28, 2014
While risk based capital requirements for banks remain, small companies will not have fair access to bank credit.
Sir Sarah Gordon writes: “Smaller companies [in Europe] have also been able to take advantage of easier borrowing conditions”, “Light amid the gloom”, November 28.
Yes, in absolute terms, the smaller companies might indeed currently face easier borrowing conditions but, in a competitive economy, what most matters for the correct allocation of bank credit, is not the absolute but the relative borrowing conditions. And in that respect, let me assure you that smaller companies, those primarily squeezed by the credit risk weighted capital requirements for banks, are worse of than ever, as a result of the increasing capital/equity squeeze on banks.
And Gordon also wrote: “Even the lack of access to bank lending during the financial crisis [and thereafter] has had positive effects, with small and medium-sized enterprises reducing their over reliance on banks and diversifying their funding sources.” And I am not sure what to make of it.
Is Sarah Gordon, blaming small and medium-sized companies for their over reliance on banks? If so whoever told her it is their responsibility to achieve a diversification of their funding sources? Have they not enough problems as is, running their smaller companies’ businesses?
No, those really responsible for allowing small businesses to have fair access to bank credit are primarily the regulators, and they are not acknowledging, or much worse yet, perhaps not even understanding the fact that they do impede it… and so, sadly, there is still too much darkness amid the gloom.
Sir, Martin Wolf, with respect to immigration, correctly argues that “the presence of hard-working and ambitious people speaking a multitude of languages and offering a diversity of culture, while fitting with the predominantly liberal culture of the UK, should surely be welcomed”, “Fear of immigration is no reason for Britain to leave Europe” November 28.
And Wolf rightly concludes “It would be folly to let a paroxysm of anxiety over immigration drive the debate on whether UK should stay in EU… unfortunately, that degree of stupidity seems frighteningly near”.
But, let me ask Martin Wolf, sort of for the umpteenth time: what’s the use of inviting immigrants who could provide much dynamism if at the same time, you are fighting against the number one source of dynamism, namely risk-taking?
The credit risk weighted capital requirements for banks, which provide banks with much more incentives to finance the “safer”, the old, the history, than the “riskier”, the new, the future, tells me stupidity has already arrived. And, observing how the debate ignores the distortions in credit allocation these regulation produce, I would venture that stupidity is firmly entrenched.
Sir, inflation seems to be have been identified as the number one tool to smack grandmother Europe back into fertility and force her to vibrate on the dance floor again. And though that must sound quite eerie to the poor of Europe, those who always end up being most taxed by inflation, most of you in FT clearly agree with that approach.
And that is why I was slightly surprised when I now read you categorically stating: “Weaker oil prices are a restorative that the flagging world economy needs”, “Opec members flounder in a flood of cheap oil.” November 28.
I say that because it would seem that lower oil prices are more likely to fuel deflation than inflation. But, I guess the beauty of inflation, like so much other, is also in the eye of the beholder, “my inflation is splendid, your inflation not so good”.
Sir, for the record, let me remind that though some inflation could help to put some kick back into granny again, that can only happen as long as she really wants, dares, and is allowed to do a comeback.
Unfortunately, while Europe insists on credit risk adverse regulations that effectively stop banks from lending to small businesses and entrepreneurs, that does not seem to be what the family wants for her. Currently Granny Europe is kept more into a “let me just die as painlessly as possible” mood.
PS. By the way, Opec should have invited the USA shale oil producers (extractors)
PS. By the way, Opec should have invited the USA shale oil producers (extractors)
November 26, 2014
The real unusual economic ill we suffer, is that of regulators ordering our banks to be risk adverse.
Sir, Martin Wolf argues for “Radical cures for unusual economic ills” November 26.
And therein he identifies the illness as the “chronic demand deficiency syndrome”, meaning “the private sector has failed to spend enough to bring output close to its potential without inducements of ultra-aggressive monetary policies, large fiscal deficits, or both.
But “to bring output close to its potential”, is sort of a half-baked aspiration for an economy, as it always need to strive to expand its potential.
And usually that signifies also to expand the economy’s potential more than what other economies can expand theirs… unless of course you subscribe to a somewhat Piketty like thesis that we must stop doing so in order for other to have a chance to catch up.
And, expanding the potential of an economy, can only be the result of risk-taking; never of that risk aversion which has been introduced by bank regulators, by means of their portfolio invariant credit risk based capital (meaning equity) requirements for banks.
But, unfortunately, just like the geocentric experts of the past could not get their hands on the realities of a heliocentric world, Martin Wolf belongs to those who confuse the world of ex-ante perceived risks, with the world of ex-post realized dangers; and therefore cannot understand that real banking risks do not revolve around what is perceived “risky”, but always around what is perceived as “absolutely safe”.
Wolf, referring to Lord Turner’s recommendation of “nationalizing the creation of money now delegated to often irresponsible private banks”, considers that as a “probably more effective way… to create money in order to expand demand”.
What a laugh! The truly real irresponsible have been the bank regulators like Lord Turner who, with such immense hubris, thought themselves capable of being the good risk managers for the world.
And now Martin Wolf, seemingly getting a bit desperate also argues that “Unproductive savings should be discouraged” and so “tax savings instead”. So let me end here by just asking: who is going to decide what is unproductive saving and what is not… is it Martin Wolf and his bank regulating buddies? I pray, for the sake of my grandchildren, for that not to happen.
PS. Why is Lord Turner lately so often referred to only as Adair Turner? Is he ashamed of his title? If so, relieve him, and take it away.
November 25, 2014
Sir, Simon Samuel’s holds that “the driver of bank failure is not insufficient capital but rather a bad ‘risk culture’”, “A culture ratio is more important than a capital ratio”, November 25.
Absolutely, just like it is not the risk of the assets that a bank has on its books that matters, but how the bank manages those risks.
And in this respect no ‘risk culture’ has been as bad and damaging than that of bank regulators who came up with portfolio invariant ex ante perceived credit risk weighted equity requirements for banks.
With it they gave incentives for banks to accumulate dangerous high exposures against little equity in assets like loans to Greece or AAA rated securities.
And with it, by making it easier and cheaper for the “infallible” sovereigns and the AAAristocracy to access bank credit, and thereby much harder to do so for the peasants, our small businesses and entrepreneurs, they also imposed destructive financial feudalism
Simon Samuels would do good looking at what he himself and his colleagues are up to in the Financial Stability Board, and in the Basel Committee, since only excessive hubris could explain them thinking themselves able to play risk managers for the banks of the world.
November 24, 2014
Sir, in “A new chapter for Opec?” November 26, Anjli Raval and Neil Hume, describe Opec and the US shale oil-producers as competitors… and this though in many ways they share the same problem and perhaps would be better of as allies.
What problem? That the taxman, at least the Europeans taxman, needs, wants, and by means of taxes on gas (petrol consumption) gets more income per barrel of oil, than those who sacrifice that non-renewable resource forever.
What would the demand for oil be in Europe and other places if gas (petrol) was not such a handy product to collect taxes on? I don’t know how much higher it would be but, if I were one of those Opec ministers, I would certainly invite those shale oil producers for a little talk on shared strategies.
“Spaniards you will not have to pay Spain's debts, and you will not have to work too much” stinks pure cheap populism
Sir, Wolfgang Münchau writes “There is nothing controversial about the statement that if debt is unsustainable it needs to be restructured”, “The radical left is right about Europe’s debt” November 24.
Indeed, absolutely right. But then Münchau holds that Podemos of Spain “may be the one that comes closest of all those in the Eurozone to offering a consistent approach to post-crisis economic management”.
If a knowledgeable Münchau cannot differentiate between understanding the need of debt restructuring, and using that need in terms of haranguing “screw those capitalists”, in order to gain self interested power, then Europe is indeed in trouble.
Just two days ago Tobias Buck reported that Podemos’ European election manifesto included “a commitment to a 35-hour workweek, and to lowering the retirement age to 60”.
Does not “Spaniards, you will not have to pay Spain debts, and you will not have to work much” stink cheap populism?
November 23, 2014
With no jobs to pay mortgages or utilities, at least we are living in great houses. Thank you bank regulators!
Sir, I refer to Tim Harford’s “Why a house-price bubble means trouble” November 22.
In it Harford writes “Booming housing markets attract bankers like jam attracts flies, sucking money away from commercial and industrial loans. Why back a company when you can lend someone half a million to buy a house that is rapidly appreciating in value?”
That is far from being the whole story.
Regulators, because they thought or wanted to think about the financing of houses as something absolutely safe, also allowed the banks to do it against very little bank capital, meaning very little equity… especially if someone managed to dress up the mortgages in AAA ratings.
And that allowed banks to earn much higher expected risk-adjusted returns on equity when financing houses than when financing the “risky” small businesses and entrepreneurs, those who could create jobs, and for which their regulators required them to hold much more equity.
And so here we now find ourselves… living in expensive houses with too few good jobs to allow us to pay the mortgages and the utilities. Is that not sort of bad planning?
November 22, 2014
Pablo Iglesia’s offer of a 35-hour workweek and a retirement age of 60 in Spain, sounds more like a “No-podemos”
Sir, I have surprised read Tobias Buck reporting that Pablo Iglesias, of Podemos (we can), suggests “a 35-hour work week and lowering the retirement age to 60”, “Spanish upstart party challenges status quo”, November 22.
Sincerely, in a so job starved Spain, that sounds to me much more like a giving up, like lets share the leftovers, like a defeatist “No-Podemos”.
If that is what Spain wants, then Spain is truly in big trouble.
I hope Spain understands that speaking engagingly, emotionally and with great empathy of the problems of a nation, has absolutely nothing to do with the capacity of solving those problems, on the contrary, these are often worsened by experts in verbal populism. (See: Venezuela)
If I was a Spaniard, and a bit similar to Churchill’s “Blood, sweat and tears”, I would now be arguing: “We can (nosotros podemos) and must get out of this sorry mess, and make Spain great again, even if that takes a 60 hours working week and forces us to work until we’re 100”.
PS. When an Executive Director of the World Bank, 2002-2004, it was a great honor for me to be sitting in the chair which represented, among others, Spain and Venezuela.
La oferta de Pablo Iglesias de 35 horas de semana laboral y 60 años para la jubilación, me suena más a un ¡No Podemos¡
Señor Editor, sorprendido leí a Tobias Buck informando que Pablo Iglesias, de Podemos, sugiere "una semana laboral de 35 horas y la reducción de la edad de jubilación a los 60", "partido advenedizo español desafía status quo", 22 de noviembre.
Sinceramente, en una España tan hambrienta de empleos, eso me suena mucho más como un abandono, como a un vayamos a compartir las migajas sobrantes, como a un derrotista "¡No-Podemos!".
Si eso es lo que España quiere, entonces España esta realmente en serios problemas.
Espero que España entiende que el poder cautivar hablando con gran empatía de los problemas de una nación, no tiene absolutamente nada que ver con la capacidad de resolver tales problemas, por el contrario, éstos son a menudo agravados por los expertos en populismo verbal. (Ver: Venezuela)
Si yo fuese español, y algo similar a lo de "sangre, sudor y lágrimas" de Churchill, yo estaría ahora argumentando: "Nosotros sí podemos y tenemos que salir de nuestra triste situación, y hacer de España de nuevo grande y fuerte, incluso si esto nos obliga trabajar 60 horas por semana hasta los 100 años".
PD. Cuando fui un Director Ejecutivo del Banco Mundial, 2002-2004, fue un gran honor para mi estar sentado en la silla que representaba, entre otros, a España y a Venezuela.
Sir, Claire Jones reports Mario Draghi said that the ECB would “do what we must to raise inflation and inflation expectations as fast as possible, “Dovish Draghi raises hopes for more ECB stimulus” November 22.
And since the ECB is aiming at 2 percent inflation that would be equivalent to a 2 percent wealth tax on all the piggy-banks in Europe. Has ECB and Draghi understood Piketty a bit too much?
Frankly, in a Europe with such problems like that banks are effectively restrained by crazy regulators from lending to medium and small businesses, entrepreneurs and start-ups, those tough risky risk-takers that Europe so urgently need to get going, to then hear all this talk about inflation as an overriding minimal requisite for a solution, should make all a bit nervous… specially the poor (and the piggy-banks) who always end being those most taxed by inflation.
November 21, 2014
I refer to Richard Milne’s “Nordic model starts to creak under pressure” November 21.
Sir, suppose you were a development minister of a country like Sweden that has thrived on entrepreneurship, much of it financed by banks.
And then your bank regulator, Stefan Ingves, tells you that, in order to make the Swedish banks safer, he and his colleagues in the Basel Committee, is now going to allow banks to earn much higher risk-adjusted returns on equity when lending to those perceived as “absolutely safe”, than when lending to those perceived as “risky”.
What would you do? What should you do?
You should of course shout: “No! Over my dead body! Favoring in such a way what seems ex ante to be very safe, means that medium and small businesses, entrepreneurs and start-ups, “the risky”, will no longer have fair access to bank credit… and that is too dangerous… even for the banks.”
Unfortunately, those responsible for the economic development of most countries have not yet understood the consequences of the credit risk weighted capital (meaning equity) requirements for banks.
And so before Sweden remembers that risk-taking is the spark that ignites all development and keeps the economy moving forward, it will be stalling and falling.
And that goes of course for all countries that find themselves under the thumb of senseless bank regulators.
November 20, 2014
Sir, we have had two complete different worlds of banking.
One when banks decided to whom they would lend to and at what interest rates and what terms, based on what they perceived the credit risks to be.
The other word, the quite recent one, is one in which regulators intrude and distort the allocation of bank credit by declaring that also the bank capital, meaning equity, banks were required to hold should also be based on perceived credit risks.
And that of course increased the risk-adjusted returns on equity for banks when lending to the “absolutely safe” making lending to the risky, like small businesses and entrepreneurs, something much less attractive.
To think that the economy would respond in the same fashion to various economic stimuli with such different bank systems is quite idiotic.
And Sir, that is why, when reading Richard Milne’s “Stockholm syndrome”, November 20, about the Swedish Riksbank’s crisis-fighting measures, and where there is even a reference to 1937, I find that discussion to be so completely out of context.
It states: “‘Sadomonetarist’ rate rises led to a toxic bout of deflation and criticism from economists.”
If anything, in that respect, what we really have is sadistic risk adverse regulations.
November 19, 2014
ECB’s Peter Praet, seemingly solidary with deep-rooted pessimists, has no moral right to speak out against pessimism.
Claire Jones reports that Peter Praet, the member of the ECB’s top-ranking executive board responsible for economics said: “what worries me the most is that you have a sort of longer-term growth pessimism filtering through to expectations, and authorities in general have to be very attentive to this”, “ECB warns of ‘pessimism’ threat” November 18.
Frankly, are not capital requirements for banks based on perceived credit risks, and which are designed to make banks avoid taking risks on the “risky” and limiting themselves to financing the “absolutely safe”, an expression of profound pessimism? Of course it is. Optimism is equivalent to let’s go for it, even if its risky. And that is what Europe needs.
But, the problem Praet might have is that it must be difficult to discuss the distortions in credit allocation that that bank regulation causes, if your boss, Mario Draghi, as the previous chairman of the Financial Stability Board, is one of the most responsible for it.
My answer to Praet would be: You have to decide whether the future of your children and grandchildren is more important than yours. It is as easy (and as hard) as that!
Sir, we live in a world where those who are perceived as “risky” from a credit point of view; those who always include small businesses and entrepreneurs; those who with their dynamism help to seed the future of an economy, are negated fair access to bank credit. And that is done by means of regressive and distorting bank regulations that allow banks to hold much less capital, meaning equity, against assets perceived as absolutely safe.
And tragically, that is not deemed to be a problem, like we can for instance see when reading Martin Wolf’s “The curse of weak global demand” of November 18. In it, as usual, this central problem is not even mentioned
Of course the world has many problems but since risk-taking is the oxygen of any development, one of the most serious one is the self-inflicted curse of excessive regulatory risk aversion.
I was recently reminded of “The Parable of the Talents”, Matthew 25:14-30 and we would all be well served if regulators read it and understood it. We the taxpayers are underwriting many of the risks in banking, “the Talents”, which we hand over to regulators to manage, and we do not do that just in order for banks to obtain higher returns on equity or to only lend to those perceived as absolutely safe. We do that so that banks can allocate credit efficiently, and daringly, to the real economy.
November 18, 2014
Sir, Tom Braithwaite’s writes that “stock and bond prices for the banks would be more accurate if [the market] knew what the Fed thought about the strength of these banks and their management”, “Smoke needs to clear over Fed supervision of US banking system”, November 17.
Indeed, that sounds extremely rational but, unfortunately, if the views of the Fed are biased, the signals it sends out will of course make it worse for the economy as a whole.
I say this because it is clear that the Fed agrees with regressive regulations which much favors bank lending to the infallible, in detriment of lending to the risky, and so opining based on such mistaken criteria cannot lead to anything good.
Just look at the “Camels” ratings that Braithwaite refers to and that many want to be disclosed. These cover “capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk”; with no indicator for what is most important for the real economy, and thereby implicitly in the medium and long run is also vital for the banks, namely if the bank allocates credit efficiently to the real economy.
And so, even if in the land of the free and the home of the brave, the Fed would rate much higher a bank that exclusively lends to the sovereign and the AAAristocracy, than a bank that dares lending to “risky” citizens and their small businesses. And if that helps anyone, that might be those very elderly in want of short-term safety, and clearly not the young who need banks to take risks in order to have a future.
And what is really hard to understand is when Braithwaite refers to Jose Lopez, an economist at the Federal Reserve Bank of San Francisco, opining in 1999 that the disclosure of Fed’s Camels ratings “could benefit supervisors by improving the pricing of bank securities and increasing the efficiency of the market discipline brought to bear on banks”. Does the Fed need the market to reassure it by reaffirming the Fed’s own biases? Is it not doing enough damage as is?
November 17, 2014
I agree 100 percent with Christian Clausen of Nordea, in his description of 50 percent of the problem with SMEs and bank capital/equity.
Sir, I refer to Richard Milne’s “Tide of regulation has gone so far it means unacceptably high premium for SME borrowers” November 17.
In there Christian Clausen, chief executive of Nordea and president of the European Banking Federation, is quoted saying: “Ever-increasing capital demands of regulators meant banks needed to charge a margin of 6-7 percentage points to small and medium-sized enterprises (SMEs), companies which are often seen as the backbone of the EU economy. Show me an SME that can do a business case on opening a new factory or doing an investment where they can start by absorbing 600-700 basis points on margin. In this environment, it’s not possible."
And Clausen asks: "Don’t you want to allocate risk capital to the young entrepreneurs and the companies that can grow and export and create jobs? We have gone too far. Why on earth as a politician do you want to allocate the limited amount of risk capital in your society more than necessary to the banking sector? Don’t you want to allocate risk capital to the young entrepreneurs and the companies that can grow and export and create jobs? We will not create more jobs by piling up more capital, we will create negative growth because our lending costs will go up.”
Absolutely, Clausen is 100 percent correct, but unfortunately that is only in 50 percent of the story.
The other 50 percent is: Why would bank regulators require banks to have more capital when lending to SME’s, the backbone of the economy, than when lending to for instance those who possess an AAA rating or lending to an “infallible sovereign”.
Is it not so that much of the higher margin banks now need to charge SME is a direct result of the low margins they charge when lending to the “absolutely safe” because these are subsidized by the very low capital requirements that then apply?
My rephrased Clausen questions would be: Why on earth as a politician do you want banks to consume more of the limited amount of bank risk capital in your society when lending to the risky that when lending to the safe? Do you really want to discriminate against the fair access to bank credit of the young entrepreneurs and the companies that can grow and export and create jobs?
Do you really want your banks financing the riskier future settling instead for refinancing the safer-past?
Sir, for the real economy, a stress test of banks, which analyzes only what is on the banks’ balance sheets, and ignores what should have been on these, is a useless test.
PS. Yesterday in church I was reminded of the “The Parable of the Talents”. It would do us much good if bank regulators read Matthew 25:14-30
Sir, Sebastian Mallaby writes: “Banks are underwritten by taxpayers via deposit insurance as well as the too-big-to-fail safety net; they need to be reined in, and if they shrink, so be it”, “Stringent rules for hedge funds make the financial system fragile” November 17.
Indeed but, why are banks underwritten by taxpayers? What are banks supposed to deliver in return?
The current mission statement imposed by regulators on banks, by means of credit risk weighted capital requirements, seems to be that of lending more and cheaper than normal to all those perceived as “absolutely safe”, and to stay away from lending to the “risky”. Is that what we want? I don’t think so. If it were, there would be no reason for us to underwrite anything.
For example the: “We the people underwrite the banks so that these can lend more and cheaper to our "infallible" sovereigns… in the hope that doing so we don’t have to pay taxes”… sounds more like underwriting the sovereign than underwriting the banks.
No, I believe we taxpayers agreed on underwriting the banks so that these would be better equipped to take on the risks of lending to all those risky small business and entrepreneurs we all know should get credit, so that the economy grows and as a result we all are better off. That was the quid pro quo!
And Mallaby also writes: “Regulators need to remember that financial risk will not go away… there will be difficult judgments about how capital should be allocated. So there has to be a theory of where this risk can best be housed. If hedge funds are part of the answer, regulators make the world less safe by clamping down on them.”
Absolutely, if not the banks, then who is going to house the risk-taking we support and that most of the world, not understanding the regulations, still think is housed in the banks?
November 16, 2014
Sir, Gillian Tett asks: “Can sensible ever ‘trend’?”, “The battle for political sense and sensibility”, November 15.
In these days of information overload, when no one has time to digest what they hear, read and see, and only have time to file it in black or white, or right or wrong cabinets, that is indeed an extremely important question.
Unfortunately, for the time being, it has to be answered with an “on its own, without assistance No!”
With respect to justice I have for long argued that more than fighting for justice, which places us on the route to something infinite, where we never really know where we find ourselves, it is much more effective to fight against the injustices, which are easier to define.
In the same vein, instead of trying for sense or sensibility to trend, let us at least start by making sure that what’s senseless and insensible cannot trend.
As a minimum it behooves the world to find credible instruments that can shame out some of the complete senseless and insensible falsehoods that, floating around on the web, causes real idiots to believe they have confirmed grounds to believe in their idiocies, and give them instruments to advance these, and so create legions of fools.
Is that easy, or even possible? That is an irrelevant question, it has to be tried.
Would that be censorship? No, much more like social sanctioning… on a global scale.
November 14, 2014
Regulators frightened by innocuous credit risks are concerned with banks worrying about dealing with money launderers.
Sir, Martin Arnold reports on “growing concern among regulators and politicians about increased risk aversion by banks, which have reacted to a regulatory crackdown and a string of big fines for misconduct by severing links with riskier clients”, “Financial task force warns on banks’ approach to de-risking”, November 14.
Sounds like a cruel joke. Regulators who demonstrate huge risk-adverseness based solely on credit risk perceptions, are now expressing concerns with that banks might be to risk adverse when dealings with clients who could fit the profile of money launderers and terrorist financiers.
Sir, I refer to Martin Wolf’s “Hope for the best on productivity, but prepare for the worst” November 14.
Here is a list of risk weights applied by bank regulators apply, even though banks already adjust for perceived credit risk by means of interest rates, size of exposure and other contractual terms.
Infallible sovereigns: 0 percent.
Members of the AAAristocracy: 20 percent
Financing of houses: around 30 percent
Medium and small businesses, entrepreneurs and start-ups: 100 percent.
Sir, do you think that risk weighting is compatible with a banking sector that can effectively help to finance increased productivity? I don’t. Martin Wolf seems to think there is no linkage.
Regulators are negating our descendants the freedom of risk taking by banks that brought us to where we all find ourselves. That is shameful... and useless. Lending to medium and small businesses, entrepreneurs and start-ups have never been the direct cause of any real large bank crisis.
November 13, 2014
With Portfolio Invariant Perceived Credit Risk Weighted Equity Requirements for Banks, Europe, the whole G20, is doomed.
Sir I refer to the reports and warning about Europe’s economy, November 13.
As long as regulators insist on using Portfolio Invariant Perceived Credit Risk Weighted Equity Requirements for Banks, Europe, in fact the whole G20, is doomed.
What more can I say that I have not already explained to you in more than a 1600 letters about what these regulations with their misguided credit risk aversion cause, and that you prefer to ignore?