Tea with FT

Big time meddler Greenspan is no one to warn us about meddling with the market.

noreply@blogger.com (Per Kurowski) — Thu, 26 Jan 2012 13:02:00 +0000

Sir, Alan Greenspan is one of those responsible for the regulations which require banks to hold quite a lot of capital when lending to small businesses and entrepreneurs but allow these to lend to the government against no capital at all. As such he is de-facto one of the biggest market meddlers of our time, and has no moral right to appear in the Financial Times preaching us with “Meddle with the market at your peril” January 26.

As former chairman of the US Federal Reserve he must be aware that the whole world economy is flying blind, because of those capital requirements… like what would the rate on US treasury be if the banks had to treat citizens and government alike?

Crony journalism is also a public bad

noreply@blogger.com (Per Kurowski) — Wed, 25 Jan 2012 19:00:00 +0000

Sir, in “The world’s hunger for public goods”, January 25, Martin Wolf holds that extreme financial instability is a public bad; and which presumably has to mean that correctly understanding the reason for it, should be a public good.

Nonetheless, over many years now, the explanation that I give for the current crisis, as an individual who provided some of the clear and earliest documented warnings, even in FT, and which I thought I could make public through sending letters to FT, has been silenced. For what reasons, I do not know… but it could perhaps be explained in terms of crony journalism.

Nonetheless, here is an explanation again, for the umpteenth time.

If a banker after analyzing a borrower’s creditworthiness decides to limit the amount of the loan, and charge higher interests to compensate for the perceived risks, the borrower might try to renegotiate better terms, but he would not consider it unfair, as it would be the result of natural market discrimination.

But, when bank regulators also force the bankers to further limit their loan to the borrower, and increase even more the interest rate charged, all because they require the bank to hold more capital when the officially perceived risks are higher than when they are low, as they do, then we enter into the world of the nannies, the world of artificial regulatory risk discrimination; which only leads to the kind of unfairness that exasperates the inequalities.

As a result of this regulatory risk discrimination we now have a crisis of financial instability that threatens to take the Western world down; all because of excessive bank exposures to what is officially perceived ex-ante as not risky – for instance, triple-A rated mortgage-backed securities or “infallible” sovereigns and a growing bank underexposure to what is officially perceived as risky – for instance, lending to small businesses and entrepreneurs.

The parents need to discuss this issue urgently with their financial nannies, before it is too late and the economy has turned terminally sissy and terminally unfair.

PS. Occupy Basel! http://bit.ly/dFRiMs

PS. http://www.cityam.com/forum/holy-moly-banks-were-drugged-basel-s-rulebook

We are living dangerously in the land of officially declared safeness!

noreply@blogger.com (Per Kurowski) — Wed, 25 Jan 2012 18:13:00 +0000

Sir Martin Wolf’s “Yet another year of living dangerously” January 25 would have benefited from the subtitle “in the land of perceived safeness”. The world has in fact been living extremely dangerous, ever since the Basel II rules were approved in June 2004, and which set of a frantic race for whatever assets were officially perceived as not risky and that, just because of that, required the banks to hold extremely little capital.

Much of the global macroeconomic imbalances that Mr. Wolf obsessively insist on blaming for this crisis, were precisely financed by the fact that banks could lend or invest trillions against only 1.6 percent in capital or even less.

To save the world from the current dangers, we need to get rid of the nannies in Basel and help our bankers relearn how to take real bank risks and not just regulatory arbitrage risks.

Don’t downgrade the rating agencies, downgrade the regulators.

noreply@blogger.com (Per Kurowski) — Fri, 20 Jan 2012 12:21:00 +0000

Sir, already a couple of years into this crisis Philip Stephen shows a surprising lack of understanding of it, in his “Downgrade the rating agencies”, January 20.

Suppose that human fallible credit rating agencies were able to produce absolutely perfect ratings, in terms of measuring the risk of default, and which are of course used by the banks to choose who to lend to, how much, and at what rate.

But consider the fact that regulators imposed capital requirements for banks that were also based on the same ratings, and which functioned therefore like a hallucinogen, a veritable LSD; increasing the banker’s sensitivity to risk, so that he perceived a good ratings in a much brighter light, and a not so good ratings took on an even scarier appearance.

As should have been expected by any independent regulator, not part of a incestuous group-think, the consequences were:

A growing excessive bank exposures to what is officially perceived ex-ante as not risky, like the triple-A rated securities and infallible sovereigns, leading to a dangerous overcrowding of the safe-havens and;

A growing bank underexposure to what is officially perceived as risky, like in lending to small businesses and entrepreneurs, equally dangerous, because of the lost opportunities to create the next generation of jobs for our grandchildren.

So again it was not primarily the rating-message’s fault it was the fault of those who ordered how those rating-messages were to be read. Downgrade those regulators!

Occupy Basel! http://bit.ly/dFRiMs

We do not need banks avoiding risks we need banks taking the right risks.

noreply@blogger.com (Per Kurowski) — Wed, 11 Jan 2012 12:25:00 +0000

Sir, Vikram Pandit in his comment on “Capitalism in crisis” January 11 rightly refers to the capital requirements for banks set by the regulators based on perceived risk of default as a (arrogant) presumption of “clairvoyance no regulator can posses”. I totally agree with that, but then he suggests bettering the system by having the banks comparing the risk profile of their assets with some “benchmark” portfolio created by the regulators.

Ha! What would have happened in the building up of the current crisis? Those banks that had held the most of ex-ante triple-A rated securities and of infallible sovereigns would have certainly compared great against the benchmark, and be rewarded for that, but could then have been among those who turned into the worst nutcases when the ex-post realities set in.

And, if the banks already now shy away way too much from taking on the real risky but rewarding prospects we need them to take, such as lending to the small businesses and entrepreneurs, they would do more so, if subject to a new sort of “neutral” measurement tool.

Mr. Pandit and Mr. Regulator, we know you are looking to the safety of the banks, but, we other humans need to look at the safety of our economy and the prospects of creating jobs for our grandchildren, and neither capital requirements based on perceived risk nor a “benchmark” portfolio has anything to do with that… on the contrary these just make our prospects so much dimmer.

Capitalism is in crisis, being attacked by regulators!

noreply@blogger.com (Per Kurowski) — Mon, 09 Jan 2012 13:33:00 +0000

So capitalism is in crisis? Analysis, January 9. Would golf not be in crisis too if the handicap officers assigned more strokes to the good players than to the bad? Would horseracing not disappear if the bad horses had to carry more weight than the good? What would you say about a government that on top of the higher premiums the unhealthy pay, proposes to also tax them because they are riskier?

The banks are of vital importance for how capitalism functions, and Mark Twain reminded us with his the lending of an umbrella when the sun shines and taking it back when it rains, that bankers might be too risk-adverse. If they were that before, well now they are that a hundred times more.

Because now, thanks to our ingenious bank regulators, for a bank to finance 100 dollars of what is officially perceived ex-ante as risky, it needs about 8 dollars in capital, but, to finance100 dollars of what is officially perceived ex-ante as not risky, it needs only about 1.6 dollars.

Which means that when a bank lends to what is officially perceived ex-ante as risky, it can earn the risk and cost adjusted margins of those loans about 12 times for each dollar of bank capital, but, when lending to what is officially perceived ex-ante as not risky, it can earn the risk and cost adjusted margin of those loans more than 60 times for each dollar of bank capital.

The natural consequence of such stupidity, is that the lending to what ex-ante is officially perceived as risky, like the lending to entrepreneurs and small businesses, is in relative terms made much less interesting for the banks, while the lending to what ex-ante is officially perceived as not risky, like the triple-A rated and infallible sovereigns, is given extraordinary incentives.

And so the perhaps most important and dynamic participants of capitalism, the small businesses and entrepreneurs, are either not getting bank loans, or having to pay much more for these, all while, what is ex-ante officially perceived as absolutely safe-havens, and therefore already easily attracted cheap funds, are now, ex-post, turning into dangerously overcrowded havens.

A byproduct of such stupidity is of course also that an allowed bank leverage of more than 60 times, serves as the most potent growth-hormone for the too-big-to-fail banks and of the too-big-to be-decent banker bonuses.

What to do? Let capitalism be capitalism. Capitalism discriminates sufficiently on its own based on ex-ante perceived risks, so as to need further assistance from the excessively worried nannies in the Basel Committee for Banking Supervision.

Has FT just turned into an Occupy Wall-Street extremist?

noreply@blogger.com (Per Kurowski) — Thu, 29 Dec 2011 12:33:00 +0000

Or are you just expressing pent-up jealousy about banker’s bonuses?

In “Restoring faith in the banking system” December 29 you write “Prior to the crisis, bankers garnered great fortunes by loading individuals and companies with excessive and unnecessary debt, or by churning investment portfolios to extract transaction fees.” Frankly, what on earth does that have to do with causing the current crisis?

We are not in a mess because of the banker having made to much money on that! We are in a mess exclusively because the bankers built up excessive exposures to what was ex-ante officially perceived as not risky, like triple-A rated securities and “infallible” sovereigns; and that happened exclusively because silly regulators allowed the banks to do so against very little or no bank capital at all. If you want to search for the source of income which originated immense bankers’ bonuses, then look no further than to the outrageous leverages allowed for some assets.

How on earth will the Western World be able to restore its faith in the banking system with editorials like this which seem to indicate that our only possibility is to sit down and wait for the new good bankers?… like waiting for a New Soviet Man.

Want to restore faith in the banking system? Throw out those who produced Basel I and II, instead of allowing them to concoct an even more dangerous Basel III.

PS. You write “The asymmetry of risk and rewards in banks has led to poor outcomes for society” and I must ask, what about the information asymmetry powers you exercise in favor of the opinions of those you want to favor? Do we have to occupy FT too?

US, and the Western World, is becoming “the land of the risk-adverse”.

noreply@blogger.com (Per Kurowski) — Wed, 21 Dec 2011 14:04:00 +0000

Sir, I, as most humans, am extremely risk-adverse, and that is why I have always appreciated the role of designated risk-takers that the banks perform for the society. We cowards were used to worry our bankers were too cowards to, with their lending of the umbrella while the sun shines and taking it away when it rains. But then came the bank regulators and with their capital requirements that discriminate fiercely based on perceived risks made it all so much worse.

Martin Wolf comments on the “Great Stagnation” by Tyler Cowen of George Mason University, December 21. What they both fail to identify is that requiring banks to have a lot of capital when the perceived risks are high, and allowing them to hold minuscule capital when the perceived risks are low, stacks the returns on bank equity against what is perceived as risky. And that has nothing whatsoever to do with what made “the land of the brave” big. The US is now, as is most of the Western World, becoming the land of the risk-adverse.

Not taking risks is about the most dangerous things a society can do… as the only thing that can result from that is the overcrowding of the ex-ante safe-havens

The Western World is in a freefall, and no one is discussing the reason why

noreply@blogger.com (Per Kurowski) — Mon, 12 Dec 2011 10:04:00 +0000

Simplified, if the cost of funds for a German bank was 2 percent; if it wanted to earn a 1.5 percent margin; if the cost of analyzing the credit worthiness of a German small business was 1 percent; and if the risk that the borrower would default was perceived as 3 percent, then the German bank would charge the German small business an interest of 7.5 percent.

And if the cost of funds for a German bank was the same 2 percent; if it wanted to earn the same 1.5 percent margin; if the cost of analyzing the credit worthiness of Greece was zero, because that is paid by Greece to the credit rating agencies to do; and if the risk that Greece would default was perceived as 1 percent, then the German bank would charge Greece an interest of 4.5 percent.

If the German bank was required to have about 8 percent in capital against any loan, and could therefore leverage its capital about 12 times, the bank could expect to earn 18 percent on its capital when lending to a German small business or when lending to Greece.

But that was before the bank regulators of the Basel Committee intervened and messed it all up.

These regulators, ignoring the empirical evidence that bank crisis never occur because of excessive exposures to what was considered risky but only because of excessive exposures to what was considered as absolutely not risky, with their Basel II, told the banks “You German bank, if you lend to a “risky” German small business you need 8 percent in capital, but if you lend to an infallible Greece you only need to have 1.6 percent in capital”.

And because that 1.6 percent allowed for a leverage of more than 60 times when lending to Greece, the German bank, though it still could earn a decent 18 percent on its capital when lending to a German small business, suddenly could expect to earn 90 percent on its capital when lending to Greece. Hell, the German Bank could even afford to lower the interest rate it charged Greece and still earn more when lending to Greece than when lending to a German small business.

And of course the German bank, as did all banks in the Western world, started running to the officially perceived safe-havens of Greece, Italy, Spain, triple-A rated securities and others, where they could earn much more; and of course the governments of the safe havens could not resist the temptations of cheap and abundant loans, and all these safe-havens became dangerously overcrowded… while the small German business found it harder and much more expensive to access any bank credit… and while the too big to fail banks grew even bigger.

And, many years into a crisis that has the Western World in a freefall, this issue is not even discussed, and the same failed bank regulators are allowed to work on Basel III, using the same failed loony and distorting ex-ante perceived risk of default based capital requirement discrimination principle.

Hell, even the Financial Times has decided to ignore the hundreds of letter I sent them about it, and this even when they know they published two letters of mine that clearly warned about what was going to happen. In January 2003, “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, in October 2004, “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)?

Occupy Wall Street? No! Occupy Basel! Hell, occupy the Financial Times too!

The blame lies squarely with the regulators not with the credit rating agencies

noreply@blogger.com (Per Kurowski) — Wed, 07 Dec 2011 12:41:00 +0000

Sir, Quentin Peel in “Agency’s debt warning provokes angry response” December 7, reports that Christian Noyer the president of Banque de France held that “the rating agencies were one of the motors of the crisis in 2008.

Mr. Moyer should know better, the motor of the crisis, were the ridiculous low capital requirements for banks allowed by his regulating colleagues in the Basel Committee based on the credit ratings, as if these were infallible and as if doing so would not incentivize the growth of dangerous exposures to what was ex-ante perceived as not risky.

In January 2003, while being an Executive Director of the World Bank, the Financial Times published a letter where 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”. But it looks like Mr. Noyer and his colleagues did not know that!

We were thrown back into the Dark Age... by the Basel Committee

noreply@blogger.com (Per Kurowski) — Mon, 05 Dec 2011 15:18:00 +0000

Sir, Tony Jackson’s “Why talk of a coming Dark Age is a touch overdone”, December 5, reminded me of Peter L. Bernstein who in Against the Gods (John Wiley & Sons, 1996) wrote that the boundary between the modern times and the past is the mastery of risk, since for those who believe that everything was in God’s hands, risk management, probability, and statistics, must have seemed quite irrelevant.

Ironically, we might now be thrown back into the Dark Ages, because of bank regulators who thought themselves Gods, and assigned minimal or even zero percent risk weights, those used when determining the capital requirements for banks, to what they thought were the infallible, the triple-A rated and the solid sovereigns.

Europe, the Basel Committee should and needs to be blamed for the crisis.

noreply@blogger.com (Per Kurowski) — Mon, 05 Dec 2011 12:23:00 +0000

Sir, Wolfgang Münchau goes to the core of the European issue when he writes that its leaders’ narrative, which reduces the crisis to a failure of fiscal discipline, is probably the underlying reason why all their crisis resolutions efforts have failed so far”, “France and Germany look set to fudge it yet again”, December 5.

Indeed, had the European leaders understood two letters that I wrote and were published by FT, the narrative would be quite different, in fact Europe could perhaps not even be facing this crisis.

The first letter, January 2003 said “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”. The second, October 2004, “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector [sovereigns]?

From the content of those two letters it is easy to understand that no matter what intrinsic and real problems the eurozone has and no matter the natural fiscal indiscipline of politicians in general, Europe would not have faced this crisis had the bank regulators in Basel known better.

PS. Who did the eurozone in?

Small and frequent tremors might help to keep the big one away.

noreply@blogger.com (Per Kurowski) — Fri, 02 Dec 2011 20:14:00 +0000

Sir, Roger Altman concludes “We need not fret over the omnipotent markets” December 2, with “There may be more frequent market crisis. We should not rush to conclude that they will end in tears”. I would word it differently, the more frequent the market crisis, the less the probability it will end in tears.

In May 2003, as an Executive Director of the World Bank (just 1 of 24) I made the following comment at a workshop for bank regulators at the World Bank: “A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises. Knowing that “the larger they are, the harder they fall,” if I were regulator, I would be thinking about a progressive tax on size”

In my country, Venezuela, when it trembles just a little, many of us applaud, because we feel that small tremors might help to keep the huge ones away.

Right or wrong should not be a calculated risk.

noreply@blogger.com (Per Kurowski) — Thu, 01 Dec 2011 12:35:00 +0000

Sir, John Gapper should be congratulated for clearly opining that “Judge Rakoff is just doing his job”, December 1. Judicial deal makings, aka settlements, introduce risk calculations in matters of what is right and what is wrong, that can rot even the strongest society.

I just wish there would also be a Judge Rakoff out there who would be willing to question the right of the regulators to place a layer of arbitrary discrimination of those perceived as “risky”, on top of the natural market discrimination that already exist against them. In other words, what constitutional right do regulators have to decide that a bank needs to hold substantial capital when lending to a citizen, but needs no capital at all when lending to an infallible sovereign?

What the IMF should tell the Basel Committee

noreply@blogger.com (Per Kurowski) — Wed, 30 Nov 2011 17:41:00 +0000

Sir, Martin Wolf in “What the IMF should tell Europe” November 30, writes “Fiscal indiscipline did not cause this crisis. Financial and broader private sector indiscipline, including by lenders in the core countries, was even more important.” Again, Martin Wolf refuses to acknowledge that most of that “indiscipline” was caused by the incestuous group-think that afflicted bank regulators and made them come up with truly senseless regulations. He should consider that his call for “ruthless truth-telling” applies to him too.

What I would urge the IMF to use its portent voice for at this moment is to instead of advising Europe advising the Basel Committee, telling it:

"You allowed the banks to lend to ´infallible sovereigns´ and ´super-safe´ triple-A rated privates with little or no capital at all, and, as a result, the monstrous exposures that turned safe-havens into dangerously overcrowded havens were generated... But now is not the moment to make up for all the capital that should have been in place when banks booked their assets, not when the risks were discovered… and so allow all the banks to keep their current exposures backed with whatever bank capital was originally required from them… so to permit that all new bank capital is not to fill holes but can be used to back new operations… but which all have to meet the same basic capital standard no matter what the ex-ante perceived risk is.”

Baloney Mr. Chan! What the Western World most needs is to free their banks of their stupid regulations.

noreply@blogger.com (Per Kurowski) — Tue, 15 Nov 2011 16:29:00 +0000

Sir, I know that the current crisis, and that has until now mostly affected the Western World, was primarily caused by the bank regulators who innocently thought they were doing us a favor, by creating artificial incentives for the banks to generate dangerously excessive exposures to what they officially perceived as “not-risky”, like the triple-A rated securities and “solid” sovereigns, while, equally dangerously, hindering the banks to attend to the credit needs of the “risky”, the small businesses and entrepreneurs. This the regulators did by means of their silly capital requirements for banks based on ex-ante perceived risks of default of borrowers.

That is why I truly feel upset when, silencing my voice, you allow Ronnie Chan the space to argue that “The west is now in many respects too free”… and that perhaps the United States might be better off leaning more towards China’s ways, “The west is in danger of frittering away its freedom” November 15.

What a baloney! What the west most needs is to free their banks from their current regulations. If the United Sates does collapse and therefore China does not collect it investments or can export more to it, I wonder where Mr. Ronnie Chan would prefer to be… in the United States or in China? I know for sure where I would like to be and I also hope those in the Financial Times are clear on that too.

Yes, ease the rules on small business loans, by eliminating the regulatory discrimination against these.

noreply@blogger.com (Per Kurowski) — Mon, 14 Nov 2011 18:24:00 +0000

Sir, Patrick Jenkins and Brooke Masters on November 12report that Andrew Haldane, the Bank of England’s executive director of financial stability opines that “regulations that potentially constrain lending to small businesses should be eased [made less capital intensive] when the economy is suffering”. That is a marvelous opening for someone like me who has been for more than a decade clamoring to eliminate the regulatory discrimination against small businesses, though I would of course want that to happen at all times and not only when the economy is suffering.

Andrew Haldane, with much honesty also says “At present [the risk-weights] are calibrated to the risk of a bank. In future they need to reflect returns to society”. Yes Mr. Haldane that is what they should have done all the time.

What is really sad though is to read a senior regulatory specialist at a global bank saying “You can’t just change risk weightings at whim because what really matters is that risk is priced correctly”… this specialist, as most other specialists, has still not been able to figure out that you cannot price risk correctly when different risk-weights are imposed on different assets… and that is what have us all now drowning in the ocean of the ex-ante perceived as not at all risky assets.

Can we get us some good and courageous technocrats please!

noreply@blogger.com (Per Kurowski) — Sun, 13 Nov 2011 14:39:00 +0000

Sir, Tony Barber writes “Enter the technocrats” November 12, and that could be good unless of course it is the failed technocrats who are entering… and frankly most of the European and American technocracy, in the area of finance, have failed miserably.

Technocrats who never understood, and still fail to understand, that the risk-weights used for determining the capital requirements for banks that based on ex-ante perceived risk of default, were layered on top of the banker’ own risk-weights, which drove the banks to create dangerously high exposures to what is officially perceived as “not-risky”, are not worthy being called technocrats… no matter how revered they are in Brussels.

At this time, when we all need the risk-takers to work for us, they are being choked by the lack of access to bank credit… just because these failed technocrats believe them to be risky. Come on, these were the regulators who believed sovereigns to be safe! Are we still supposed to blindly follow their courageous calls for entering their land of no-risks?

These wimpy technocrats –bureaucrats, who demonstrated even less courage than many politicians, and who are in fact more responsible that most politicians for this crisis, do not seem to be the leaders we now need!

FT, I dare you!

noreply@blogger.com (Per Kurowski) — Sat, 12 Nov 2011 15:12:00 +0000

FT, I dare you, following your motto “without fear and without favour”, to mark to market the bank regulators, like you so valiantly do with fallen Berlusconi in “Public Liability”, November 12.

For instance, how many billions in lower interest did the regulators subsidize governments with, by allowing banks to hold zero or minimal capital against loans to their solid sovereigns? How much of the excessive sovereign debt is the direct result of such regulatory bias? How much bank lending to “risky” small businesses and entrepreneurs did not happen because these had to pay higher rates to make up for not being treated equally favorable?

In November 1998 in an Op-Ed titled “Burning the bridges in Europe” and that had to do with the fact there was no route out of the euro I wrote “That the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

That Op-Ed clearly shows that I predicted what is now happening, but, what I was not aware of at that time, because I am neither a banker nor a regulator, was that the bank regulators were going to impose such a sick and really communistic capital controls in favor of their governments. Shame on them!

The rawest deal women entrepreneurs get in access to bank loans has nothing to do with their gender

noreply@blogger.com (Per Kurowski) — Thu, 10 Nov 2011 14:06:00 +0000

Sir, Noreena Hertz writes that “Women are getting a raw deal in business and in finance” November 10, and bases that opinion on a study about the differences between women and men in terms of access to bank loans. She holds that if there was to be less discrimination more women entrepreneurs would be able to help out the economy. and she also makes reference to the possible legal consequences for the lenders.

She might be right, but, whatever discrimination women entrepreneurs are subject to because of their gender, pales in comparison to the odious arbitrary regulatory discrimination they are subject to because they are officially perceived as “risky”, and therefore the banks are forced to hold many times more capital when lending to them than what they are required to have when putting their money in triple-A rated instruments or sovereigns.

Since the “risky” are already discriminated against by banks in terms of interest rates, amounts, maturities and much other, the above amounts to layer a discrimination on top of a discrimination… something akin to asking the banks to hold more capital when lending to women.

If Noreena Hertz really wants to help she should first aim at the regulatory discrimination and once that idiocy dis taken care of, then she might perhaps request banks to be required to have somewhat less capital when lending to women, to compensate for the remaining discrimination.

But the misalignments turned monstrously large only because they were financed.

noreply@blogger.com (Per Kurowski) — Wed, 09 Nov 2011 23:45:00 +0000

Sir, Martin Wolf in “thinking through the unthinkable” November 9, quotes Thomas Mayer of Deutsche Bank saying “below the surface of the euro area´s public debt and banking crisis lies a balance of payments crisis caused by a misalignment of internal real exchange rates”.

Yes, the misalignment of the real exchange rates within the eurozone were always in the cards, but the main reason for why they could grow so out of proportion was the fact that it could be financed… and the foremost cause of that were the truly stupid regulations which allowed the banks to finance European sovereigns against little or no capital at all.

I would presume Martin Wolf has many friends among regulators, while I have none, but nonetheless he should have used his column long ago to ask… is it rational to allow banks to finance for instance Italy and Greece, or any sovereign, against basically no capital at all? Had he and his colleagues done that, then perhaps Europe would have had a better chance to nip the current crisis in the bud.

I would be scared too by Michael Barnier…and by Sir Mervin King.

noreply@blogger.com (Per Kurowski) — Wed, 09 Nov 2011 14:20:00 +0000

Sir, Alex Barker in “Barnier vs the Brits” November 9, writes about the fears of Sir Mervin King in that Brussels reforms will reshape a vital British industry to the benefit of eurozone rivals.

I do not know much about the competitive aspects of UK banks but, I would indeed be frightened if the banks of my country were to be even partially supervised by someone who when going to Washington D.C. presented in a brochure, as a success story of his office: “A French citizen complained about discriminatory entry fees for tourists to Romanian monasteries. The ticket price for non-Romanians was twice as high as that for Romanian citizens. As this policy was contrary to EU principles, the Romanian SOLVIT centre persuaded the church authorities to establish non-discriminatory entry fees for the monasteries. Solved within 9 weeks.” http://ec.europa.eu/solvit/site/success/index_en.htm

And, if an owner of a small business or as an entrepreneur, classified as “risky” by the regulators, and in need or want of bank credit, I would also be scared witless by someone who even after the world has gotten itself into such enormous difficulties by the excessive bank exposures to what was ex-ante officially deemed as absolutely not-risky, during a conference in Washington, insisted on that his responsibility as a regulator is simply to avoid excessive risk-taking… but, come to think about it… so does also UK´s Sir Mervin King opine. Help!

In the name of Europe, America and the Western World, you of the Basel Committee go!

noreply@blogger.com (Per Kurowski) — Sat, 05 Nov 2011 20:42:00 +0000

Yes, you wrote to Berlusconi “In the name of God and Italy go!” November 5 and I do not object to even one comma.

But, in the same vein, I would tell all bank regulators even loosely associated with the Basel Committee “In the name of Europe, America and the Western World go! Their treacherous risk avoidance gospel they preach to our banks, if allowed to continue, is going to take Europe, America and the Western World down.

And what about the long overdue challenging of the idols of global bank regulations?

noreply@blogger.com (Per Kurowski) — Wed, 02 Nov 2011 12:33:00 +0000

Sir, when reading Rowan Williams, the Archbishop of Canterbury’ “Time for us to challenge the idols of high finance” November 2, I cannot but regret he did not include the need to also challenge the idols of global bank regulations.

These regulators, more than anyone, because of their capital requirements based on ex-ante perceived risk of default, are the most to blame for a world that is sinking dangerously fast, in the overexposure to what was ex-ante perceived as not risky, like AAA rated securities, Greece and many more sovereigns; and the underexposure to those perceived as risky, the small businesses and entrepreneurs.

If instead of analyzing the pro and cons of a financial transaction cost they had analyzed what those regulations mean to the downtrodden “risky”, in terms of additional burdens, and in terms of gifts to the already favored “not-risky”, they might have understood the real inequalities that are present in the banking system and prioritized their petitions better.

Risk-avoiders can huff and puff but they depend on risk-takers.

noreply@blogger.com (Per Kurowski) — Wed, 02 Nov 2011 10:43:00 +0000

Sir, Martin Wolf’s “Creditors can huff and puff but they depend on debtors” November 2, is a great expose on the Janus-faced realities of deficits and surpluses, and also of the too-much-lending and the too much borrowings.

I just wish Mr. Wolf, and so many with him, could get to understand that precisely the same relation exists between safety-and risk-taking. If the world does not take risks it will not be safe. On the contrary by interfering with their risk-weights based on what they perceived as not-risky they pushed the world into one of the greatest economic crisis ever.

There is something fundamentally wrong when, for instance a UK bank, is required to have 8 percent in capital when lending to a UK small businesses or entrepreneur, but is (or at least was) allowed to have only 1.6 percent when lending to a sovereign rated like Greece was, which has absolutely nothing to do with the credit rating of Greece being correct or not.

It really amazes me that Mr. Wolf does not see that risk-avoiders can huff and puff but they depend on risk-takers.