February 24, 2017
Sir, Martin Wolf writes: “The belief that a degree is the only qualification that matters has had dysfunctional effects” “Simple-minded economics distorts the education debate”
Absolutely! “Ample evidence exists of graduates doing jobs that used not to need degrees” and all this when robots and artificial intelligence are only warming up.
But, in Venezuela, the educators supposed to educate our youngsters, don’t say a word about that, in a country in which the lack of food and medicines is killing people, petrol (gas) is sold for US$0.01 a litre (4 US$ cents per gallon).
But, in the developed world, reputable finance and economy professors, supposed to educate our professionals, don’t say a word about that the risk weighted capital requirements for banks dangerously and uselessly distort the allocation of bank credit; and as a consequence a Martin Wolf can get away with not writing about these regulations having dysfunctional effects.
What made educators in Venezuela and professors in the developed world behave this way? And what are we to do when all educators are also being further groupthinked and radicalized by political agendas and social media? I really don’t know. But I do know that leaving it in the hands of governments as Wolf seems to suggest, would be a very childish and statist illusion.
(For the time being) I have two beautiful, bright and spiritual (Canadian) granddaughters. They make me spend much time trying to identify a Hogwarts School for them that could help me to keep them magic.
PS. Thinking back I must be so grateful for my parents, and grandparents, to have allowed me to go to a boarding school that, at least during that time, had something of Hogwarts, though luckily without the witchcraft. I refer to Sigtuna Humanistiska Läroverk in Sweden.
February 23, 2017
Publishing what governments earn in natural resource income, is much more powerful than “publish what you pay” rules
Sir, David Pilling lashes out at the House of Representatives (at Trump) for voting to nullify a rule known informally as the “publish what you pay” rule, which obliges oil and mining companies to disclose payments they make to foreign states. “Trump, Tillerson and the African resource curse” February 23.
Pilling puts forward the case of Equatorial Guinea where, “Since oil was discovered, per capita income has rocketed to nearly $40,000 at purchasing power parity, the highest of any sub-Saharan African country. That comes as scant consolation to the three-quarters of the population who live in abject poverty on less than $2 a day.”
Does the population of Equatorial Guinea know that? Most probably they don’t have the slightest clue about it. Just like the poor in my homeland Venezuela do not have a clue that, from their beloved Chavez, they got less than 15% of what should have been their per capita share of the nations fabulous oil income. That is of course so because the redistribution profiteers, like everywhere else, do not want such information to be known.
If for instance a Voice of America (or any other media for that matter) would daily beam out to citizens in natural resource rich countries, how much their monthly per capita share of such income would be, that would produce more beneficial consequences than a hundred “publish what you pay” rules.
Why is it not a “publish what they earn” rule suggested? Probably because, among redistribution colleagues, that would not be considered comme-il-faut. Hey, someone could even begin reporting daily on how much were the overall monthly fiscal revenues on a per capita basis. Horror!
PS. David Pilling, many of your crocodiles are pussycats next to ours
PS. It is interesting to note that the “publish what you pay” rule was irrelevantly part of the Dodd-Frank Act; that which failed to even mention the Basel Committee for Banking Supervision. Here and here
PS. David Pilling thinks that since this rule applies to all, the playing field is now level. He should look into Venezuela and all the chinese natural resource investments.
Nicholas D Rosen writes that Henry George, “writing in 1879, noted that if labour-saving technology reached perfection, labourers would get nothing and capitalists would get nothing; all production would go to the owners of land, as land would still be needed despite automation”, “Instead of taxing robots, tax the land” February 23
And Rosen uses that to argue for “letting people keep what they earn by their own efforts, and putting the burden of taxes on those who enjoy the privilege of holding land that they did nothing to create.”
“what they earn by their own efforts”? Oops I thought we were referring to robots.
“privilege of holding land”? Oops, most people don’t care one iota about land; they just want to be close to each other, preferably close to the 1%, in order to have a better chance to make it. Recently Kjell A Nordström, a Swedish economist, mentioned in that in 30 years five million will inhabit Greater Stockholm and that other parts of the country emptied of people would become economic "junk space".
February 22, 2017
The 2007-08 crisis and the relative stagnation thereafter would not have happened without current bank regulations
Sir, Ed Crooks writes “Trump has threatened to “do a number” on Frank-Dodd banking regulations aimed at preventing another financial crisis.” “Populists push to roll back rules” February 22.
Well no! Except for the intent of eliminating overreliance on credit rating agencies, something that has yet to happen, the Dodd-Frank Act did not eliminate those populist bank regulations that caused the last financial crisis, or the relative economic stagnation thereafter.
Some real runaway populism, that happened when hubris filled technocrats thought they could, and at no cost, diminish the risks for the banking system with their risk weighted capital requirements for banks.
What did and does that regulation cause?
That the banks create dangerously large exposures to what is perceived, rated, decreed or concocted as safe, e.g. AAA rated securities and Greece.
That the banks award too little credit to what can supply dynamism to the real economy, e.g. SMEs and entrepreneurs.
Crooks also writes: “In a 2012 OECD expert paper, David Parker of Cranfield University and Colin Kirkpatrick of the University of Manchester reviewed the state of academic knowledge and concluded that there were large gaps in our understanding of the effects of regulation policy”
I have not read that paper, but I am sure the conclusions must be absolutely correct. For instance, when regulators stress test banks, they do not even care to look at what should perhaps have been on their balance sheets, in order to satisfy the credit needs of the real economy.
It is amazing how the Financial Times insists on keeping all this hushed up.
Does that mean FT agrees with the regulatory statism reflected in assigning to the sovereign a risk weight of 0% while hitting us “We the People”, with 100%?
Does that mean FT finds nothing dumb in assigning a 20% risk weight to the so dangerous AAA rated, while hitting the innocuous below BB- rated with 150%?
Sir, here between you and me, what favours do you owe the bank regulators, or why are you so afraid of them?
PS. The Dodd-Frank Act is so surreal that in its 848 pages it does not even mention the Basel Committee
PS. I dare you to read an Op-Ed I wrote in 1999 about the dangers with regulations
PS. I dare you to read the remarks I gave to bank regulators in 2003 while being an Executive Director of the World Bank.
Wolf, the Basel Committee has been much more dangerously bold and dumb than either Modi or Trump, at least until now
Sir, Martin Wolf writes about Narendra Modi’s, the prime minister of India, demonetization of the Rs500 and Rs1,000 notes. Wolf says: “In its boldness…makes everything that US President Donald Trump has done so far look trivial” “India’s bold experiment with cash”, February 22.
Indeed, but why is not Martin Wolf capable of saying the same about those who with incredible hubris introduced the credit-allocation distorting risk weighted capital requirements for banks?
Sir, imagine, that was so statist that it assigned the sovereign a risk weight of 0% while hitting us “We the People” with 100%
Sir, imagine, that was so utterly dumb that it assigned the dangerous AAA rated a risk weight of 20% while hitting the so innocuous below BB- rated with 150%.
Of course that has caused what is perceived, decreed or concocted as very safe to dangerously receive too much bank credit.
Of course that has caused dangerously for the real economy, millions of “risky” SMEs and entrepreneurs being denied access to fairly small loans.
Sir, it is clear that the Basel Committee for Banking Supervision has been much more dangerously bold and dumb than either Modi or Trump, at least until now.
Or is it that Martin Wolf, for reasons unknown to me, does not agree with my assessment?
PS. I just returned from Sweden. There they have now recalled old coins and issued new ones that do not work for paying parking or using any other coin based equipment. And Venezuela is also suffering from even worse currency changing craziness. Is it a contagious virus? Who can we trace it to?
How many more human jobs would there be in xxx, was it not for the unfair competition from robots or automations?
Sir, Sarah O’Connor writes “Britain has been remarkably successful in raising the minimum wage (introduced in 1999) without causing job losses.” “For clues to the productivity puzzle, go shopping” February 22.
How does she know? I have not been in England for some time but when I go shopping in the US and Sweden I sure see plenty of jobs having been taken over by robots and automation. And one of the direct reasons for that is that there is no obligation to pay minimum wages or payroll taxes when employing robots.
Global supply chains should and will change, as robots and automation substitute more and more for cheap labor.
Sir, Shawn Donnan, referring to a recent report by the World Bank writes that a “report by World Bank economists yesterday highlights the fragile state of one historically important engine of global growth — trade” “Policy uncertainty threatens trade growth, says World Bank” February 22.
And he follows up with “One of the big consequences of the explosion in trade agreements in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and to have helped boost productivity”
Indeed, but certainly more than policy uncertainty, what could currently affect global supply chains, is that these were based on cheap labor, and more and more cheap labor is being substituted by even cheaper and cheaper robots and automation.
What amazes me is that it is almost impossible to find any statistics; from for instance the World Bank, IMF and OECD, on how many jobs have effectively been taken over by robots and automation, for instance the last year. That to me sure represents a big lacking of data required for projecting tomorrow.
February 21, 2017
I don’t envy editors nowadays being forced to flexibilize journalistic ethics more than ever, in order to survive
Sir, John Thornhill describes many amazing innovations. “Bold claims for AI are hard to compute for economists” of February 21.
Without expressing the slightest doubt about Thornhill’s integrity one could still ask: are these innovations true, fake-news, or just one of those stories designed to sell you an investment?
Sir, how extremely difficult it has to be an editor nowadays. If you’re too severe with the facts, you might loose the juiciness of your stories that your readers might demand; if you’re too generous, you will loose your paper’s reputation sooner or later. I surely don’t envy you.
But when Thornhill refers to that a “Master Algorithm”, named so by Pedro Domingos, a computer science professor at the University of Washington “will be the last invention that man makes. And that “It will be able to derive all knowledge in the world — past, present, and future — from data”, then I have to reply, as I often did to the former President of the World Bank James Wolfensohn, one who loved to refer to the bank as the “Knowledge Bank”, that knowledge means nothing if it is not tempered by wisdom.
Sir, Gideon Rachman writes: “What is it that links the erosion of support for democracy in countries as diverse as Russia, the Philippines, South Africa and even the US? It is that for many voters democracy is a means to an end, not an end in itself. If a democratic system fails to deliver jobs, as in South Africa, or security, as in the Philippines, or is associated with a stagnation in living standards, as in the US, then some voters will be attracted to the authoritarian alternative”, “The stamp of authority gains in appeal” February 21.
That is true, but Rachman also follows up with: “A drift towards authoritarianism will become more likely, in the context of rising inequality, when the political and economic system seems “rigged” in favour of insiders.” And that is not necessarily the absolute truth… it is mostly the correct current convenient political truth.
As I see it much, not all, of what is going on, is a rebellion against the authoritarism of political correctness. There are too many instances when ordinary people are not allowed to express ordinary human concerns, without risking being referred to in derogatory terms… and that hurts and accumulates resentments that can explode.
Whatever support Trump loses on his own, extreme opposition and anti-Trump profiteers only guarantee he gets it back
Sir, Patty Waldmeir writes: “In the Midwest American heartland… the silent white majority appears to be keener on Trump than ever…The other side may be turning out in their hundreds of thousands, clad in cat-eared Pussy Hats to fight the new world order, but the Trump side can’t believe its luck. And it is scoring more converts all the time.” “Good news for Trump from his supporters in the heartlands” February 21.
Absolutely! The opposition can weaken or dilute Trump’s support, especially when he himself does so much to help, but instead, the extreme runaway Trump opposition, and the anti-Trump profiteers showing off their credentials, only help to stiffen and compact his support.
How much of the “productivity” of robots is derived from the fact these are not burdened by as much taxes as humans?
Sir, you write: “A direct tax on robots is not the answer… It makes no sense to penalise technological innovation that raises productivity and creates wealth. Indeed, any rich country that makes automation too expensive risks driving its manufacturers away to lower wage jurisdictions”, “Robot tax, odd as it sounds, has some logic”, February 21.
Indeed, but why does it not work for you the other way around? I mean in that sense human workers are also “penalized” in many ways, like with payroll taxes, and jobs driven away to lower wage jurisdictions.
So, in order to more efficiently allocate labor/capital resources, robots and similar automation should also generate payroll taxes.
You also hold “the bigger question is how policymakers can use the tax system to ensure that growth is more evenly shared”. And there I have my doubts. If you are going to tax robots only to increase the franchise value of the redistribution profiteers, I am not with you at all.
I much prefer all those revenues to become part of the funding of the Universal Basic Income that is needed, in order to be able to better face that structural unemployment to which I referred to, in 2012, with my “We need worthy and decent unemployments”.
PS. Anyone searching on this issue for “robots” on my TeaWithFT blog should be able to determine, just like in the case of “risk weighted” capital requirements for banks, that I have de facto been censored by the Financial Times. Do you feel proud about that Sir?
February 20, 2017
Is it opposition that weakens or loosens up support, or opposition that stiffens and compacts support?
Sir, many of us Venezuelans have lived trough many years thinking the fall of Chavez/Maduro just to be a question of few days. That it did not happen was in much the direct result of that the opposition, instead of loosening up the Chavez/Maduro support, by preaching excessively to the choir, only compacted it.
So when I now read opinions against Trump I ask myself, does it loosen or does it compact Trump’s support?
Sir, with respect to that what Edward Luce expresses in “Trump and the siege of Washington”, February 20, what would be your own gut feeling… loosening or compacting?
My own opinion is that the more you stick to the issues and the less with the person the better. Of course, as you well know, that is easier said than done.
No Bill Gates! Taxes on robots should help fund a Universal Basic Income, not enrich the redistribution profiteers
I refer to Richard Waters’ “Robot rates: Bill Gates argues for income tax on machines to level playing field with humans” February 19.
On January 15th I sent a comment to you on an article by Richard Waters in which I stated: “impose some payroll and minimum wage taxes on robots, in order for the humans to compete on a more level playing field.”
Sir, it is clear that, notwithstanding your motto, you much favour “the world’s richest man” over one of your faithful reader who has repeatedly written to you on the subject at hand.
But, after reading the interview of Gates on Quartz website, it is clear that there is one big difference between his desires and mine. I want for those tax revenues to be distributed to all by means of a Universal Basic Income, while Bill Gates wants to conserve or augment the value of the franchise belonging to the redistribution profiteers.
PS. Who is to retrain those retrainers that are losing their jobs to robots?
PS. Who is to retrain those retrainers that are losing their jobs to robots?
When and how did the Fed, as a regulator, obtain permission to distort the allocation of bank credit in the US?
Sir, Wolfgang Münchau writes that the letter from Patrick McHenry, the vice-chairman of the US House of Representatives to Janet Yellen, the chair of the Federal “questioned the right of the chair of the Federal Reserve to negotiate financial stability rules “among global bureaucrats in foreign lands without . . . the authority to do so.” “Central bank independence is losing its lustre” February 20.
That is a perfectly valid questions that the Fed, if everything was as it should be, should be able to answer with ease in a very straightforward way.
On February 15, Janet Yellen during an interpellation by the House Financial Services Committee answered with that nothing in the international negotiations is binding on US regulatory agencies, unless it goes through a due rule making process. Does that mean like the US signing up, even promoting agreements like Basel I and Basel II, is just for show and bears little meaning?
But, McHenry’ letter or question during the interpellation would have been so much firmer and direct to the point if he had asked:
Where did the Federal Reserve obtain the right to, with risk weighted capital requirements for banks, so fundamentally distort the allocation of bank credit to the real economy in America?
Followed up with: Where did the Federal Reserve obtain the right to come up with risk weights such as: Sovereign 0%, AAA-risktocracy 20%, residential houses 35%, We the People, like unrated SMEs and entrepreneurs 100%, and below BB-rated 150%?
Followed up with: Who authorized you to impose risk aversion in the Home of the Brave?
Followed up with: Sovereign 0%, We the People 100%: Who authorized you to impose such statism on the Land of the Free?
That said, the US Congress should also not be allowed to claim too much ignorance about the Basel Committee for Banking Supervision and its regulations, since quite a lot of it has been publicly discussed. Therefore a letter to the House of Representatives could also ask: How come, in the 848 pages of the Dodd-Frank Act, the Basel Committee is not mentioned once?
February 19, 2017
If those with good “3bn biochemical letters of human genome” ask insurance companies for rebates, what about the bad?
Sir, in screaming silence I read what Clive Cookson writes about “technologies advancing at extraordinary speed to make possible ultra-precise manipulation of the genome” “Engineered evolution takes another step forward” January 18.
In March 2000, after reading “the government plans to allow insurance companies to use DNA testing to assess whether people are at risk of inheriting serious illness and should pay higher premiums”, I wrote an Op-Ed titled “Human genetics made inhuman”.
In it I expressed many of the concerns about the discriminatory implications of DNA mapping and expressed the view that something needed to be done before any release of DNA information caused irreversible damage. I there suggested “that all insurance companies design a plan which obligates them to issue policies for all of those who undertake a genetic examination. This policy should cover the negative impact and consequence that could arise from anyone getting access to such information.”
But I also admitted: “I know this is only a Band-Aid, but what else can I do? I am not among those that resign and lie down to cry, even though this matter actually would justify just that.”
Now, 17 years later, I have no idea on whether something, anything, has been done to save humans from a release of the information contained in a “DNA sequencing, which reads out all 3bn biochemical letters of an individual human genome [and which can be done] in a few hours for less than $1,000”.
Sir, I ask, if with only $1,000 investment, I can get a test testifying I have a good DNA, and which perhaps allows me to for instance negotiate special favored rates with an insurance company, how will that affect those whose tests indicate a not so good or even a very risky DNA, something that in fact could include me or the ones I love?
Environmental challenges, 1st class robots, 3rd class robots, intelligent artificial intelligence, dumb artificial intelligence, terrorism, nuclear weapons, fast and cheap DNA testing, crazy bank regulators, structural unemployment… and the list of challenges goes on and on. How will a world that spends so much of its very scarce attention span glued to so very attractive juicy fake/irrelevant news stories cope?
February 18, 2017
Until now any excesses in the use of power by President Trump would pale when compared to those of bank regulators
Sir, Gillian Tett writes: “Trump has managed to make the US constitution a live topic of debate…. the White House’s immigration clampdown… has created a real-time lesson on the limits of presidential power… The concept of “checks and balances” is no longer something written about in a school exam but instead is being breathlessly discussed on breakfast television… It is one thing to squeal with fury about the actions of the White House but what is badly needed is for voters (and journalists) to exercise a similar scrutiny over the operations of Congress and the judiciary, not to mention the lobbyists. “Our teenagers stand to profit from their awakening” February 18.
Sir, someday perhaps some grown-up grandchildren will awake and say: “During decades the risk weighted capital requirements gave banks incentives to refinance the “safer” past and present, and not to finance the riskier future we sorely needed to be financed. As a consequence many millions of SMEs and entrepreneurs around the world were denied that bank credit that could have created a new generation of jobs for us. Granma, please tell us you did not know anything about this, and yet said nothing”
There must be serious consequences for regulators and controllers who fail or allow themselves to be cheated
Sir, Tim Harford writes “In the case of VW, transparency was the enemy: regulators should have been vaguer about the emissions test to prevent cheating” “How do you catch a cheat?” February 19.
What? That seems like the absolutely most certain way to produce a cheat. Or is it that Harford believes regulators and emission controllers are a different set of humans with angel like qualities? Does he not understand what kind of temptations that would create?
Sir, the greatest problem with Volkswagen cheating on US emissions tests, is that the failed emission controllers who allowed themselves to be cheated have not been publicly shamed and sent packing home. Just like the extremely failed bank regulators of the Basel Committee for Banking Supervision have not been. In fact, the latter are still working on tweaking their fundamentally wrong regulations.
If creating regulations and controlling what’s being regulated carries no consequence when failing or being cheated, things are only bound to get worse. So, should we parade Paul Volcker, Alan Greenspan, Mario Draghi, Stefan Ingves and all their other bank regulating colleagues down our avenues wearing dunce caps? Why not? Do we not owe at least that to all who have suffered and will be suffering the consequences? Sincerely that seems like a very minor and gentle reprimand for all the societal damages they have caused with their risk weighted capital requirements for banks.
Sir, Harford correctly concludes though with “The truth is that the world can be messy place. When our response is a tidy structure of targets and checkboxes, the problems really begin”. Precisely! It reminds me of an Op-Ed I wrote in 1998 titled “Regulations as enemies of bank missions”
PS. Sir you might ask why I here mention Paul Volcker. The truth is that he was one of the responsible for the genesis of what with time will be considered one of the greatest statist regulatory failures ever.
February 17, 2017
If a manufacturing trade deficit leads to deficits of skills, then that can be something truly serious.
Sir, Professor Robert H Wade when commenting on Martin Sandbu’s “Trump’s love of manufacturing is misguided” of February 15 writes: “manufacturing typically has strongly positive “externalities”, especially in innovation, and that the innovation intensity of manufacturing depends on close, physical links between production and innovation (“learning while doing”).” “Manufacturing has positive externalities” February 17.
Indeed, just think of where you, I and we all would have been, if America had not had that manufacturing capabilities and those skills that allowed it to build up what Franklin Roosevelt called “The Arsenal of Democracy”, and which allowed for the defeat of Germany’s impressive war machinery during World-War-II.
And currently, the possibility of some other nation ending up with 1st class robots, and your own with 2nd or even the 3rd class robots should clearly be a source of much concern to everyone.
My current pray is “God save my grandchildren from being surrounded by dumb artificial intelligence and 2nd class robots”. But that said perhaps intelligent artificial intelligence could be worse, since then we humans might turn into having to be its obedient servers. Who really knows?
February 15, 2017
The fiercest manufacturing competition will be for the most capable robots, and there you never want to fall behind
Sir, Martin Sandbu writes “The economic nationalism of President Trump and Messrs Navarro and Bannon can be described as Germany-envy…Like so often with machismo, the envy is rooted in insecurity — a feeling of inadequacy compared with the perceived strength sported by these economies” “Trump’s love of manufacturing is misguided” February 15.
I can agree with much of Sandbu’s arguments, but that part of his article is simply under the belt out of place Trump bashing, which leads to nothing constructive at all. But, having gotten that out of my system, let me refer to another more vital issue.
When you lose manufacturing jobs, you do not only lose jobs, you lose skill-building opportunities; and to be able to retain some of the manufacturing skills in your country could also be part of your national security needs.
To understand that argument it suffices to read A.J. Baines “The Arsenal of Democracy”. Had America’s manufacturing capacity not existed in America, Sandbu would have lived under German rule, and I would not exists, since it was Americans that rescued my polish father from a German concentration camp… so perhaps we should both thank God for American “machismo”, and fret its possible disappearance.
Moreover, since “automation is reducing the need for manufacturing jobs everywhere” one can wonder if the dwindling manufacturing is not a great learning ground for robot and automation development. If so, giving up on that, one could face the serious problem of not ending up with the absolutely best robots.
Sir, I have tweeted: “God, please save my grandchildren from being dependent on dumb artificial intelligence and 2nd class robots”
PS. Of course there is also the great race for the most intelligent artificial intelligence.
February 14, 2017
On FT’s Patrick Jenkins’ discussion of Donald Trump’s “seven “core principles” for (de) regulating US finance
Sir, I refer to Patrick Jenkins’ discussion of Donald Trump’s “seven “core principles” for (de) regulating US finance this month”; as “decoded by a sceptic”, “Trump’s battle with red tape will hurt consumers and world” February 14.
1. “A swipe at the Consumer Financial Protection Bureau, the new body that has returned $12bn to more than 25m Americans ill-treated by financial groups.”
That comes to an average of $480 per person, which leaves open the questions of: At what cost? Should Americans because of CFPB’s feel safer and, if they do so, are they really safer? What has happened to good and useful old “Caveat emptor”?
2. “Mr Gary Cohn blamed regulatory capital requirements for a shortage of credit to the economy: “Banks do not lend money to companies . . . because they’re forced to hoard capital,” he said. Nonsense, given that equity capital is free to be used for lending.” What? Has Patrick Jenkins not yet understood how for instance requiring banks to hold more capital against “risky” SMEs than against the sovereign and the “safe” AAA-risktocracy, distorts the allocation of bank credit?
3. “There has in any case been pretty strong credit growth, about 6 per cent a year since 2012.”
Credit for what? Yes: for corporation repurchasing their shares; for more loans to “safe” sovereign; for increased automobile financing portfolios; for residential mortgages… but what about the financing of the riskier future our kids and grandchildren need to be financed?
4. “It may also be a pop at the Financial Stability Oversight Council, the only US federal body that assesses risk across banks and non-banks… disbanding FSOC, would… be dangerous”
No! All those involved with bank regulations that do not understand the fundamental reality that what is perceived as very safe, is much more dangerous to the bank system than what is perceived as very risky, should be disbanded… the faster the better.
5. “Enable American companies to be competitive with foreign groups in domestic and foreign markets. A natural adjunct of the president’s all-encompassing call for national greatness… is likely to translate into… deregulation.”
What? If banks have needed to hold the same amount of capital against loans to Greece or AAA rated securities that they needed to hold against loans to SMEs and entrepreneurs we might have had other type of crisis, but not the 2007/08 one, nor would we be suffering such lazy economic responses to all the huge stimuli doled out?
6. “be in no doubt: this president will deregulate”
If that means to take away what distorts the allocation of bank credit to the real economy then welcome, not a moment too soon. To just modify the regulations is not to deregulate, but only to neo-misregulate.
7. “Restore public accountability within Federal financial regulatory agencies”
That would be not a second too late. Not only the Federal financial regulatory agencies, but also most of the world’s bank regulators, refuse to answer some simple questions such as: Why do you assign a low 20% risk weight to the so dangerous for the banking system AAA rated, and a whopping 150% to the so innocuous below BB- rated?
If we are to avoid Nazi mentalities to take over, citizens need to be able to express their deeper inner concerns
Sir, I refer to Richard Milne’s “Rise of populists poses dilemma for Nordic mainstream” February 14.
As a son of a polish citizen who had to suffer concentration camps for almost five years, I am as far away as can be with sympathizing with Nazis. And of course I see with disgust anyone “pictured with Nazi memorabilia or uttering racist comments”. But Sir, that does not determined them to be, in any way, “uniquely awful”.
To argue so just opens the door to the exercise of dangerous political hypocrisy while closing the door on the possibilities of citizens to express their usually not at all bad meaning, deep concerns.
For a citizen, in a fairly small society like Sweden to be worrying about immigrants does not make him a bad citizen… it makes him just a citizen worrying about immigrants. Is that so hard to understand or is that what some do not want to be understood?
Sir, the repression of citizens’ feeling and worries, is precisely the best fertilizer for movements that can be taken over by Nazi type mentalities. Healthy societies need to be able to discuss, to ventilate, everything that bothers them, not only what’s political correct to discuss.
A personal PS: My mother was Swedish. 93 years old, she passed away last Friday. On Thursday night, two not at all Swedish looking immigrants, vociferating in a totally foreign language, transported her home. I have rarely met a person more open to treat all without any kind of distinctions than my mother, but had she not the right not to feel totally at ease?
February 13, 2017
What mental block stops FT from understanding why the real economy is not responding stronger to so many stimuli?
Sir, you correctly write: “The capital weighting of many risky securities simply makes prop trading uneconomic. This is why banks in Europe have also reined in trading activities, even though Volcker does not apply to them.” “Drop the Volcker rule and keep what works” February 12.
Sir, If you see that, I truly do not understand how you cannot get your hands around the fact that the capital weighting of many risky borrowers, simply makes lending to SMEs and entrepreneurs uneconomic for the banks, and making it impossible for the real economy to respond sufficiently to all the stimulus offered?
From Wikipedia I get: “A mental block can be an inability to continue or complete a train of thought, as in the case of writer's block. A similar phenomenon occurs when one cannot solve a problem in mathematics which one would normally consider simple”
Wikipedia also states “one tactic that is used when people with mental blocks are learning new information, is repetition”. Sir, you know how I have tried to help you repeating my arguments way over 2.000 times, but sadly all these efforts have until now been to no avail.
Sir, strictly between you and me, don’t you think that, just in case, it would be wise to set up an appointment for you in order to have a Psychological assessment? I mean, what have you to fear? You did not come up with those crazy regulations that assign a risk weight of only 20% to the for the banking system so dangerous AAA rated, while weighting the totally innocuous below BB- rated with a whopping 150%
The failure of telling the truth about the role of bank regulators in Greece’s crisis helps create alternative facts.
Sir, Wolfgang Münchau writes: “The Greek crisis is only the most glaring example of failure to tell the truth…When the truth dies, we should not be surprised if alternative facts are put in its place” “A failure to tell the truth imperils Greece” February 2004.
Indeed! I agree with most of what Münchau argues, but first let’s start from the beginning.
When has it been explained to the Greek people that their current travails would never have happened, had some bank regulators not decided, on their own, that banks needed to hold so much less capital when lending to the Greek sovereign, than for instance when lending to American, German or Greek SMEs or entrepreneurs?
And how would they feel if they came to know that many of those who had direct responsibility in that huge regulatory mishap, were still involved in deciding its future?
Sir, how can you work yourself out of a crisis being helped by some interested in hiding vital truths about the cause of the crisis?
If President Trump makes unfit profit on his hotels, so might those who are in the business of opposing him.
Sir, Edward Luce’s “America’s monetiser-in-chief” of February 13, could easily end up being used by all those who by email and other means, ask us to give money to them so that they fight Trump on our behalf.
Currently too many are reminded of Irving Berlin’s song “Anything You Can Do” from the “Annie Get Your Gun” musical. The days open up with a: “Some say they can fight Trump, but I can do that better, I can fight Trump, better than all”, which is then followed by an ever increasing number of voices belting out their, “No you can't. Yes, I can. No, you can't. Yes, I can. No, you can't. Yes, I can, Yes, I can!”
Luce writes: “Even where Mr Trump has the highest motives, he will fail the Caesar’s wife test”. In what world does Luce think we are living? Do not failed Caesar’s wife tests surround us everywhere? Is political profiteering really so much different from business profiteering? Surely if Trump is caught in an act of extending an overt invitation to be corrupted, I am sure that the consequences for him and for the corrupter, will be much more severe than for all those politicians who daily mingle with their dedicated lobbyist.
Sir, I am not condoning any possible Trump shenanigans, and I will protest it as much as you, or even more than you, if and when any real evidence is presented. But, meanwhile, there is a vital need for staying focused on realities and not being distracted by anti-Trump populists or anti-Trump profiteers.
First, as a Venezuelan still living the “Chavez” era, what Luce describes when preaching for the choir, means nothing in terms of eroding the popularity of a populist. Quite often the opposite happens.
Second, there are too many infinitely more important and urgent issues at hand. Just think of all those robots that compete with us humans for jobs without being burden with payroll taxes and similar handicaps. Just think of those regulatory gnomes distorting as they see fit, with their risk weighted capital requirements, the allocation of bank credit to the real economy.
Third, Trump represents a new wind in Washington, so let’s try to use it as much as we can. For instance the proposal by the Climate Leadership Council of imposing a carbon tax, which revenues would go directly to the citizens, is the best win-win possibility I have seen in many years. If that would be its price, I would gladly look the other way, if those horrendous anti America and anti economic plans of Trump Hotels to quintuple its outlets in America become reality.
PS. Hotel building needs financing, and bankers and investors, must consider the after 4 or 8 years profitability of the hotels.
PS. I have just received an email where someone indicates that after a review they have found that I have yet to donate the minimum $3 to fight Trump, and that I must hurry up. I wonder if someone keeps a list of the 10 largest anti-Trump-movement's profiteers?
February 12, 2017
How do you suggest a contrarian belief to a President without causing him great disconfirmatory feedback discomfort?
Sir, Tim Harford writes that when “I think I’m doing a good job, and then you tell me that I’m not… [research indicates] “that when this, which in the jargon is known as disconfirmatory feedback arrived, workers would then avoid contact with the people who had given them the unwelcome comments.” “If I’m cruising along in a complacent bubble, I badly need someone to explain what I’m doing wrong” January 11.
Bank regulators think they are doing great assigning a risk weight of 20% for what is AAA rated, and 150% for what is below BB-. I tell them they’re wrong, that what’s perceived as safe, contains much more danger than what is perceived as risky. I back it up with Voltaire’s “May God defend me from my friends, I can defend myself from my enemies” … and then the regulators avoid all contact with me. It sure looks like a case of reaction to a disconfirmatory feedback.
But, at a level of a Basel Committee for Banking Supervision should its members not have to be able to handle rationally any disconfirmatory feedback? And what about those even higher up?
For instance, I believe that in the race for jobs in the US, much more important than human competition from China and Mexico, is the fact that Americans have to compete with robots from everywhere that do not have to carry weights like payroll taxes.
Sir, I ask, how can I convey such a belief to a President without risking causing him great disconfirmatory feedback discomfort?
PS. Sir FT, since you have also mostly shut me up, could it be because I have gone over the level of disconfirmatory feedback you can handle? If so, how should we handle it? I ask because I have no wish to give up writing you my mind on so many things you might not agree with.
February 11, 2017
Gillian Tett also suffers from "biases in our brains that undermine our capacity to make rational decisions”
Sir, Gillian Tett writes on the issue of “how bad humans are at assessing risk”, and refers to that “academics Daniel Kahneman and Amos Tversky have highlighted all manner of biases in our brains that undermine our capacity to make rational decisions.” “Fear of cultural ‘pollutants’ can be allayed with acceptance”, February 11.
As an example, Tett mentions that in the US “the data suggest that the chance of dying in a terrorist attack by a refugee, of any religion, was just one in 3.64bn in any given year. That is far lower than the risk of being struck by lightning”. Yet Tett writes, there is “irrational” fear of immigrants.
Ms. Tett, should perhaps do well showing more humility because, like all of us, she is just as bound to be afflicted by exactly the same human weakness.
There is no data that would indicate that any major bank crisis was caused by excessive bank exposures to something perceived as risky when placed on balance sheets; and all data points that the real dangers lies with what is perceived as very safe, yet Ms Tett, her colleagues, and most of the bank regulation community see nothing strange with risk weights of 20% for what is AA to AA rated and 150% for the below BB-.
Ms Tett writes “There is little point in countering people’s “irrational” fear of immigrants by throwing statistics about or dismissing Trump’s supporters as “racist”.
Sir, I am of course not talking about racism, but should I not insist, as I do, day after day, with thousands of letters, in trying to illuminate those that who by favoring the dangerous safe, actually discriminate against the access to bank credit of the innocuous risky?
Over the last decade, around the world, millions of SMEs and entrepreneurs have seen their begging for an opportunity denied by sheer financial regulatory bigotry. And Sir, you are well aware that FT shamefully keeps mum on it.
February 10, 2017
The political establishment fell prey to an idiotic regulatory technocracy they did not dare to question
Sir, Philip Stephens writes: “Rising populism has been fed by a political establishment in thrall to unfettered capitalism”, “Why the liberal order is worth saving” February 10.
Nonsense! The political establishment fell prey to an idiotic regulatory technocracy they did not dare to question.
Some of the Basel Committee for Banking Supervision’s risk weights used to determine the capital requirements for banks are: The Sovereign 0%; We the People 100%; AAA to AA rated 20%, below BB- 150%.
That has absolutely nothing to do with unfettered capitalism all to do with unchecked and dumb statist intervention.
The liberal order went out the kitchen door of the Basel Accord, in 1988, before in 1989 the Berlin wall felt and the “Washington Consensus” saw light.
Here are some questions that have yet to be posed by someone able to force bank regulators to answer:
February 09, 2017
Why are experts like Martin Wolf so silent on the immoral and utterly stupid facets of current bank regulations?
Sir, Martin Wolf questions the UK government’s “moral choices for a country forced to share out losses imposed by a massive financial crisis and weak subsequent growth [because] the government has decided to give greater priority to the old than to the young, to pensioners than families with children and to the better off than to the relatively worse off” “May’s policies make a mockery of her rhetoric” February 10.
But, when I question the intelligence and the morality of current bank regulations, Wolf ignores it. So Sir, here we go again, for the umpteenth time!
The risk weighted capital requirements for banks, caused a massive financial crisis by giving too large incentives for banks to create excessive bank exposures to what was supposed to be safe, like AAA rated securities and Greece; and with incentives that hinder banks from taking sufficient risks on the future, like lending to “risky” SMEs and entrepreneurs, causes weak growth and lack of increased productivity.
That clearly immorally favors the well-off over those poor wanting and needing credit opportunities; just as it immorally favors banks financing the safer past and present, than the riskier future the young need to be financed.
It is also I would say almost immorally stupid; since major bank crises always result from unexpected events, criminal behavior or excessive exposures to what was erroneously perceived or decreed as safe, and never ever from excessive exposures to something perceived as risky when placed on banks’ balance sheets.
Basel I assigned a risk weight of 0% to the Sovereign and one of 100% to us We the People; and it would seem Wolf is unable to grasp the runaway statism of that.
Basel II assigned a risk weight of 20% to what was AAA to AA rated and one of 150% to what is below BB-; and it would seem Wolf is unable to grasp the lunacy of that.
To better help the environment and fight inequality, get rid of the profiteers, and give the citizens the incentives
Sir, after a price increase of 6.000% last year, gasoline is currently being sold a US$ 1 cent per liter in Venezuela, a country in which people are dying because of lack of food and medicines. Can you imagine how much better it would be to sell that gasoline at international prices, and perhaps even adding some carbon taxes to it, and then share out the new revenues obtained among all Venezuelans? I have been fighting for such a solution for soon two decades.
That is why I jump of joy reading Ed Crooks’ report about a proposal in the US for “a tax on carbon dioxide emissions, starting at $40 per tonne, with all the revenue recycled in dividends paid back to the public.” It is being introduced by the "Climate Leadership Council" “Republican grandees propose carbon tax” February 9.
In May 2016 you also kindly published a letter of mine in which I proposed something similar as a tool to fight pollution in Mexico.
I pray the referred to proposal gets to be approved in the US. It would set up a great example for the world on how one can effectively align the fights against environmental damages and against inequality. It would serve as a great appetizer for a Universal Basic Income scheme.
That said we could reasonably assume that, since it reduces the value of their franchises, the usual green movements and redistribution profiteers will fight it tooth and nail.
That said we could reasonably assume that, since it reduces the value of their franchises, the usual green movements and redistribution profiteers will fight it tooth and nail.
PS. Venezuela’s domestic gasoline prices should in fact be considered a violation of economic human rights, but I have found little interest, for instance in OAS, for pursuing such matter.
February 08, 2017
Why has society ignored for so long the structural unemployment that is already here, and that will grow so much worse?
Sir, Sarah O’Connor does all of us an immense favor putting forward data such as “America’s unemployment rate may be close to the lowest in a decade at 4.8 per cent [but] the rising share of people in their prime years (between 25 and 54) who are neither working nor looking for work, now stands at about 20 per cent” “‘Jobs for the boys’ is just half the story in America” February 7.
History is sure going to analyze the question of how a generation that prides itself from having so much knowledge and information at its disposal, could have turned such a totally blind eye to one of the greatest challenges it faces, namely the structural unemployment caused by robots and automation.
Where can we find data about how much robots and automation have substituted for human jobs and salaries, year by year, during for instance the last 20 years? It might exist, but I certainly have not found it.
In 2012, having been worried for quite some time about this issue I wrote an Op-Ed titled “We need worthy and decent unemployments”. But only quite recently are possible remedies to a real inexistence of jobs surfacing into public debate, like that of a Universal Basic Income. Though much too late that is good. Nonetheless the “whys” or the “how comes” of all social blindness to this issue, needs also to be studied.PS. Why is there no concern with that humans have to so unfairly compete for jobs with robots that are not handicapped by having to carry weights like payroll taxes?
PS. Just like the “whys” or the “how comes” about the silence on stupid bank regulations, based on the silly notion that what is perceived as risky is more dangerous to the bank system than what is perceived as safe, needs to be studied.
Sir, I refer to Martin Wolf’s “Britain’s leap into the unknown” February 8.
Do I disagree with him? No, if I look at Brexit as Wolf does with a microscope focused solely on Britain. But, from a wider perspective, looking at so many other unknowns, his Brexit concerns takes on some Lilliput against Blefuscu war characteristics.
Why? Many would probably start by mentioning the environmental problems of the earth and overpopulation. But setting these aside there are many other challenges that needs to be considered so as to weigh correctly what could be coming with Brexit. Let me just briefly mention the following three.
First, I have the impression that Brexit carries with it more risk of true catastrophes for EU and the Euro than what it has for Britain. This is not a case Britain leaving a happy family behind. It is more like running away from a very messy dam full of repressed feelings of discontent, ready to burst at the urgings of any able populist, and to which its comfortable and full of themselves technocracy is unable to respond to adequately.
Second the banking system. Its regulators, with their risk weighted capital requirements, manipulated and distorted the system in such a way that the real economy is not being fed the nourishment it needs; and the banks themselves are bound to collapse, as would collapse any casino that had its roulette table equally manipulated.
Third, the growing structural unemployment caused by robots and automation. The only reasonable response to that seems to be some sort of Universal Basic Income floor, and that is something that must be much easier to develop within a nation. Just thinking of some EU Commissioners having to agree to a uniform Universal Basic Income policy applicable to Germany and Greece is too challenging.
Of course Brexit represents difficulties… but like all difficulties it also encompasses some opportunity. My dear English friends think of it like this. You are now sailing back to your homeland and soon, for good or for bad, you will at least be able to see the white cliffs of Dover again.
February 07, 2017
ECB’s Mario Draghi, as a bank regulator, is he taking us all for a ride? Is he unwittingly (dumb) or wittingly (bad)?
Sir, Claire Jones quotes Mari Draghi with: “The last thing we need is a relaxation of regulation… The idea of repeating the conditions of before the crisis is very worrisome.” “Draghi pushes back against protectionist programme” February 7.
As the former Chairman of the Financial Stability Board, and as the current Chairman of the Group of Governors and Heads of Supervision to which the Basel Committee for Banking Supervision reports, Mario Draghi is as responsible for bank regulations as anyone can be.
And so this is a man who clearly believes that what is rated AAA to AA represents such little risk for the banking system that it merits a risk weight of only 20%, while what is rated below BB- is so dangerous that it must be risk weighted 150%. That is of course sheer lunacy.
And so this is a man who clearly believes that a sovereign can have a risk weight of 0%, while the citizens who give the sovereign its strength must be risk weighted 100%. That is of course run-away statism.
And that’s why we got hit with the AAA rated securities backed with mortgages to the subprime sector in the USA and Greece with way too much sovereign debt.
Sir, now I dare you to read the latest document issued by the Basel Committee, titled “Frequently asked questions on market risk capital requirements” and then dare, without fear and without favor, answer me this very straightforward question, with a Yes or a No. Do you think the Basel Committee is digging us out, or digging us further down, in the regulatory hole they have placed us in?
Sir, in my mind it is perfectly clear in that Mario Draghi has no moral authority whatsoever, to lecture anyone about manipulation or protectionism.
The risk weighted capital requirements for banks is an outright manipulation of the access to bank credit that discriminates against the risky, like SMEs and entrepreneurs, and protects the interests of the banks and of those perceived, decreed or concocted as safe.
A holier than thou alliance of hysterical extreme besserwisser progressives, is pushing too many into No No Land
Sir, Janan Ganesh opines that visceral/hysterical reaction against Trump no matter how correct it might be, might evidence to many voters that progressives do not share their deeply felt concerns about national security, crime, welfare dependency and similar. “Liberalism can only win if it holds a hawkish line” February 7.
Ganesh is absolutely correct. As a Venezuelan I can testify on that this type of reaction, by a similar holier than thou besserwisser group mostly correct in their opinions preaching to the choir, only made Chavez stronger.
For instance I utterly dislike walls, foremost because you can never be real sure you or your grandchildren end up on the right side of it. But, in the case of the Mexican Wall, much more constructive would a “Yes let’s build it” be. That followed up of course with “The USA puts up the land, the Mexicans the cheaper labor, perhaps the Canadians the materials needed, and the FED, by means of a wall-easing program, buys the 1%, 50 years bonds that are needed to finance it all”. I guess that would bring the emotionally laden discussions about that wall to a more sane level… better for all.
Sir, but Ganesh also writes: “Whenever the state imposes a counterterror measure, especially one as brute as the US president’s, statistics are dug out to show that fewer westerners perish in terror attacks than in everyday mishaps. Slipping in the bath is a tragicomic favourite. We chuckle, share the data and wait for voters and politicians to see sense.”
And that, as you might intuit, irresistibly provokes me to ask the following: When the state imposes a regulatory measure based on something so brutish as believing that what is perceived as very risky is riskier for the bank system than what is perceived as very safe… why does then so few chuckle, share the info, and wait for regulators to see sense?
February 06, 2017
Dear Sir, using your extraordinary savoir-faire and FT’s immense influence, please educate our bank regulators
(I will try it the Lucy Kellaway way “How to ask for what you want — and get it every time” February 6.)
Sir, the world needs for you and your astonishing influential paper, as always without fear and without favour, to inform bank regulators about that their current regulations is based on a fundamental mistake, a sort of the mother of all “alternative facts”; namely that what is AAA to AA rated, is much safer for the banking system than what is rated below BB-.
That, in their standardized risk weights, has caused them to assign a meager 20% risk weight to the very dangerous AAA-risktocracy and 150% to those made so innocuous by being perceived ex ante as very risky.
Most probably because I am so unimportant, I have not found a way to transmit to the regulators the real truth, namely that excessive exposures to what was perceived as risky when placed on banks’ balance sheets have never caused a major bank crisis. That dishonor belongs to unforeseen events (like devaluations), criminal behavior, and to what was ex ante perceived as very safe but that ex post turned out to be very risky.
But Sir, with your importance and extraordinary savoir faire I am sure you would be able to reach out to them, discreetly if you so wish.
When you do, the world will owe you immense gratitude because, as is, this mistake has created such distortions in the allocation of bank credit to the real economy that our banks are no longer financing the riskier future our children needs to be financed, but only refinancing the safer past and present.
If they are too hardheaded and you need some backup argument, you could always quote Voltaire to them “May God defend me from my friends, I can defend myself from my enemies”
Yours always, admiringly and cordially