June 30, 2014

Poor Shinzo Abe. Has no one told him Japan as a member of G10 also signed up on Basel II’s risk-aversion?

Sir, Shinzo Abe, Japan’s prime minister with respect to the goal of achieving economic growth in Japan writes: “We are restoring Japan’s venture spirit, creating opportunities for start-ups to bid for government contracts, opening markets and promoting new entrants in areas including energy agriculture and medical services”, “My ‘third arrow’ will fell Japan’s economic demons” June 30.

I almost feel sorry for him. Has no one told him that Japan, as part of the G10, signed up on Basel II, those bank regulations that has it as its pillar, that all who are perceived as risky, like start-ups and new entrants usually are perceived, shall NOT have fair access to bank credit, because this is believed to promote the stability of the financial system?

With such an opposition, there is little Shinzo Abe, or anyone else for that matter can do, no matter how good the intentions.

Why does Wolfgang Münchau keep mum on the minimum minimorum Europe needs to do to lift itself out of its mess?

And here we are, and still another one of your star columnists, Wolfgang Münchau writes about how jolting Europe back to life… and does not even mention the role that bank capital requirements which discriminate against what is already discriminated against, namely what is perceived as risky, can have in paralyzing an economy, “An investment surge would jolt Europe back to life” June 30.

Münchau holds that Mr. Claude Juncker, the next president of the European Commission, “will need to create a consensus in favour of higher public investment across the EU, and he will need to find an ingenious way to finance it”.

I would wish instead for Mr. Juncker first to concentrate on enlightening the EU, that higher capital requirements for banks when lending to SMEs than when lending to the infallible sovereigns, to the housing sector or to members of the new AAAristocracy, make absolutely no sense. First because that blocks access to bank credit for those who are usually most in need of bank credit, and secondly they simply do not make sense from a pure bank stability perspective, as never ever have what is ex ante perceived as risky caused a major bank crisis.

For those who access bank credit, Basel II became the equivalent of a Kristallnacht. It launched a pogrom against the risky, for no good reason, and named the sovereign and the AAAristocracy a new Master Class, again for no good reason.

June 28, 2014

Becoming coward marks the beginning of the end of any civilization, and the Western World ignores what Basel II does

Sir Peter Aspden quotes Emir Kusturica with: “I am a man with a lot of passion. I will always fight for peace. But, unfortunately, it is war that drives us forward. It is war that makes the major turns. It makes Wall Street function…”, “Wars and peace” June 28.

I certainly do not agree, what moves us forward, what stops our civilization from stalling and falling, is the willingness to take risks. It is when a civilization stops taking those risks which has helped it climb up the mountain that it will immediately start rolling down to its death.

And ordering our banks to stop taking risks, without arranging for anyone or anything else to assume this responsibility, is precisely what those senseless bank regulators did when they concocted their dangerous brew of risk-weighted capital requirements for banks.

And the Western World even ignored this week the 10th anniversary of that Basel II decree, even after a first crisis had already been caused. 

If we remain on the path of having our banks concentrating their assets more and more in what is ex ante perceived as absolutely safe, we will only have to face worse and worse crises in the near future.

Why does John Authers keep mum on how low capital requirements for banks on house financing helps to inflate the bubble?

Sir last Thursday was the 10th anniversary of the G10 approving the absolutely senseless Basel II bank regulations. And here we are and still one of your star columnists, John Authers writes about the need to prevent bubbles, in this case a bubble in the value of UK housing sector… and does not even mention the role that preferential bank capital requirements can have in inflating a bubble, “Rate rises pose biggest test for BoE bubble theory” June 28.

The risk-weight on a residential mortgage is 35%, while the risk weight for a loan to an SME or an entrepreneur is 100%. And so a bank can leverage its capital about 20 times more when financing the purchase of a house, than when giving business those loans that could create the jobs that could help home buyers to pay their mortgage and their utilities.

And I am sure John Authers must understand that this helps to inflate the house bubble, and so that we could at least expect that if BoE perceived the risk of a bubble, it would increase the risk-weight for new mortgages, before toying around with other tools… but yet Authers chooses to keep mum about all that … why?

June 27, 2014

No Gillian Tett, it was sordid practices in the world of bank regulations which caused the banks to implode.

Sir, in “Shine a light on the sharks that lurks in dark pools”, June 27, Ms Tett writes that “since 2008 regulators have battled to make credit and derivatives markets more transparent”. What? Has she not read how Basel III has introduced further really hard to understand distortions to the credit markets?

But of course, if she thinks that “banks imploded… because of sordid practices that had proliferated in the worlds of derivatives and debt” she might be excused… she has still not understood it, even though as an anthropologist she should stand a better chance to understanding it than the financial experts.

Ms Tett writes that “simply relying on the principle of caveat emptor to keep the system from becoming too opaque is naïve”… Why? Our problems started precisely when regulators forgot the principle of caveat emptor and naively started to believe credit rating agencies and what they themselves perceived were the risks and allowed for ridiculously low bank apital requirements for what they thought “absolutely safe”.

No, it was not sordid practices in the world of derivatives and debt that caused our banks to explode, no matter how much comfort Ms Tett might get from thinking that way, it was sordid practices in the world of regulations that did it… and unfortunately those practices still reign.

To get balanced economic growth using risk-weighted capital requirements for banks would require a miracle.

Sir yesterday, was the 10th anniversary of the G10 approving the absolutely senseless Basel II bank regulations. And here we are and still one of your star columnists, perhaps The Star, Martin Wolf, does not understand that getting a balanced economic growth with the distortions produced by the risk-weighted capital requirements, would require a miracle, “An unbalanced recovery is no cause for complacency”, June 27.

The risk-weight on a residential mortgage is 35%, but the risk weight for a loan to an SME or an entrepreneur is 100%. And bank capital can be leveraged 20 times more when financing the purchase of a residence, than when giving business those loans that could create the jobs that could help home buyers to pay their mortgage and their utilities.

Wolf correctly opines that the only way to regain balance “is via a huge (and extremely unlikely) investment surge”. Yes more than “extremely unlikely” while we allow bank regulators to play the Masters of Universe with their risk-management based on the same perceived risks that should already have been cleared for by banks.

PS. Sir, as always I leave it to you to decide whether to copy or not this comment to Wolf. I won´t since he has told me in no uncertain terms he does not want to hear more about this as he understands all there is to understand about the risk-weighted capital requirements… though clearly he does not!

June 26, 2014

Today marks the 10th anniversary of Basel II, Europe´s economic Waterloo, or financial Kristallnacht, and FT does not care.

With those regulations some few unelected regulators who felt they knew more about risks than the rest of the world, and since they hated credit risks, decided to allow banks to hold much lower capital when lending to the absolutely safe than when lending to the risky.

And that meant banks would then be able to earn much higher risk adjusted returns on equity lending to the absolutely safe than when lending to the risky.

And so from that day on, all bank lending to medium and small businesses, entrepreneurs and start-ups started to dry up. And since it is precisely that kind of bank lending that which helps an economy to move forward, from that moment on the Western world economic bicycle started to stall and fall.

And all that, for no good “stability” reasons at all, since the real monsters that always threat the banking sector, are never ever those that look ugly and risky, but always those that look so adorable and safe.

And since Europe was the one who embraced Basel II the most from the moment go, to me, June 26, 2004, represent Europe´s economic Waterloo, or its financial Kristallnacht, a pogrom against the risky risk-takers, those who had helped Europe become what it had become.

And today June 26, 2014, it is with much sadness that I see Europeans do not really care. For instance, the Financial Times, presumably the most important financial paper in Europe, does not even mention the fact of the 10th anniversary of Basel II.

That same day the Basel Committee appointed a new financial Master Race... those stamped with an AAA rating, and gave it privileges... and you still wonder why inequality is on the rise?

June 24, 2014

If banks use “big data”, which is good, regulators must stay away from it.

Sir, I completely agree that banks should use all information available to make judgments on credit worthiness, as is described by Patrick Jenkins in “Big data lends new Zest to banks’ credit judgments” June 24. That can only help them to allocate credit better.

What I cannot accept though is that bank regulators should use precisely the same data to decide upon the capital requirements for banks… for two reasons.

First, by giving extra weight to information already cleared for, they can only distort the allocation of bank credit.

Second, Jenkins refers to “know your customer”, and in this respect it is important for regulators to remember that their concern should not be with the clients of banks defaulting, but with the banks defaulting, which is of course pas la même chose… as banks mostly default because of excessive exposures to what was erroneously perceived as absolutely safe.

FT, please, don’t spill the beans about the risks of cocoa to the Basel Committee.

Sir, Emiko Terazono quotes Derek Chambers of Sucres & Denrés saying “If you’ve got a piece of land, do you grow cocoa which needs a lot of labor and is prone to disease, or something [like palm oil and rubber] that doesn´t need a lot of work and produces money every couple of months”, “Cocoa deficit puts squeeze on chocolatiers” June 24.

Holy moly! He better not tell that to the bank regulators in the Basel Committee since then, consistent with their actions, they would, even though banks already have cleared for those risks, immediately impose higher capital requirements on banks when financing cocoa than when financing palm oil, rubber or arabica coffee… because “it is oh so risky and we can’t have our banks financing that”, and then we would really see a squeeze being placed on chocolatiers.

June 23, 2014

You in FT have more voice than most professors teaching finance, so who’s really more “responsible for teaching responsibility”?

Sir, I refer to John Authers’ “Who is responsible of teaching responsibility” June 23, FT’s special “Business Education: Financial Training”

There Authers writes “And yet biggest business schools find it hard to prepare their students to joust with regulations. One problem is practical: these days, the top schools are global, but regulation is country specific” Hey where has Auther’s been? Does he not know that on June 26, 2004, 10 years ago, the G10 signed up on Basel II which established that truly nutty concept of risk-weighted capital requirements?

Had these business schools, and FT journalists, been a little more responsible for what they were doing, they would most certainly informed the regulators in their ivory towers, that this was going to distort the allocation of bank credit in the real economy, with tragically consequences.

And Authers also refers to “the pre-crisis power of credit rating agencies. The Basel II bank regulations gave investors a big incentive to buy anything stamped triple A by agencies. That way lay disaster.” Come on Authers. How many borrowers are not any longer contracting credit ratings because of Basel III? And how did Basel III really change something? By banks being forced to take a tougher stance if they believe credit ratings were wrong? Whoa!

And then Authers writes that “ratings were only ever advertised as opinions on publicly available information”. Where does he get that from? The truth is that credit rating agencies quite often have access to much more information the public and bankers have.

And if we are to talk about ethics, let us be clear that it is highly unethical of regulators to discriminate against “the risky”, those already discriminated against precisely because they are perceived as risky, as unethical it is for financial journalists to shut up about that discrimination… and so John Authers and colleagues might be more in need of courses in ethics than students in business schools… though that admittedly leaves us with the problem of finding out who are going to teach you those ethics. Me?

June 21, 2014

For the banks to stay out of the shadows, their regulators must not hide in the shadows, or hide the sun.

Sir, in your “Banking must stay out of the shadows” June 21, you hold that “Regulators are better equipped institutionally to monitor risks and respond when threats arise”.

Sorry, the Financial Times, which has such a clear role to play as a critical observer, should never be allowed to make such a categorical statement.

The truth is that regulators are just as well capable of making everything so much worse, by means of how they monitor and respond to threats.

For instance current risk-weighted capital requirements for banks, is the consequence of regulators responding to their own monsters, with little considerations of what monsters could be dangerous for the banks; and so, by distorting the allocation of bank credit, their regulations turned into the real threat.

Could it really be that all you at FT fear the regulators so much you do not even dare to ask them… where they have found the causality between a borrower being ex ante perceived as risky, from a creditworthiness point of view, and a bank failing?”

Or is it that you are all ideologically programmed to favor regulators?

Yes, you do accept that “regulators must beware of creating new fragilities”, but that seems more like a simple salute of the flag, when you then write that “the authorities have done much to re-regulate banks”. That is not true … any re-regulation worthy of its name must begin with a full understanding of what went wrong… and that the regulators have until now refused to do… just as you at FT have refused to holding them accountable to do so.

Sometimes it is very hard to collect the money you win betting on where your mouth is

Sir, I refer to Tim Harford’s “Money where your mouth is” June 21. Suppose I had place money where my mouth was with the following:

“We have bank regulations that though requiring banks to hold 8 percent in capital when lending to businesses without credit ratings, allow banks to hold only 1.6 percent capital when lending to someone who has ex ante an AAA rating. And so I bet $1.000 on that, within the next decade, banks will lend much too much to some borrower ex ante rated as absolutely safe, but who ex post turns out to be very risky… and that this, aggravated by the fact that for that against that exposure banks had to hold little capital, will result in a major bank crisis.”

What would you had said about a bank regulator betting against me? And, if he had done so, would the current crisis not mean that I had won the bet, long before the decade ran out? But tell me…how would I collect my winnings?

I say this because banks regulators actually bet the whole banking system against my theoretical proposition, and I have not seen anyone paying up! On the contrary they have mostly been promoted. Like Mario Draghi, the former Chair of the Financial Stability Board, promoted to President of the European Central Bank. Like Jaime Caruana, the former chairman of the Basel Committee on Banking Supervision, promoted to General Manager of Bank for International Settlements.

Yes Tim Harford, “a world full of confident forecasts that nobody [including FT] never bothers to verify… is intolerable”. And so I would agree that “the world needs more wagers between pundits” but, before we start the betting, let us be sure there is a decent clearing house where these debts could be settled.

June 20, 2014

A very simple question to all of you there at FT

If you were a bank regulator, which rating would you use to set the capital requirements for banks? That of a borrower defaulting or that of a borrower’s default causing a banks default? I ask, simply because they are clearly not the same.

Yes! Drag also bank regulators in front of a judge, to force them to answer one simple question.

Sir, I refer to your “A light shines on bank misconduct” June 20. You are indeed right in that fighting these bank misbehavior cases in courts, might give everyone of us a better understanding of what is going on.

I would of course also love to have a prosecutor hauling bank regulators in front of a court to extract from them the answer they have so steadfastly refused to answer. Can you imagine a prosecutor addressing them as follows?

“Gentlemen those risk-weighted capital requirements for banks of yours discriminate against the fair access to bank credit for those perceived as risky, like that of medium and small businesses, entrepreneurs and start-ups… with very negative consequences for the possibilities of our young to find good jobs. And all that you say you do in order to bring stability to the banking system.

And so regulators, PhDs, and whatever other Easterly-experts might be present, would anyone of you please explain to the judge… where the hell do you find the causality between a borrower being ex ante perceived as risky, from a creditworthiness point of view, and a bank failing?

June 19, 2014

And when are investors to sue Blackrock and Pimco because of these experts lack of due diligence?

Sir, I read Camilla Hall and Luc Cohen reporting “Six banks sued over trustee roles” June 19.

What­? If Pimco or Blackrock had had any of those executives really deserving huge bonuses they hold they have, they should have know that if regulators authorized banks to hold securities rated as AAA, against a so meager 1.6 percent in capital, meaning they could leverage their own capital 62.5 times to 1, something very bad was going to happen, and so they needed to be very alert.

And so in this respect I ask, when are the Pimco and the Blackrock investors going to sue Pimco and Blackrock for the lack of due diligence?

If expert companies can try to get out of their buyer’s beware responsibility, why should not the small investors try?

Who brainwashed FT’s Sarah Gordon?

Sir, Sarah Gordon writes “The relationships between local lenders and their clients … were often too cosy, with loans handed over without the due diligence that should have accompanied them. Generations of family relied on one source of borrowing. Generations of banks asked too few searching questions about companies´ growth plans”, “Europe´s small companies get back in the funding picture” June 19.

Indeed Sarah Gordon, that is not good, but so what? Is that an excuse from locking out small businesses in general from access to bank credit, as the risk-weighted capital requirements for banks do?

Yes there has been many problems with some of these companies… but can you remember any one of them that caused so much damage as the AAA-rated securities backed with badly awarded subprime mortgages in the US, and which were so much in demand because regulators thought these to be so safe… only because credit ratings said so?

It is high noon for some intellectual honesty. Don’t you think so Sarah Gordon?

PS. And of course I am not picking on you specifically Sarah Gordon. In FT with respect to the distortions risk-weighted capital requirements produce, there are many much worse brainwashed than you! (As you know :-))

PS. And by the way, if it comes to too cozy relations, I much prefer those between banks and small to medium sized borrowers, than that between the banks and their infallible sovereign.

Just like we do not like overly sissy nannies to educate our kids, we do not want overly sissy regulators to regulate our banks.

Sir, Sam Fleming and Gina Chon begin by quoting David Wright, secretary general of Iosco saying “It is extraordinary that here we are, nearly seven years in [from the financial crisis] and we still have an inadequate understanding of some of the key aspects of financial markets” “Push begins to put lenders’ house in order”, June 19.

But then reporting on the meltdown of the subprime loans, and even though they mention that some regulators “have imposed though capital requirements on investors who buy asset-backed securities, they basically support putting the blame on some “shadow finance”, and do not even mention the role extreme low capital requirements, for the banks in the sunshine, played in creating the demand for bundled subprime loans which caused the crisis.

Those low capital requirements resulted because sissy regulators, personally scared of some risks, thought those were the risks which were dangerous to our banks. And, in doing so, they are killing our economies, by keeping our banks refinancing the safer past and not financing the riskier future that our young unemployed so much need to be financed, in order not to become a lost generation.

No Sir! We, who have thrived on risk taking, cannot afford our banks now being in hands of so sissy regulators.

And those journalists too sissy to dare holding the regulators truly accountable, we do not need them either.

Europe, ECB, if what FT writes is what IMF will recommend you… please don’t listen to it. They’ve lost it!

Sir, Peter Spiegel and Claire Jones write that “IMF urges eurozone bond purchases” “primarily of sovereign assets” “to stimulate growth”, June 19.

Forget it! In the best of cases you would receive a short term stimulus that would lead to some flabby obesity type growth, because injecting liquidity by buying bonds sovereign debt, amounts only to a carbs and fat based diet.

No, if you are going to stand a chance to achieve some type of sturdy muscular growth, you have to open up the doors for the banks to lend to the medium and small businesses, to the entrepreneurs and the start-ups, to the real proteins of the economy, those doors that have been shut by the risk-weighted capital requirements for banks

IMF has lost it? YES!

BoE, of course prudential bank regulations is not everything, especially when totally imprudent

Sir, Chris Giles writes “The Old Lady is right that prudential policy is not everything” June 19. Absolutely! And this is especially so when the prudential policy applied, is the wrong one.

Prudential bank regulations rule 1.

Whatever you do, beware of the dangers of distorting the allocation of bank credit in the real economy; precisely like what is being done now with the risk-weighted capital requirements for banks.

Prudential bank regulations rule 2.

Never forget that in the financial world what is perceived as “risky” is a thousand times less dangerous than whatever is perceived as “absolutely safe”; something which regulators have completely ignored with their current risk-weights in the risk-weighted capital requirements for banks.

If one gets ones prudential regulations right there is less need for monetary policies. If one does not get ones prudential regulations right, no monetary policy can make up for it… in fact it could make things much worse... adding to the distrust of the financial system the distrust in the currency.

For sturdy long term stability we need lots of short term instability, and bank regulations which do not distort.

Sir I refer to Paul Tucker´s “Financial regulation needs principles as well as rules” June 19,

Sir, I do not care much for stability in the financial system, if that stability impedes clearing out lousy banks or bankers, or if that stability is obtained by tools that hinder growth. In fact little can assure to bring on the sturdy long term stability we need, than the existence of a lot of short term instabilities.

And that is why I do get nervous when I read Paul Tucker asking regulators to go for “systemic stability” and to assign them “an explicit goal in preserving stability”… “Financial regulation needs principles as well as rules” June 19. Forget it! The unemployed European youth that could become a lost generation need moving forward more than they need stability.

But when Tucker writes “we need a clearer framework for the regulations of markets, articulated as a coherent whole and based on clear economic and policy principles addressed to real-world vulnerabilities” there I whole heartedly agree.

Problem is though that would indicate the importance of not distorting the allocation of credit to the real economy, which is precisely what the risk-weighted capital requirements do; and that out there, in the real financial world, what is most dangerous is not what is perceived as risky but what is perceived as absolutely safe, something which would point to that the risk-weighted capital requirements for banks are weighing risks 180 degrees in the wrong direction.

PS. Today in an Op-Ed in Venezuela I published “The capital control the IMF supports” you may want to have a look at it.

June 18, 2014

The capital requirements for banks based on perceived risk, distort the correct risk pricing that the market might have done.

Sir, Simon Johnson writes about the risk of “Concentrating risk with the laudable goal of reducing opaqueness”… “Chaos is brewing behind the clearing house doors” June 18.

Absolutely, that was precisely what happened when regulators decided to concentrate in the hands of very few human fallible rating agencies, so much of the risk perceptions in the banking system… and look at what happened.

But, when Johnson begins lining up AIG, Fannie Mae and Freddie Mac as causing big distortions in the pricing of risk, I do not agree. The most fundamental distortions in the pricing of risks are the result of the regulators, with their capital requirements for banks based on perceived risk, distorting the correct risk pricing that the market might have done.

If the £30 million Rembrandt painting was John Kay’s, when would he worry about Piketty taxing it?

Sir, John Kay writes about “The problem of finding fair value in fine art and finance” June 18.

And, in doing so he gives us the example of a painting that the National Trust has just discovered to be by a Rembrandt and estimating its value to be £30 million.

If that painting was hanging in John Kay’s home, when would he start worrying about Thomas Piketty taxing it?

Mr. Martin Wolf, would not having a climate fix ruin investors even more?

Sir, I do not understand Martin Wolf’s “A climate fix would ruin investors” June 18. If climate change warnings are for real, as Wolf says he believes … would not having a climate fix ruin investors even more?

And what about diversification? If, while fixing the climate, governments go wrong and mess it all up by for instance financing Solyndras and then go broke… would not a little coal mine left in the portfolio perhaps come in handy for those days we might have to mitigate the disaster?

June 17, 2014

Europe, don’t you wish your banks had been shadow banks, or at least were shadow banks now?

Sir, I refer to Patrick Jenkins’ and Sam Fleming’s analysis of shadow banks in Europe “Into the shadows – Taking another path” June 17. What a strange history telling!

First they quote Jean-Pierre Mustier, the former investment banking boss at France’s Societé Générale remembering “the dark days before the 2008 financial crisis” saying: “Before the crisis, there was a lot of ‘dark’ shadow banking… pushing chunks of loans… designed to dodge rules on excessive risk taking”, and write that “About $400bn worth of subprime loans and other assets… that had been coursing through the shadow banking”.

What? After Basel II was approved in June 2004, banks in Europe were allowed to hold AAA rated securities backed by subprime mortgages against only 1.6% in capital, signifying an authorized leverage of 62.5 to 1. The truth is that no shadow bank, no matter how defined, could never ever aspire to achieve such a leverage, unless in a fraudulent way.

Of course, a bank with a low risk portfolio could be allowed to hold less capital than a bank with a higher risk profile, but that would be one single capital requirement against its whole portfolio; and not as now, different capital requirements against different parts of the portfolio. Had it been like that the European banks would never had had the incentives to build up such huge exposures to the infallible sovereigns, the AAAristocracy or the housing sector, nor to abandon the “risky” small businesses the entrepreneurs and the start-ups.

Frankly, as is, the best chance that unemployed European youth has of not becoming a lost generation would seem to be for all European banks to run into the shadows.

Then the authors write that part of “the raison d’être of the shadow banks is arbitraging the regulated banking system”. Indeed but they should ask themselves first about who is serving up such incredible generous menu of arbitrage possibilities?

And we also read that “policy makers such as Mark Carney, governor of the Bank of England and head of the FSB, argue that some shadow banks will have to be supervised more like banks”. Europe, pray your shadow banks fast run deeper into the woods, way out of reach of these regulators who, with so much hubris, believe they should be the self appointed risk-managers of Europe.

How much safe sound private money can we really have before it really becomes just too dangerous?

Sir, Paul McCulley writes “The crisis of the past decade was a reminder of the instability inherent in private money”, as if public money is inherently stable, “Make shadow banks safe and private money sound” June 17.

Also, as I see it, the number one reason private money turned unstable, was precisely the efforts of regulators to make it safe… as they concocted those senseless capital requirements for banks based on perceived risks, and which only guaranteed that when a bank crisis resulted from excessive exposures to what was perceived as absolutely safe, as all bank crisis do, the banks would then be standing there with their defenses, their capital, at a very low.

No Mr. McCulley, you at Pimco might have a vested interest in it, but I guarantee you that we, the rest, have no wish for Easterly’s tyrant experts to make our private money too safe… that is just too dangerous.

In these globalized times, would you not want your flag to be a flag of convenience, flagged by many?

Sir, what extraordinary interesting questions and suggestion of answers those of Janan Ganesh in “Fly the flag for the liberal values that define Britain” June 17.

I have often proposed that in these days of social media with circles of friends and known and unknown acquaintances, we should always be able have a fast reference to where on earth we all find ourselves, what flags we feel we live under, and perhaps what flags we would like to live under… because, just as ships can carry a convenience flag, why should not a Venezuelan-Polish citizen, in Sweden educated and in Washington living individual like me not be able to carry a British flag if that was the flag I best liked.

And in this respect I do not think that asking what is the flag Britain should flag to rouse the nationalistic sentiments of the locals, is half as good as asking what flag should Britain flag to rouse the globals to want to align behind “the liberal values that define Britain”. In these days we must never forget that you do not need an Armada to conquer, nor do others need an Armada to conquer you.

Or, as Violet Crawley might have admonished, “Do not be so parochial. It is so middle class”.

And with respect to flagging and signalization let us never forget that the order is vital. For instance if you flag the ex-ante maximization of opportunities flag long before the ex-post redistribution of wealth flag, I am certain you will get much better results than flagging in the order that Thomas Piketty sort of seems to imply.

June 16, 2014

FT Do you suggest we leave it all in hands of an Easterly type tyranny of “experts” in thinking machines morality?

Sir, so you want some morality experts to begin thinking about “the morality of thinking machines”? June 16.

The same type of experts that came up with those utterly immoral (and stupid) capital requirements for banks based on perceived risks which discriminate against those already discriminated and favors those already favored?

The same morality possessed by those willing to finance any human rights violator around the world, as long as the risk premium is right?

No thanks the way it looks some of us might prefer betting on artificial intelligence coming up with its own morality… because at least it would most probably not be so dumb so as to think that bank crises arise from excessive much exposures to the ex ante risky.

At least I would not like to leave this in the hands of an Easterly type tyranny, of experts in thinking machines morality.

PS. Is it moral for FT to cover up the stupidity of experts?

For Europe to reduce the horrors of its house of debt, it needs to allow its risky-risk-takers to get going.

Sir, Wolfgang Münchau writes about a “balance sheet recession: the notion that indebted households and corporations do not care about cheap interest rates but just want to offload debt. When that happens monetary policy becomes ineffective” and then, salt on the wound, he quotes Moritz Kramer of Standards & Poor’s saying “The Europeans have barely begun to deleverage”, “Europe faces the horrors of its own house of debt” June 16.

Has Münchau ever heard that “when the going gets tough the tough get going”? If so I would ask him who he thinks might be the real tough in Europe. And I would advance that would be all those with a spirit of initiative who are willing to risk either their good name or whatever little capital they have, in order to take on a business venture.

And, if you agree, then reflect on that these are precisely those who are now locked out from having a fair access to bank credit by the sissy bank regulators and their risk-weighted capital requirements.

And so, if Europe is going to have a chance to reduce “the horrors of its own house of debt”, it must start by inducing banks to allow the risky-risk-takers of Europe, wherever you can find them, to get going. 

Given the real and urgent needs of Europe, the risk-weight on loans to “risky” medium and small businesses, entrepreneurs and start-ups, should be lower than that of their “infallible sovereigns.”

June 15, 2014

Mark Carney, do not use shadow banks to hide the mistakes committed by the regulators of the banks in the sun!

Sir I refer to Mark Carney’s “The need to focus a light on shadow banking is nigh” June 15.

Carney writes “In the run-up to the crisis, opacity in shadow banking fed an increase in leverage and a reliance on short-term wholesale funding. Misaligned incentives in complex and opaque securitisation structures weakened lending standards…The goal is to replace a shadow banking system prone to excess and collapse with one that contributes to strong, sustainable balanced growth of the world economy… As the G20 completes work on the core of the financial system, reforms to shadow banking must, and will, progress. Now is the time to take shadow banking out of the shadows and to create sustainable market-based finance."

Mr. Carney what on earth had shadow banking to do with the crisis? The current crisis was set off by an incredible misalignment of incentives caused by adopting risk-weighted capital requirements, in conjunction with assigning a risk perception monopoly to some very few human fallible credit rating agencies.

Does Carney really believe that the problem with the AAA rated securities backed with lousily awarded mortgages, the bubble of the real estate sector in Spain, the excessive loans given to sovereigns like Greece, and similar which could be financed by banks against basically no shareholders’ capital had much to do with the shadow banking?

No way José!

The only way G20 can do something worthwhile in terms of reform, is to accept with much humility that the risk-weighted capital requirements not only distort the allocation of credit in the real economy but are also, from a medium term financial stability perspective, utter nonsensical... since major bank crises never occur from excessive exposures to what is ex ante perceived as risky.

June 14, 2014

Most certainly Martin Wolf did not explain to Edmund Phelps how bank regulations are stacked against small banks and their clients.

Sir, Martin Wolf’s lunch with Edmund Phelps ends with Phelps saying “I would like to see the American economy go back to small banks rooted in communities where the banks know something about the local start-ups” "A romantic economist?" June 14.

Unfortunately Professor Phelps, that is impossible, because regulators have structured modern banking around the concept that those who are primarily to know the clients of the banks are not the bankers, but some credit rating agencies. And if by any chance the small bank would try to get to know his local client, and decided to trust him with a loan, then it would be required to hold much more capital since the Basel Committee seemingly believes that anything small and local has to be very risky.

Sir, most certainly Martin Wolf did not explain anything of this to Phelps, since he clearly thinks that this is of absolutely no importance.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.

June 12, 2014

Where could Iraq have been today if each one of its citizens was receiving his monthly oil dividend check?

Sir, I refer to your “The nightmare emerging from Iraq” June 12.

When you write “If Iraq is in the throes of sectarian break-up it is because the country has lost any sense of a national narrative, a shared story”, and I think of that “The Iraq Study Group” report of May 2006, prepared by the US Congress stated: “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource” I feel like crying.

Can you imagine what different scenario we might be confronting in Iraq were each Iraqi citizen monthly receiving a check as an oil dividend? Can you imagine what kind of example that would have given citizens of other oil-cursed nations, like Venezuela where the government gets directly over 97 percent or all the nation’s exports?

Yes the Iraq Study Group also said about that possibility “but it would take time to develop a fair distribution system.... There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.” But when compared to all other pains and resources wasted, that seems ex post honestly like the mother of all bland excuses.

And then today I received a copy of a letter signed by 58 Democrats calling for the US to sign up on the Extractive Industries Transparency Initiative, which is a global effort designed to increase accountability and openness in extractive industries… as if that could really move our curse needle in any fundamental way.

By pure coincidence this is part of an Op-Ed I published today in Caracas in El Universal

“During the week I went to one of those conferences where the well-intentioned try to solve your problems with the "resource curse." And that conference versed primarily over how the United States, by means of the Dodd-Frank Act, and the European Community, through laws on corporate transparency, seek to impose on their oil and mining companies strong information requirements regarding their relationship with governments.

My position was, as always: "That sounds very nice but truth be told that for someone who lives under the guise of a giant oil-curse like Venezuela’s, being able to know more about what happens in each specific contract, may be interesting, but could divert the attention from what is happening in general. "

If you really want to help, better published monthly, in a newspaper of global circulation, your best estimates as to the value of non-renewable natural resources extracted, per citizen, per month, represents in each of the various governments around the world. And then let the citizens ask.

I beg of you, do not cause our citizens to believe that you are making their work for them.

With respect to the war against this curse, it is useless for you to strive to make your companies behave with dignity, if we cannot make our governments behave with dignity"

PS. A YouTube “Please, while you leave Iraq

June 11, 2014

Fasten your seatbelts… according to the roads´ safety ratings?

Sir, I refer to John Kay´s “How the health and safety culture can curb moral hazard” June 11.

In it Kay writes “Fannie Mae and Freddie Mac would never have assembled such bloated balance sheets had those who lent to the US state-run mortgage finance companies not believed… that the government would protect creditors from any default” Why? If the mortgages were awarded correctly why should they not?

And I could equally say “Had it not been for regulators allowing banks to hold only 1.6 percent in capital against securities if rated AAA to AA, an authorized leverage of 62.5 to 1, there would never ever have been such a demand for such securities which drove everyone crazy and caused mortgages to be awarded badly.

When you tell people to fasten their seatbelts that makes sense… when you tell people that they have to fasten their seatbelts depending on the safety rating on the road… you are getting into very shady problems.

Kay also writes “If creditors are protected from risk, the long-term effect will be more risk in the system” Indeed but what if that more risk in the system serves a purpose, like loans to small businesses and entrepreneurs who could help to avoid our unemployed youth to become a lost generation?

As is, with the risk-weighted capital requirements for banks, we are only getting much more risk into the banking system by means of higher leverages on what is believed to be absolutely safe, something which is precisely the stuff that bank crises are made off and seemingly for no good purpose at all.

PS. With respect to the safety culture it can be taken too far. Yesterday in a row boat, in a small lake, probably surrounded by hundreds of security officers, we saw several European leaders sitting there with life vests on. I bet that Winston Churchill would never ever have thought of putting a life west on in such circumstances, much less if haven his photo taken.

The real hair-raising déjà vu is that risk weighted bank capital requirements of Basel II survive in Basel III.

Sir, John Plender refers to the Institute of International Finance and their looking at “the asset to GDP ratio” arguing “the risk that unless growth accelerates significantly in the future, economic growth will not create sufficient resources to service the developed world´s huge pool of assets, whose value will therefore have to correct at some point of time”, “Déjà vu as echoes of pre-crisis world mount” June 11.

Indeed but unfortunately there is not a chance in a million that growth will accelerate significantly in the future, if regulators keep discriminating against the fair access of “the risky” to bank credit.

In fact the real hair-raising déjà vu is seeing that Basel III still uses risk weighted capital requirements, those bound to discriminate against the “risky” risk-takers we risk adverse so much depend on.

Our young unemployed, in order not to become a lost generation, might depend on artificial intelligence entering the Basel Committee.

Sir, though the theme was in general quite worrisome for a human, there was at least some source of hope when reading that Anjana Ahuja believes “Thinking machines are ripe for a global takeover” June 11.

Any remotely smart machine, if invited into the Basel Committee, would immediately detect two major flaws with the risk-weighted capital requirements which is the pillar of current bank regulations.

First, by simply looking at empirical data and observe that all major bank crisis have always resulted from excessive exposures to what was ex ante perceived as “absolutely safe”, and never ever because of excessive bank exposures to what was ex ante perceived as “risky”; it would conclude in that the risk-weights of 0 to 20 percent for the “infallible sovereigns” and the AAAristocracy must have gotten mixed up with the 100 percent risk weights for the medium and smaller businesses, entrepreneurs and start-ups.

Secondly it would probably also ask the human regulators why they were looking at perceived risks that were already being cleared for by the bankers, by means of interest rates size of exposure and other, something which is bound to distort the allocation of credit in the real economy; and why they were not looking instead at some of the important though usually ignored risks, like that of the credit risks not being correctly perceived by bankers and credit rating agencies.

If so, and if the Basel Committee did not throw the thinking machine out, and in all modesty accepted their natural intelligence was not sufficient and proceeded to correct those mistakes… then perhaps our current unemployed young would not have to become a lost generation.

PS. And of course FT will also find it much easier and digestible to believe in “Eugene Goostman” the machine, than to believe in Per Kurowski the human.

When silencing my criticism of the distorting risk-weighted bank capital requirements, who were the Financial Times favouring?

Sir, Bilal Khan correctly explains in his letter some of the sad consequences of risk-weighted capital requirements, “Bank's reluctance on private lending is rational” June 11.

And Khan writes “We must ask ourselves why we continue with a regulatory system that failed to ensure any semblance of stability during the financial crisis… and now renders unorthodox monetary efforts to stimulate growth largely ineffective”

Well if Mr. Kahn would enter my blog TeaWithFT and review the several hundreds of letters that over many years I have sent the Financial Times on precisely this issue, he would have to conclude that one of the reasons we are beginning to hear about this problem only now in May-June 2014, is that the Financial Times decided to silence my voice of protest in order to favour… I do not who?

Just think of all the hundred thousands of bank loans that over this period could have been given to medium and small businesses, to entrepreneurs and start-ups, if only FT had helped me to argue on its pages about how immoral and outright stupid it is to distort the allocation of bank credit by discriminating against those whose access to bank credit is already sufficiently difficult because of being perceived as “risky”… and that even though no bank crisis ever has resulted from too much bank exposure to what was ex ante correctly or incorrectly perceived as being risky.

PS. I am sure the censuring treatment given to me must have made many of FT’s journalists quite uncomfortable.

June 10, 2014

If talking about the decline of morality of bankers, let us not forget that of their regulators... and of journalists.

Sir, John Plender referring to banks and bankers holds that “The crisis shows moral capital is in secular decline” June 10. And I am not going to argue about that, especially when I fully agree with his point of the need for retreating “from the obsession with punishing corporations rather than senior executives.

But when Plender writes about “the absence of an international regulator provided banks for ample opportunity for regulatory arbitrage”; and about how “banks shaped their business to minimise regulatory capital requirements”; and about the role of “lower capital requirements on mortgage backed securities relative to those on conventional mortgages” then he really ticks me off.

Mr. Plender if we are going to talk about morality in banking, those who have most breached it are the bank regulators who, with their capital requirements favored bank lending to “the infallible”, those who already were favored by bankers with higher loans at lower interest rates, and which translated into an outright discriminating against bank lending to “the risky”, those who already were being discriminated against by bankers with higher interest rates and smaller loans. That, in and on itself, was and is a truly immoral (and stupid thing to do)… as immoral it is for journalists and editors that should know better, to keep quiet about that.

Mr. Plender, it was the bank regulators of the Basel Committee, and no one else, who with their Basel II authorized banks to buy securities against only 1.6 percent in capital, if these were AAA to AA rated… and you should know that… or you should not be writing about these issues.

Central bankers and bank regulators are, no doubt about it, screwing up our economies.

Sir, I refer to Ralph Atkins and Michael MacKenzie’s first page report “Volatility ‘extinguished’ by moves from central banks” June 10, 2014.

In October 2004, soon ten years ago, as an Executive Director of the World Bank, I delivered a formal statement at the Board of Executives in which I wrote: “Phrases such as ‘absolute risk-free arbitrage income opportunities’ should be banned in our Knowledge Bank. We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”

Perhaps no one at that time, in an international post as high as mine, warned as clearly as I did about what was happening.

Today, though now only as an insignificant citizen, I must say that the artificially induced low volatility has me even much more worried.

But, on the positive side of only being a citizen, is that you can spell out your opinions with less delicacy… and so let me put it like this:

Between the bank regulators, like the Basel Committee, telling the banks with their capital requirements where they can earn high risk adjusted returns on equity and where not; and as a result central bankers injecting funds which cannot go where they should go, these parties, acting with sublime hubris, believing themselves to be the masters of the universe, are really screwing up our economies.

ECB European banks have no lack of funds but they do have an enormous lack of shareholders’ capital.

Sir, Christopher Thompson and Ralph Atkins report that despite targeted long term refinancing operations, TLTROs, some banks will not lend to SMEs, “Doubts grow over effect of ECB loans” May 10. 

Of course not! “There isn´t a funding crisis any more” they quote Ken Watrett of BNP Paribas saying and the full truth is that there has not been a funding crisis for a long time now. The crisis, in full bloom, is that of an enormous lack of that shareholders´ capital banks are required to have, especially if they to lend to SMEs.

Just days ago, June 4, Sam Fleming ends a comment in the Analysis "Still unstable" with: “Many euro area banks remain undercapitalized, and for the taxpayers to be insulated from future banking crises balance sheets may need to be strengthened by more than €400bn.” What an extraordinary coincidence that the TLTROs figure announced is also €400bn… could there be something there?

PS. By the way think of those chips used by Mario Draghi when doubling down, as the future of our kids.

PS. I have been writing to FT for years on this problem… but Sir, You have silenced me. My TeawithFT blog with all my letters are out there on the web though, and perhaps soon also in a book… and so one day you might have some explaining to do.

June 09, 2014

Do not let the very natural splendors of richness distract from the very unnatural causes of unequal richness.

Sir I refer to Lawrence Summers’ “The rich have advantages that money cannot buy” May 9. 

In it Summers writes “In areas ranging from local zoning laws to intellectual property protection, from financial regulations to energy subsidies, public policy now bestows great fortunes on those who primary skill is working the political system rather than producing great products and services. There is a compelling case for policy measures to reduce profits from such rent-seeking activities…”.

Indeed that is the most important task at hand, and nothing should distract our attention from it.

For instance the fact that “the average affluent child now receives 6.000 hours of extracurricular education, more than the average poor child”… has absolutely nothing to do with the challenges at hand… but neither do I think that similar activities is what Summers now suggests we give the less fortunate ones to support their education… and this even though they might be much more motivated receiving it.

When will regulators understand that it is only in what is ex ante “absolutely safe” that big systemic bank risks reside?

Sir Wolfgang Münchau approximates admitting to a problem of which I have written to him and to so many of FT´s other contributors over the years the years when he writes “Meanwhile, [European] banks want to reduce the amount risky lending so as to reduce the amount of equity they have to raise under new bank regulations” “Europe’s drifters wait but inflation never comes”, June 9.

I say approximate because first, the regulations of higher equity for what is perceived as risky are not that new… they took off in earnest with the approval of Basel II; and secondly, the real reason for which banks now need to raise new capital has really nothing to do with any lending to the “risky”, but with all the previous lending to some who ex ante were though as absolutely safe, and for which they were allowed to hold extremely little capital, but that ex post turned out to be very risky.

The day Münchau gets internalizes that bank lending to those perceived as risky has never been really risky, because of the high risk premiums collected and the usually very low exposures to them, that day he will put begin putting “risky” in quotation marks, and understand that what is really risky, without quotation marks, is what is perceived as absolutely safe… but could not be.

Of course, with the lack of capital and with the same risk-weighted capital requirements the chances for those unfairly considered “risky” for having fair access to bank credit are slimmer than ever.

Before there is a real and open discussion on who was it that authorized regulators to put the very short term stability of banks in the forefront, and distort the allocation of bank credit, and so endanger the medium and long term of Europe’s economy, and its banks, Europe will not get anywhere.

ECB, searching for inflation, while not allowing “risky” small businesses fair access to bank credit, is mindboggling silly.

June 06, 2014

Martin Wolf, indeed, all Mario Draghi pulled out of his hat, was another little timid rabbit.

Sir, I refer to Martin Wolf´s “Draghi has pulled another rabbit out of his hat” June 6.

Instead of the “targeted long-term refinancing operations”, the TLTROs, to “help the credit-starved segments of the eurozone economy” I would have loved a real declaration of change such as:

“From now on we the ECB will not admit bank regulators treating medium and small businesses, entrepreneurs and start-ups, as intrinsically more risky for Europe, than the “infallible sovereigns”, the housing sector and the AAAristocracy”

That would have been a real animal spirit to pull out of the hat. As is, all we got from Draghi and ECB was indeed another little timid rabbit.

PS. Sir, again, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.

As is, €400bn of cheap ECB Mario Draghi loans would only end up financing “infallible sovereigns”, not small businesses.

Sir, I refer to Claire Jones reporting and You and other opining about the announcements by Mario Draghi on lower ECB interest rates and of “up to €400bn of cheap loans for eurozone banks in an attempt to boost lending to the regions credit-starved small businesses”, June 6.

Again, for the umpteenth time, it is not money to lend European banks lack, it is capital… as in shareholders’ equity… since these are severely undercapitalized as a result of regulators like Mario Draghi, against all empirical evidence of what causes bank crises, having allowed them to hold almost no capital at all, when lending to the housing sector, to “infallible” sovereigns like Greece or investing in securities rated AAA.

And because of that the banks do now not have the shareholder’s capital required to lend to “the risky” small businesses, especially since regulators like Mario Draghi, again against all empirical evidence of what does not cause bank crises, decided banks need to hold much more capital when lending to these. And Sir, we do not need a ECB’s Asset Quality Review to know that!

And so to ignite lending to small businesses and other “risky”, so that the unemployed European youth is not doomed to become a lost generation, and so that all €400bn of cheap loans do not end up as more easy money for “the infallible”, requires getting rid of the bottleneck that the risk weighted capital requirements signify.

The problem with that though is that this requires a mea culpa from high fliers like Mario Draghi (Ex-FSB), Mark Carney (FSB) Stefan Ingves (BCBS) and others (perhaps of you too Sir) … something which is not likely to happen… since they clearly still believe they are the masters of the universe.

June 04, 2014

Again besserwisser Martin Wolf ignores the regulatory discrimination against “the risky” when accessing bank credit

Sir, I refer to Martin Wolf’s “Legitimate business unlocks growth” June 4.

In it he writes that answering the question “What lies behind the falling productivity and rising share in total employment of small businesses [in Mexico]?” McKinsey advances, as one of three hypotheses, that: “small businesses lack access to credit. 33 percent of GDP, outstanding loans are extraordinarily small. They are also expensive”… “The unmet capital needs of firms with 10 to 250 employees represent 75 percent of what we estimate to be a $60bn credit gap in Mexico”.

But Wolf steadfastly ignores my arguments that I have expressed to him and FT in hundreds of letters… his besserwisser ego does not allow him to do otherwise, and so he does not get it.

Mexico has been on the forefront of applying Basel Committee Basel II bank regulations… and the capital requirements for banks of these instruct banks not to lend to “risky” small businesses because, if they do, they must hold much more capital than when lending to, for instance, the “infallible sovereign” of Mexico.

PS. Sir, again, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks. His problem is that, in this case, he has encountered a more correct and perhaps an even more besserwisser than he is :-)

A comprehensive stress test of European banks must also include analyzing what is not on their balance sheets.

Sir, I would like to refer to analysis of the European banks “Still unstable” June 4. 

There, quoting RBS figure it says “for taxpayers to be isolated from future banking crises balance sheets need to be strengthened by more than €400bn”. Since that amount represents only about 1.3 percent of “the combined size of European’s banks balance sheets -€30.7tn-” I would indeed say that is quite an understatement, unless any future expected banking crises are extremely small.

But not only taxpayers are interested in the banks… what about the borrowers? How much capital will it take to satisfy the financing needs of Europe?

My objection with all stress-testing going on with respect of the assets that are on the balance sheets of European banks, is that it completely ignores the assets that needs to be on these balance sheets, if the unemployed European youth is going to stand a chance of not becoming a lost generation.

For instance what about all those loans to middle and small companies, entrepreneurs and start-ups which are not on the books only because dumb regulators require banks to hold more equity against these than against assets deemed, ex ante, as absolutely safe?

PS. Again, for the umpteenth time, there is no growth-hormone as potent for the Too Big To Fail banks, than the risk-weighted capital requirements which allow banks to hold very little capital against assets perceived ex ante as absolutely-safe… precisely those assets of which all major bank crises are made of.

Mr. Richard Madigan would you not like to know the real not subsidized US bond based risk-free rate?

Sir, Richard Madigan, chief investment officer at JPMorgan Private Bank writes “US bond markets leads all markets because they act as the risk-free rate for all risk-assets”, “Rate rises will come despise lower bond yield”, June .

I would love to ask Mr. Madigan the same question I asked Mr. Alan Greenspan some years ago namely… would you not like to know the real US bond based free-rate, without that regulatory distortion resulting from allowing banks to hold US bonds against so much less capital than what they need to hold when lending to citizens, and which in effect makes it therefore a subsidized free-rate?

Mr. Greenspan after hesitating for some moments advanced a "Yes".

June 02, 2014

Bankers, by limiting the voice of their parents to the 4 to 8 percent capital range, find it easier to write their own bonuses.

Sir, I sympathize deeply with much of the arguments presented by Lucy Kellaway in a “Lesson from kindergarten on executive bonuses” June 2.

That said I am not sure the analogy to her challenges as a mother is so accurate in this case, since I have the feeling that she does indeed still influence quite a lot the bonuses of her kids. And, that is not the case of banks.

The bankers, the kids, have been able to convince the regulator that the voice of their parents, the shareholders, should be very limited… to the 4 to 8 percent range. And the result of it all is that bankers are in essence very much capable of setting their own bonuses, which is something I am sure Lucy Kellaway would rightly fear if her kids could do.

Let us give banker’s parents more voice!

John Authers I strongly object. An ignored evident consequence has nothing to do with an "unintended consequence".

Sir, John Authers writes “The law of unintended consequences applies to new financial regulations… Think of the credit rating agencies, to whom all due diligence was effectively outsourced by rules such as the Basel II bank regulatory regime”, “Rules shake-up and the law of unintended consequences” June 2.

I vehemently object to that. Authers, and FT, has no business fabricating walls behind which regulators can hide in order to avoid being held accountable for their mistakes.

What Authers refers to was NOT an unintended consequence, it was an expected consequence but which was blithely ignored by the regulators. 

In January 2003 the Financial Times published a letter in which I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friend, please consider that the world is tough enough as it is.”