October 30, 2014

FT, what Sweden most needs is to throw out its current bank regulatory Pharisees.

Sincerely, it reads like you are trying to convince yourself about feeling some schadenfreuden, with  weak arguments… and even sounding a bit besserwisser reminding us of the importance of looking at real more than at nominal interest rates.

And you even dare to speak of some have “been handed a clear defeat” when you must know that the real economy, the real jury, is still deliberating all around the world, without reaching any kind of clear consensus on what is to be done.

But it is when you argue: “The trade-off between safer debt levels and lost growth was not worth it” that, for the umpteenth time, I need to ask you… is the trade-off between (the illusion of) safer banks and lost growth really worth it?

Sweden is a small country blessed with immense entrepreneurial spirit, so much that even socialists regimes have been wise enough to nurture it. And, in this respect, it is one of those most hurt by that silly risk aversion that has been introduced in its banking system, by means of Basel Committees’ risk-weighted capital/equity requirements… which precisely discriminates against the fair access to bank credit of SMEs and entrepreneurs.

In Swedish churches, psalms pray for “God make us daring”, while some un-elected bureaucrats dedicate themselves to castrate and de-testosterone its banks.

And that is why Sweden also needs, urgently, a psalm that prays for its current bank regulatory Pharisees to be thrown out!

October 29, 2014

It might be time for the Financial Times, FT, to change its name to the Regulatory Times, RT.

Sir, you write that “BoE encourages insurers to be weather resistant” October 29. And it all almost reads like a sophisticated April Fools’ Day joke.

You argue: “While markets are meant to incorporate a variety of opinions, high regulatory standards are needed to stop a casual attitude to climate change becoming a competitive advantage”… and so it is “encouraging that the Bank of England is determined to be on the front foot”

“Encouraging”? After what regulators, not being able to contain their hubris, thinking themselves capable of being the risk managers for all banks, recently, with their credit risk weighted equity requirements, did to the financial system?

Should we understand this means that the Financial Times believes regulators can come up with not only better insurance standards than the market, but also that such regulatory meddling would not risk produce some extremely risky unexpected consequences?

FT who are you? Why do you not change your name, to the Regulatory Times?

Martin Wolf, it is not Europe’s banks which are too feeble to spur growth. It is their regulators who are.

Sir, I refer to Martin Wolf’s “Europe’s banks are too feeble to spur growth” October 29.

Wolf writes: “High leverage impairs the ability to finance growth. A responsibly managed yet highly leveraged institutions would seek to… hold highly rated assets. This is likely to militate against the productive investments the Eurozone needs”.

Indeed… but why is it so Mr. Wolf? Could it possibly be (as I have so mono-thematically explained to you for soon a decade) because feeble bank regulators decided, for no good reason at all, banks needed to hold more capital/equity against highly rated assets than against more “risky” productive assets?

Mr. Wolf, tell us, what responsibly managed bank should not responsibly look to obtain the largest risk adjusted returns on its equity?

Of course some bankers might have lobbied strongly for some ultra-low capital requirements, but it was the regulators who approved these… and so stop blaming the banks so much, and join me in blaming those who are most to be blamed.

Of course Europe’s banks have “too little capital”, and that is mostly because too little capital was required of them when lending to what was officially perceived as safe. But it is not the too little capital that mostly hinders banks from helping the real economy… it is the distortion produced by the credit-risk-weighted equity requirements.

If Europe does not rid itself of those feeble bank regulators, very fast, it could soon be game over for Europe.

October 28, 2014

Britain, get the busybody besserwissers out of your Bank of England… fast!

Sir, I am shocked, and utterly concerned about my very dear Britain’s future. How on earth have you allowed yourself to be trapped by such besserwisser-busybodies hands, as is reflected in Pilita Clark’s by the “Bank of England seeks answers from insurers over climate change” October 28.

Truly mindboggling. If BoE is so concerned about climate change, then why does it not suggest that capital requirements for banks should be based on our planet-earth’s-sustainability ratings, instead of silly, purposeless, credit-risk ratings, those which are already being cleared for by banks with risk premiums and size of exposures?

Quite many of our modern day bankers have, unfortunately, never known a small or medium sized enterprise.

Sir, I refer to the analysis “Bank stress tests fail to tackle deflation spectre” October 28.

In it we read Jean-Pierre Mustier, head of corporate and investment bank at Unicredit saying: “I think the issue of small and medium-sized enterprises lending is one of demand and not so much of supply”.

And I have a feeling Mr. Mustier might be one of those modern bankers who have never ever known a small or medium sized enterprise.

And if Mr. Mustier does not understand the impact on the supply of credit to small and medium-sized enterprises, the fact that banks are required to hold so much more equity when lending to these than when lending to “absolutely safe” has, that might be because Mr. Mustier as a banker has only lent to “infallible sovereigns” or members of the AAAristocracy.

FT, look at the fine print of the stress tests of European banks before drawing optimistic conclusions

Sir, you write: “In 2012 the Eurozone through a near death experience… Banks were heavily invested in the debt to governments, which in turn were meant to guarantee to solvency of the same banks”… and now you hold that “this week, [because of the stress tests] has finally provided an example of some encouraging progress”, “Better way to check the health of Europe’s banks” October 28.

What if banks came out better in these stress tests, only because they were invested even more heavily into those government debts against which they are not required to hold any capital/equity? Would that change your perception on “encouraging progress”?

PS. You now want the Asset Quality Review to be repeated annually. If you were one of the consultants making a great living on that I could understand it...  but let me ask you... have you ever thought about how much of our economies and of our well being is driven by sheer blissful ignorance?

All Europe’s banks would fail a test of whether they allocate bank credit efficiently.

Sir, Gavyn Davies writes “Stress tests will not themselves bring the Eurozone back to health” October 28.

He is absolutely right, because for that to occur it would all have to start with a test of how European banks are helping the Eurozone, and since the credit-risk-weighted capital requirements that caused the current deep economic malaise are still in place, banks would clearly fail that test.

Davies also correctly holds that “not all of the problems of a diverse banking system can be fixed at once”, but, unfortunately, all the banks can be made to have problems, by means of just one systemically faulty bank regulation.

And so when Davies writes “banks need to restore their risk appetite, having spent several years preferring to build their capital buffers rather than lending to risky small businesses” I must ask where has he been. Does he not know that banks, because of credit-risk-weighing are primarily building up their capital buffers, precisely by not lending to anything that requires them to have more capital?

Davies, concludes with “The best that can now be said is that a dysfunctional banking system should no longer be a fatal impediment to growth, on the optimistic assumption that the [fiscal, monetary, structural] and other measures that Mario Draghi has promised – including a sizeable monetary stimulus - come on stream.”

No way! Doubling down on a still so dysfunctional banking system would just waste away a sizable monetary stimulus- making it all so much more dangerous for Europe.

October 27, 2014

Europe, it is your bank regulators who most must be stress-tested!

Sir, I refer to all the writings in FT on October 27 about the stress tests of European banks in order to ask you:

If all banks that failed had only given loans to infallible sovereigns, then they would have classified as the safest. Do you really think that would have helped investors to have confidence in Europe?

Frankly, regulators who can come up with something like The Basel Committee’s Bank Stability Decree, have no moral right to test any bank.

Sir, even a hedge fund founder is quoted stating: “We now know that we can have a 5 per cent contraction in the eurozone economy and the banks will still have more than 8 per cent capital – that is very positive for the sector.”

What? If lucky, it might be more than 8 per cent of capital of the-risk-weighted assets… and that, as you should know by now, can be extremely faraway from meaning the same thing.

And, why after spending so many million dollars on consultants, did they not even give us the so easy calculated leverage ratio?

And talking about the consultants, we should have their names, so as to know who to hold accountable, as paid collaborators of what seems more to be a farce concocted by regulators to save face.

PS. Sir, you who have been so mum on this issue, show me anything perceived or officially stated as "risky" that caused the turmoils in the European banking sector. 

October 25, 2014

Either the Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell

Sir, on October 25 you title your editorial “The risk that QE will generate inequality”… even though you must know that’s what’s most probable. Shame on you!

And you also end by categorically stating: “Quantitative easing has been a bold and innovative experiment. Its outcomes were always uncertain, and some may have been unfortunate. But central banks have been right to do what they did.”

I am not entirely disputing that, but, over the last decade, I have sent to you, and to your reporters, over 1500 letters where I have argued the following:

The pillar of current bank regulations is credit-risk-weighted capital (equity) requirements for banks; which signify more ex ante perceived risk more equity - less risk less equity; which allows banks to earn much higher risk-adjusted returns on their equity when lending to “the infallible” than when lending to “the risky”... totally distorts the allocation of bank credit to the real economy.

And that causes banks to lend too much at too low rates to “the infallible”, and too little and at too high relative interest rates to “the risky”, like to medium and small businesses, entrepreneurs and start-ups. And, so by impeding the fair access to bank credit, it blocks equal opportunities, and therefore drives inequality.

And therefore, while those capital requirements for banks remain in effect, much of the liquidity provided by QEs is wasted, because it is not allowed to flow, by means of bank credit, to where the real economy would need it the most.

Sir, I guess we have since a long time ago arrived at an impasse. Either big Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell.

If I am proven wrong, I will put on a dunce cap, take a picture of me, and post it, with my most sincere apologies to you and to bank regulators, on my TeaWithFT.blogspot.com.

If instead you are proven wrong... do you have it in yourself to do something similar?

Or is it that notwithstanding your motto "Without favor and without fear", you just do not dare to think of the possibility that the bank regulators could be so fundamentally mistaken?

PS. To introduce the virus of risk aversion into the banks of a Western World which has become what it is thanks to risk-taking, is, as I see it, pure financial terrorism.

PS. That financial terrorism has blocked the creation of millions of jobs that would have benefited our young.

NOTE: I am a happy husband, father and grandfather, with no scandalous past.

I have a long and I quite successful carrier as a financial and strategic private and public sector consultant and, in 2002-2004, I was an Executive Director at the World Bank.

I have studied in Sigtuna SHL Sweden, Lund University, IESA Caracas, London Business School and London School of Economics.

Since 1997 I have published over 800 Op-Eds in some of the most important newspapers in Venezuela.

I have had many letters and articles on banking regulations published around the world. And few can claim having warned in such precise terms on impending banking disasters as I did between 1997 and  2007. 

And I stake all my professional reputation, and the loving trust my family has shown me, on the fact that current bank regulators of the Basel Committee, and of the Financial Stability Board, have been wrong. Not a pardonable 15 degrees wrong, but an unpardonable 180 degrees totally wrong.

October 24, 2014

Failures and mistakes is something that needs to be nurtured in order to have a better future.

Sir, Gillian Tett is absolutely correct when she writes: “What is still missing, in many quarters, is a mindset – most notably a recognition by bureaucrats and bankers that failure is an inevitable part of the market system, and that it sometimes pays to wipe the slate clean rather than endlessly sweep problems under the carpet”, “Jingles that sound the beginning of recovery” October 24.

That is exactly what I referred to in a letter you published in August 2006 in which I wrote about “the long-term benefits of a hard landing” and the dangers of dabbling in topics such as debt sustainability ignoring the value of pruning or even, when urgently needed, of a timely amputation.”

But, I also think it is very important that the wiping-the-slate-clean, also applies to banks. As an Executive Director of the World Bank, in 2003, I told many regulators during a Basel II preparation conference: “A regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises.”

But no, the Basel Committee preferred to proceed down the road of nurturing the too-big-to-fail banks.

PS. By the way, Ms. Tett might be interested that in the US, the jingle she refers to, is not allowed when it comes to educational debt.

October 23, 2014

Could some bureaucrats wanting to hold on to their reputations and jobs, really be allowed to bring Europe down?

Sir, I refer to Claire Jones’ “ECB bond-buying plan risks falling short” October 22.

In it, Lorcan Roche Kelly, economist at Agenda Research, is quoted saying: “It’s very hard to make an argument for how corporate bond purchases [by ECB] lead to growth. Large corporations are not SMEs; they’re not having much trouble raising debt.”

Indeed, it is SMEs, and others perceived as “risky”, who are denied fair access to bank credit because of the horrendously distorting credit-risk-weighted capital (equity) requirements for banks.

But that is ignored (even by FT) or even hushed-up, because Mario Draghi, as the former chairman of the Financial Stability Board, and other of his colleagues, do not want that to be recognized as a monstrous regulatory mistake.

The banks, unwittingly, and hopefully unwillingly, have been intimated into a for Europe extremely dangerous risk aversion, and of which they cannot get out of, all because their lack of sufficient bank equity make them so dependent on what for instance Mario Draghi’s ECB does.

What a sad mess! Could some bureaucrats wanting to hold on to their reputations and jobs, really be allowed to bring Europe down?

Europe, it is not bank’s balance sheets, but bank regulations, which most need a cleansing.

Sir, Huw van Steenis writes that stress tests “have the potential to accelerate the process of cleansing banks’ balance sheets to support economic recovery” "Bank stress tests need to be a catalyst for policy shifts in Europe” October 22.

Van Steenis also holds: We also need to address blockages to the flow of funding to companies… modestly recalibrating overlapping rules if they are holding back good lending”.

Forget about “modestly recalibrating” rules, that won’t cut it.

Unless that dangerously distorting risk aversion present in credit-risk-capital (equity) requirements for banks is not completely uprooted, Europe stands no chance of a sturdy economy… worse, it will only stall and fall.

Absolutely nothing is gained by cleaning up the balance sheets of banks, if these are still given the incentives to go to where, credit-wise, it is perceived to be “absolutely safe”, and to stay away from what is deemed “risky”… like lending to SMEs and entreprenuers.

October 22, 2014

Europe must allow its SMEs to compete on equal footing with its “infallible sovereigns” for bank credit

Sir, I refer to Martin Wolf’s “Reform alone is no solution for the Eurozone” October 22.

He concludes it with: “The eurozone needs to reach a bargain between more reform and extra demand. In doing so, it must recognise that persistent stagnation is a big threat to stability. The eurozone should risk expansion. That is now the safer course.”

But, again, he does not refer to the absolute necessity of Europe getting rid of the risk aversion present in the credit-risk weighted capital (equity) requirements for banks, those which can only guarantee the mediocrity and the stagnation of Europe’s economy.

Why on earth does Wolf not do that? One reason might be that doing so, could put in evidence how the current low interests for Germany and other “infallible sovereigns” are much the result of the fact they are zero risk weighted, and that banks therefore need to hold any specific capital against exposures to them… And so getting rid of what is in effect a regulatory subsidy of government borrowings, would of course dent Wolf’s campaign for Germany to take advantage of “extraordinarily favorable interest rates” in order to “borrow to finance additional public investment”.

This madness needs to be stopped. If Europe is to stand a chance, it must allow its “risky” constituency, like all the medium and small businesses, entrepreneurs and start-ups, to be able to compete on equal footings with the “infallible sovereign” for access to bank credit.

Even without odious regulatory discrimination, life is hard enough for those tough “risky” risk takers we need to get going when the going gets tough. Without them, even the strongest sovereign would end up being nothing.

October 20, 2014

Europe, it doesn’t matter whether you’re Eurozone or not, EU or individual countries… risk aversion will take you down

Sir, Wolfgang Münchau writes: “Eurozone policy makers face three choices. First, they can transform the eurozone into a political union… Second, they can accept secular stagnation. The final choice is a break-up of the eurozone. As the political union is firmly off the table, this leaves us with a choice between depression and failure–or both in succession”, “Eurozone stagnation is a greater threat than debt”, October 20.

How depressing. But, whether to survive as the Eurozone, or as individual countries, one thing is sure. Europe, or at least some of its nations, must get rid of that risk-aversion which has infiltrated them by means of the credit-risk-weighted capital (equity) requirements for banks. Those are keeping Europe’s banks from financing the future, having them only refinancing a day by day less sturdy past.

I am writing the script for an exhibition at a European history museum… in order to try to change the course of history. It is loosely titled: “When Europe had enough, did not want to chance it more, called it quits, and began to stall and fall”. If the exhibition comes to fruition, articles like this, and many others of FT, will be part of it.

October 19, 2014

Should not Basel II bank regulations have been piloted before applied globally?

Sir, I refer to Tim Harford’s “Why pilot schemes help ideas take flight” October 19.

Let us not forget though that the most important role of pilot schemes is to help us from allowing crazy ideas that might take us down from flying.

For instance, can you imagine what sufferings the world would have saved itself from had the Basel Committee for Banking Supervision done a pilot on Basel II? Then it would have seen only a couple of banks, and not the whole banking system, exposing themselves dangerously much to what is perceived as “absolutely safe”, and dangerously little to what is perceived as “risky”? Then they would have understood, earlier, how stupid this whole idea was.

October 18, 2014

Fed’s Janet Yellen, as a leading equal opportunity killer, has no moral right to speak about inequality.

Sir, I refer to Robin Harding’s “Yellen risks backlash after remarks on inequality”, October 18.

There we read of “the high value Americans have traditionally placed on equality of opportunity”… that “Ms Yellen’s speech was about equality of opportunity”… about “the rise in inequality using recent Fed research and then laid out four “building blocks” for economic opportunity in the US: [among these] business ownership” … and that “owning a business [was an] important routes to economic mobility.

For over a decade I have argued that forcing those who are perceived as “risky”, and who therefore already have to pay higher interests and have lesser access to bank credit, to have to pay even higher interests and get even less access to bank credit, only because regulators think banks need to hold more capital when lending to them than when lending to the “absolutely safe”, is an odious discrimination and a great driver of inequality… a real killer of the equal opportunities the poor deserve in order to progress.

And of course, let us not even think of what the Fed’s QE’s have done in terms of un-leveling the playing fields. The fact is that had it not been for how the financial crisis management favored foremost those who had the most, Thomas Piketty’s "Capital in the Twenty-First Century”, would have remained a manuscript.

Sir, to hear someone who so favors regulatory risk-aversion, daring to speak about American values, in the “home of the brave”, in the land built up on the risk-taking of their daring immigrants… is just sad.

PS. To me it is amazing how bank regulators in America can so blitehly ignore the Equal Credit Opportunity Act (Regulation B)

October 17, 2014

Ms. Gillian Tett, if anything, banks are even more dangerous than in 2008

Sir, because the incentives provided by the (credit) risk weighted capital (equity) requirements for banks remain in place, these still guarantee that banks will grow dangerously large exposures, against little capital, to whatever is considered to be “absolutely safe”, and very little exposures to what could be considered as “risky”

Yet Gillian Tett writes: “though the banking system may be safer than it was before 2008, parts of the markets may have become more dangerous for unwary investors”, “Markets are parched for liquidity despite a flood of cash” October 17.

No! Ms. Tett, the banking system is not safer than it was before 2008, if anything, it is even more dangerous… even for wary investors.

Ms. Tett I know you are an anthropologist, and you therefore perhaps not know too much about finance, but, ask your financial advisor about the medium and long term safety of a portfolio that avoids taking any risks… ask him if for instance diversification is a good thing… and then extrapolate his answer to the banks, and to the chances of our young not becoming a lost generation.

FT, if “European project” includes the Basel Committee’s “risk aversion”, the Europe we knew will cease to exist

Sir, in “A dose of deregulation for EU capital markets” October 16 you hold that “Europe needs to be weaned off a damaging reliance on bank finance”

Why? Of course, let a 1000 finance sources bloom, but, if that is going to, one way or another, stand in the way of Europe once again being able to rely on its banks, then that is plain stupid.

And also when you write: “Poor lending decisions and Europe’s long economic malaise have left banks with damaged balance sheets. In a harsher regulatory environment, they have few resources and little inclination to lend to smaller companies”, it forces me to ask: Why Sir, do you insist on bending the truth? What intentions do you have doing so?

It is absolutely clear that all the poor lending decisions of banks were a consequence of poor regulations that gave banks incentives to expose themselves tremendously to what, from a credit risk point of view, was perceived ex ante as “absolutely safe”… and to stay away from the “risky” smaller companies. And that is still going on.

In the same vein of distortions you write: “Having seen during the sub-prime credit boom how deregulated finance can become a source of destabilizing complexity, regulators should agree standard templates for securitizations and bond prospectuses”

Sir, what deregulated finance are you talking about? Is allowing banks to leverage their equity 62.5 times to 1, only because an AAA credit rating is present, a deregulation? Of course it is not! It is only a very bad regulation!

Finally, and since you refer to “the spirit of the European project” let me assure you, if that project includes keeping the silly risk aversion introduced by bank regulators, there will be not much of that risk-taking Europe we knew of to speak of.

October 15, 2014

Regulators who darkened the banks in the sun, should not be allowed to shine light on those in the shadows

Sir, I refer to your “Regulators shine a light on the banking shadows” October 15. Therein your argue: “FSB’s rules on short-term securities lending are a sensible start” since “The shadow banking system was at the heart of the financial crisis” and then you refer to “the meltdowns of Lehman Brothers and AIG”

Quite a distorted view I would say… both Lehman Brothers and AIG troubles had little to do with the shadows and most to do with the regulations that applied to the banks in the sun.

On April 28, 2004, two months before Basel II was formally approved, SEC decided that " for Broker-Dealers that are Part of Consolidated Supervised Facilities and Supervised Investment Bank Holding Companies… computations of allowable capital and risk allowances (or other capital assessment) consistent with the Basel Standards" should apply.

And that meant that, for instance Lehman Brothers, would be able to leverage its equity 62.5 times to 1 when investing in AAA rated securities, such as those that detonated the disaster.

And the same Basel Standards implied that, if a company like AIG, proud bearer of an AAA rating, puts its name to a debt instrument, banks would be able to leverage these investments 62.5 times to 1… and so of course everyone wanted to hire AIG’s AAA rating… at a reasonable price.

And, if someone does not understand the temptations a 62.5 to 1 leverage implies for a financial company, he knows nothing about finance and less about regulations. As a reference, hedge funds, those animals of speculation, these can rarely leverage their equity more than 10 to 1.

Sir, I am not at all sure that current regulators, those who so much helped to darken the prospects of our banks, should even be allowed to try to shine a light on the banks in the shadows… they done enough damage as is.

May I here remind you of some minimum terms we need to lay down before we allow regulators to regulate any banks?

ECB has no moral right to inject any liquidity in Europe, if it is only going to increase the distortions

Sir, I refer to Peter Spiegel’s “ECB defends crisis bond-buying in high-level legal hearing” October 15.

The credit-risk weighted capital (equity) requirements for banks distort any liquidity injection of the ECB in Europe. And so, while the ECB seem to not care one iota about that, they have not earned the moral right to buy bonds, most especially sovereign or other “absolutely safe” bonds that are anyhow so much favored by these regulations.

No ECB, instead of buying “absolutely safe” bonds should allow bank to in relative terms hold less capital against exposures to the “risky”… since there is where new liquidity could do the most good.

Europe… it is dangerous to overpopulate safe havens, and equally dangerous to under explore the more risky but perhaps much more productive bays.

Warning: The “much more bank equity” puritans, while correct, if told to implement it, might be extremely dangerous

Sir, I refer to John Plender’s “Prospect of fund outflows puts banks in tricky territory” October 15.

In it he writes: “Bloomberg has estimated that the cost of equity of 300 large banks was 13 per cent at the end of March, 5 percentage points higher than its 2000-05 average. The authors [of The International Monetary Fund’s Global Financial Stability Report] reckon that the return on equity at banks accounting for 80 per cent of total assets of the largest institutions is lower than the cost of capital demanded by shareholders. This return on equity gap casts doubt on their ability to build up capital buffers to address the next crisis.”

That should be a clear indication of the difficulties that lie before the banks, and a warning sign of having to be very careful with all those puritans out there screaming for much more bank equity, no matter what, and not caring one iota about how to get from here to there.

PS. The first article I ever published, in June 1997, was titled “Puritanism in banking”. In it I wrote: “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.”… It seems like time has stood still.

IMF, Mme. Lagarde, Martin Wolf: Get it! Bank regulators have prescribed the “new mediocrity”.

Sir, I refer to Martin Wolf’s “How to do better than the new mediocrity” October 15.

Wolf writes: “It is important not to exaggerate the story of slowdown in the world economy. Yet it is also vital to avoid a progressive downward slide in growth. To address this risk it is necessary to launch well-crafted reforms in both emerging and high-income economies...”

Current capital requirements for banks direct banks to hold assets, not based on their pure economic returns, but based on those higher risk adjusted equity returns they can obtain by adjusting to the ex ante perceived credit risks, those which have already been cleared for in interest rates and size of exposure. And that IMF, Martin Wolf and so many others cannot understand that excessive credit-risk aversion can only lead to mediocrity, is a real mystery to me.

And so the number one reform the world needs is to abandon all credit risk weighing when setting the capital (equity) requirements for banks.

That would unfortunately not be an easy task because, while bank credit redirects itself to serve the needs of the real economy and not the wishes of the Basel Committee; and while banks are made to have stronger capital (equity) levels, it is important to make certain that the overall liquidity provided by banks does not shrink and become a recessionary factor.

In the absence of such reform, “more public investment in infrastructure” capitalizing on regulatory subsidies that makes public debt less expensive that it would otherwise be, and like what the IMF and Martin Wolf with so much gusto propose, could make it all so much worse… and, of course, so much more mediocre.

October 14, 2014

Amir Sufi, FT, anyone… how do you explain Ben Bernanke’s change of mind?

Sir, I refer to Amir Sufi’s “Bernanke’s failed mortgage application exposes the flaw in banking” October 14.

In it Sufi refers to “research in 1983 by Ben Bernanke, former chairman of the Federal Reserve, who in studying the Great Depression argued that banks have a unique ability to intermediate credit, because of the valuable information they gather and hold. As he put it, ‘the real service performed by the banking system is the differentiation between good and bad borrowers’”.

Now, please, can someone explain to me how someone who describes banks that way, can then later agree with destroying banks powers of allocating credit in the economy with the introduction of the credit risk weighted capital requirements for banks? Did Bernanke, and his colleagues not understand that would distort it all?

And just look at how stupid it was all done. Banks, when setting interest rates and deciding on the size of exposures, considered to quite a lot of extent the credit risk information present in credit ratings. But then came the regulators and also considered the same credit ratings setting the capital requirements. That signified that credit ratings were excessively considered, and we know that something even perfect, if considered excessively becomes wrong.

And of course, what Amir Sufi writes: “the very thing that banks are meant to do well businesses to lend to, so that they can grow, invest, hire employees and boost local economies – has fallen by the wayside” … they do mortgages instead. Well that just had to happen. Compare the equity requirements for a bank giving a mortgage, so that someone can buy a house, compared to what it needs to hold when lending to a small business, which could give the house owner a job so as to be able to afford the mortgage and the utilities.

How do we get out of this? That is not easy, but we must. Without the services provided by the traditional banks of the past, it will be very difficult for our economies to remain vital and sturdy.

We citizens need to lay down some strict terms for taming bad regulations risk.

Sir, Sam Fleming and Tracy Alloway report: “Rulemakers lay down terms for taming shadow banking risk” October 14.

And my wish would be for us citizens to be able to lay down some strict terms for taming any bad regulations risk.

For instance, in all shadow banking, a Euro, a Dollar, a Pound or whatever other currency of equity, are all the same equity, no matter what assets risks they are exposed to. Not so in formal regulated banks. There a Euro, a Dollar, a Pound or whatever other currency in equity, represents a different equity, according to the respective credit risk weight of the assets it is backing.

How regulators were fooled by naturally higher returns on bank equity seeking bankers, into believing that would not distort the allocation of bank credit, with great dangers to the real economy and to the stability of the banks, beats me.

And so the first term I would as a concerned citizen lay down for the regulators would be: “Whatever you do, don’t think yourselves smarter than the markets. And if you absolutely must distort the allocation of bank credit, one way or another, make sure you obtain the permission to do so, including of course that of those borrowers who will see their access to bank credit made more difficult and expensive because of it.

Ben Bernanke’s joke, will quite probably end up being on him.

The joke might be on Bernanke because, as is, one could say it is just the opposite, QE might have worked, in theory, if in practice all the stimulus it provided, had not been channeled to where it was least needed.

As happened credit-risk weighted capital requirements for banks have blocked the way for QE liquidity reaching “the risky”, all those SMEs and entrepreneurs who could have helped to put some new sting into the economy.

As I see it we now have wasted a QE, and there is little we can do about that, so let us wait until QE has been soaked up, if it is ever going to be soaked up, to make any final evaluation of how the Fed and Bernanke did… let’s cross our fingers they did not too bad.

October 13, 2014

Regulators have purchased the illusion of bank safety, by forbidding these to finance the risky future.

Regulators have purchased the illusion of bank safety, by forbidding these to finance the risky future.

Sir, I refer to James Grant’s “Low rates are jamming the economy’s vital signals” October 13.

When Grant writes: “What is new today is the overlay of officially sponsored bull markets on governmentally suppressed interest rates”, he is quite right.

And when he writes: “True prices are discovered, not administered. They are set in the open market…. The world should spare some censure, too, for the central banks’ manipulation of money market interest rates, their heavy-handed administration of longer-dated bond yields and their sponsorship of rising share prices. Just because the public servants do their well-intended work under the banner of the law does not make the results any less subversive”, he is also quite right.

Unfortunately, what Grant misses in order to make the public servants “subversive” activities much clearer… is what is most jamming the economy’s vital signals, namely the credit risk weighted capital (equity) requirements for banks.

That regulation allows banks to earn much much higher risk adjusted returns on equity when lending to what regulators, with immense hubris, feel can be designated as “absolutely safe”, than for what they, with equally immense hubris, feel can be designated as risky. And that, instead of negating the efficient market hypothesis like so many hold, included Nobel Prize winners, has impeded the efficient open markets to work.

Grant concludes: “Central bankers… have purchased short-term relief with long-term instability”. I wish not to argue with that but, as I see it, what central bankers and regulators have most purchased, is the illusion of bank safety, and this by paying the price of forbidding the banks to do what they are most supposed to do, namely to finance the risky future, hopefully with reasoned audacity… since otherwise, as we know, the present will stall and fall.

PS. Grant should also try to figure out how the fact that banks on loans to the "infallible sovereigns" need to hold much less capital than against anything else, subsidizes the "risk-free rate".

October 11, 2014

FT, you really believe Germany’s Wirtschaftswunder would be possible without the currently banned risk-taking by banks?

Sir, I refer to your “Germany needs to fix its economic model” October 11.

Therein you write: The International Monetary Fund this week rightly called for governments to take advantage of cheap longterm interest rates and borrow to invest in public infrastructure.

Frankly how can you say that when you must know that those low interests are partly the results of a regulatory subsidy derived from the fact that banks need to hold much much less capital (equity) when lending to the sovereigns than when lending to the risky like SMEs and entrepreneurs. Why would Germany not be better off getting rid of those hidden subsidies and let infrastructure compete for access to financing on equal footing as the rest of the economy?

Therein you write: “The World Bank says it takes nine procedures and nearly 15 days to start a business in Germany, respectively nearly twice and 50 per cent higher than the rich-country average.”

Frankly, don’t be silly, what is that compared to the difficulties for new risky businesses to have the fair access to bank credit that has been denied them by means of regulators credit risk weighted capital requirements for banks.

Therein you write “improving Germany’s economic policy would involve the government not turning its back on past success but returning to it. The Wirtschaftswunder (“economic miracle”) was based on high investment and productivity growth. Neither has been evident in Germany for many years.”

Frankly, do you think that Wirtschaftswunder only needed high investment and productivity growth, and not the kind of risk-taking that is currently being banned by dangerously sissy regulators?

No Sir, for Europe, and for Germany, what the first need to do in order to get their economies moving in a sturdy way, is to send the Basel Committee and their dumb ideas packing!

October 10, 2014

A high school ball arranged by a risk adverse Basel Committee could only result in “managed depression”.

Sir, Martin Wolf writes about the economy being in “An extraordinary state of ‘managed depression’”, October 10.

Of course, how could it be otherwise?

Imagine an elderly principal of a high school arranging a ball for its students applying exclusively the principle of avoiding risks. That is the ball the Basel Committee for Banking Supervision with their sissy risk-aversion, decided our economies should have. 

Why is it so hard for commentators like Martin Wolf to understand that secular stagnation, deflation, mediocre economy, unemployment, underemployment, managed depression and all similar obnoxious creatures, are all direct descendants of risk aversion?

Stop the waltzes! Let us urgently call in Savoy Brown to play our economy some boogies! It sure needs it!

The more you stabilize, the more you risk making the system brittle, so the more you really destabilize.

Sir, I refer to Paul Tucker’s “The world needs different ways of taming capital flows” October 10.

I have always, in the case of small bath-tubes placed next to the global oceans, been in favor of capital controls. And I have most specially liked what Chile used to do, namely forcing funds to park themselves for a time doing nothing, in order to show their serious intentions, before these were allowed to court beautiful Chilean daughters.

But, I have also been aware that every time you stop funds from going somewhere, those funds could remain somewhere even more dangerous.

Here Paul Tucker, a former deputy governor of the Bank of England, holds that “the objective [of capital controls] should be limited: guarding against threats to stability”

But, when regulators, with their credit risk weighted capital requirements for banks decided to create great incentives for banks not sailing risky waters, and instead stay in safe havens… they completely ignored that safe-havens can become dangerously overpopulated… in a very short time.

In other words, the more you stabilize, the more you make the system brittle, so the more you really destabilize.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926

How can a statement issued by one of The-Not-Accountable, ECB’s Mario Draghi, be a “bold statement”?

Sir, Robin Harding and Claire Jones quote Mario Draghi with: “Now, as the banking sector is progressively cleaned up and the deleveraging process reaches its conclusion, banks will have new balance sheet capacity to lend, and our monetary policy will become even more effective”, “Draghi signals further action to prevent fall into deflation” October 10.

What is Draghi talking about? Has he not seen FDIC’s Thomas Hoenig’s recent “GlobalCapital Index” for the larger banks? Most of the banks in his Europe are still leveraged between 25 to 30 times to 1. 

Banks are still searching for strengthening their balance sheets by running to everything that requires them to hold less capital (equity). Unless the risk-weighted capital requirements for banks change, they will not be able to help any monetary policy to become more effective. 

And when Draghi states: “I expect credit to pick up soon next year”, your reporters qualify that as “a bold declaration”. What’s bold about that? Do they really think that Draghi will be held to that and fired if he is wrong? If there was any sort of accountability after the Basel II fiasco, Draghi, as the former chairman of the Financial Stability Board, would be long gone, not promoted to the ECB.

October 09, 2014

FT, for the time being, forget the unaccountable bankers… we’ve got a much bigger problem at hands.

Sir I refer to your “Hold Britain’s banks to higher standards: New rules on personal accountability are tough but necessary” October 9.

In it you write: “The regime also brings in a new criminal offence of reckless misconduct that causes a financial institution to fail. This would carry a sentence of seven years’ imprisonment and an unlimited fine”,

And then you state: “Those grumbling about perverse regulation should acquire some perspective. Blowing up the nation’s physical infrastructure would carry the severest penalties. Recklessly damaging its financial plumbing can be just as damaging, but has been punishable at most by social opprobrium and a moderation of compensation from previously outlandish highs. No top banker has been punished for the enormous losses that caused the crisis.”

But, as you very well know, I hold bank regulators as the prime responsible for the crisis, having approved incredibly distorting credit-risk weighted capital (equity) requirements which they did not and have yet not been able to understand. And so, if I am right, is not the regulators lack of accountability so much worse? If I am right, and a banker responsible for a failed bank should get seven years... how many years in prison do these failed regulators deserve?

And FT, dare look at it… don’t turn away cowardly. The unrepentant chairman of the Basel Committee when Basel II was approved, is now the General Manager of the International Bank of Settlement; the unrepentant former chairman of the Financial Stability Board, is now the President of the European Central Bank; the current unrepentant chairman of the Financial Stability Board is also Governor of the Bank of England; and the clearly unrepentant current chairman of the Basel Committee is also the Governor of the Swedish Riksbank.

And FT don’t tell me you are unaware that there is a 100 percent correlation between what got banks in trouble and what these regulators allowed the banks to hold against extremely little equity… only because they perceived these assets, ex ante, as “absolutely safe”, and because of their hubris they never doubted their perceptions.

And FT, don’t tell me you are unaware of that secular stagnation, deflation, mediocre economy and all similar creatures, are direct descendants of that silly risk aversion displayed by our unaccountable to anyone failed bank regulators.

So FT, forget the bankers… if only for the time being... we got a much bigger and serious problem at hands.

Do I feel these bank regulators should be jailed? Of course not! I just feel they should go home, in shame, put on their dunce cap, and then beg the forgiveness of all those young who because of them will now become part of a lost generation.

PS. And, by the way, when journalists and columnists of an important paper withhold important arguments only because they do not like the messenger, or the messenger does not stroke their ego sufficiently, does that have no implications when it comes to personal accountability?

October 08, 2014

There are two kinds of risk appetites. One is dangerously abundant, and the other is dangerously scarce.

Sir. fastFT writes: “Improving US is not enough to reignite risk appetite” October 8. I think it is quite necessary to clarify what kind of risk appetite they refer to.

There is already a dangerous voracious risk appetite for what is perceived ex ante as “absolutely safe”, like exposures to “infallible sovereigns”. That is in large part the direct consequence of banks being allowed to hold much less capital (equity) against that type of exposures than against what is perceived “risky”. And that is of course not the kind of risk appetite we need.

The risk appetite we surely need to improve, can only result from eliminating regulatory discrimination against the fair access to bank credit of “the risky”, namely the medium and small businesses, entrepreneurs and start ups.

Nothing good can result from a credit boom that avoids risky bays and dangerously overcrowds safe havens.

Sir, I refer to Martin Wolf’s “We are trapped in a cycle of credit booms” of October 8.

If each credit boom that later results to be unsustainable, and creates sufferings, is the result of markets believing, rightly or wrongly, they found something new and profitable worthy to risk their money on, lets call those possibly productive credit boom, then at least I would not complain. That is the result of a world that wants and dares to move forward, so as not to stall and fall.

But the latest credit boom, at least the one financed by banks, has nothing of such a productive credit boom. Since regulators allowed banks to earn much higher risk adjusted returns on equity on what is perceived as safe than on what is perceived as “risky”, it is exclusively a run-to-safety boom. And, of course, nothing good can come out of not exploring risky new bays but only dangerously overcrowding safe havens.

PS. Let me remind you of that secular stagnation, deflation, mediocre economy and similar creatures, are direct descendants of silly risk aversion.

October 07, 2014

Lawrence Summers, if you tell governments there’s abundance, you guarantee your grandchildren much scarcity.

Sir, I refer Lawrence Summers’ “Why public investment really is a free lunch” October 7 and in which he writes: “Most notably, the IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves.”

I must ask, what is so notably about that? Though of course, jumping from that to the conclusion expressed in the title, which throws indispensible criteria of scarcity of resources out the window, seems indeed notable and horribly so. 

That would certainly guarantee the construction of not properly designed, too expensive and not really useful infrastructures… which would clearly negate his: “So infrastructure investment actually makes it possible to reduce burdens on future generations”.

Summers, quite similarly to what Martin Wolf does when he also preaches for public infrastructure investments, bases much of his argument on: “Real [public] interest costs, that is interest costs less inflation, are below 1 per cent in the US and much of the industrialised world over horizons of up to 30 years.” That is, by a long shot, not necessarily true.

We have no idea of what would be the real interest rates on sovereign debt, were regulators, as they should, eliminate that distorting regulation which establishes that banks need to hold much more capital (equity) when lending to a citizen or an SME, than when lending to what they have deemed as infallible sovereigns.

And, were these interest rates to change, someone would pay enormously, whether the government meaning taxpayers, or all those pension funds which will find the public debt they are holding worthless.

IMF must be very careful when sending out messages of this nature, as there are too many out there who when offered a hand, grab the whole arm… plus a leg or two.

October 06, 2014

QEs were wasted by dangerously overcrowding safe-havens while leaving risky but valuable bays unexplored

Sir, Martin Wolf explores if quantitative easing “An unconventional tool” has worked” October 6. He fends off much criticism of QE with arguments that could make a savvy defense lawyer blush, namely that it should not be accused of weaknesses and risks that it shares with other monetary policies.

My continuous criticism of QE, and that Wolf ignores, is that if QE is done in conjunction with the current credit risk-weighted capital requirements for banks, it will help the safe havens to become dangerously overcrowded, while “the risky” bays, those the economy most need, will remain totally and even more dangerously unexplored.

Wolf mentions the possibility of a “helicopter drop”, retrospectively, but, for that to happen, the QE liquidity would have to be soaked up and returned without the existence of the silly guidance mechanism used by bank regulators.

There can’t be any sturdy economic growth in sending our banks to occupy the terrain where orphans, widows and pension funds used to roam, in order to wait for money to drop on them.

Which also leaves us with one question about the civilian casualties of QE. Where do risk-adverse savers save when what is “most-safe”, pays interest rates below the risk-free rate, as a result of sovereign debt being subsidized by the fact that banks do not have to hold much or any capital against it?

The IMF can do a lot for the world, by just denouncing the mistakes of their bank regulation colleagues.

Sir you argue “The world economy is not so much suffering from a global malaise as a host of local ailments…[but that] Sadly, the IMF can do little about that”, “Bleak words and difficult homework from the IMF” October 6.

On the contrary, the IMF can do a lot! It can for instance explain to the world that credit risk weighted capital requirements for banks do not make any sense, as they discriminate against the access to bank credit of those the economy most need to have access to it, “the risky”, the medium and small businesses, entrepreneurs and start ups.

PS. http://subprimeregulations.blogspot.fr/2014/10/comments-on-imf-global-financial.html

Europe, why would you like to hand over dictatorial monetary policy to a failed bank regulator, like Mario Draghi?

Mario Draghi as the former chair of the Financial Stability Board obviously thought it ok for banks to be able to leverage their capital (equity) a mindboggling 62.5 times to 1 when lending to anything private that had an AAA credit rating or to a sovereign rated like Greece. If such craziness had been displayed in any other profession he would be long gone. Amazingly, Draghi got promoted to chair of the European Central Bank.

And now, on top of it all, Edward Luce complains about Draghi’s lack of powers, “Blinded EU can learn from one-eyed US” October 6.

I just don’t get it. In Europe, where banks are so much more important to the financing of enterprises than what they are in the US, the number one priority should be to get rid of those who want to deny medium and small businesses, entrepreneurs and start-ups fair access to bank credit, only because they label them as “risky”.

Let me assure you Europe, fair access to bank credit for "the risky”, is indispensable if your economy is to survive, and just not stall and fall.

Why do so many ignore what stops liquidity in Europe from reaching where it is most needed?

Sir, I refer to Wolfgang Münchau “If Europe insists on sticking to rules recovery will be a distant dream” October 6.

In it he suggest that for monetary policy to work better for Europe a “portfolio balance channel: when the ECB buys five-year sovereign bonds, the sellers will try to replace those bonds with securities of similar characteristics – say five-year corporate debt. If that happens, the price of the bonds would rise, the interest rates on them would fall, and companies will find it easier to raise money.”

And I have to ask, for companies able to raise funds through bonds in Europe, are the interest rates not low enough? What about all those medium and small businesses entrepreneurs and start-ups who, because of the limited amounts they need, have no access to the bond-markets? Why should they have no fair access to bank credit only because regulators with their credit risk-weighted capital requirements for banks want to favor “the infallible”?

Why would Münchau ignore the distortions produced by bank regulations and which stops liquidity in Europe from reaching where it is most needed? Are the small risky borrows not important enough for him to care?

October 05, 2014

Without free-banks it is baloney to argue that the efficient market hypothesis has been rejected

Sir, Tim Harford writes that in efficient markets every asset’s expected risk-adjusted return is the same, so “Pick a fund, any fund” October 4.

Yes that is indeed the theory, and the “returns” therein refers to the returns on one and same equity. And so when banks, because of credit risk-weighted capital requirements, need to hold different amounts of equity, for different assets, an “efficient market” has no chance to fulfill its theoretical role, and all talk about its failure is pure nonsense… the result of a severe intellectual blockage or political agendas.

In Harford’s supermarket example it would be like a supermarkets’ length-of-checkout-lines regulator, ordaining different lines for different uses, for instance one for all with fruits to be weighed. 

In fact if those lines were regulated by something like the Basel Committee, the risqué products and consumers: fruits, vegetable, alcohol, crisps and coupon holders, would have available many less check-out lines than the safely fast.

Of course, under some circumstances, as customers adjust, there is a chance all lines would still end up being of similar length… but there would be distortions… like less fruit being purchased at supermarkets and the need for shadow supermarkets.

October 04, 2014

In terms of dangerous hubris, Bill Gross is nothing when compared to bank regulators.

Sir, I refer to Gillian Tett’s “Hubris, politics and finance make a toxic mix”, October 4.

She makes many good points and I am sure a Daedalus Trust can play a very important role as a hubris buster…that is as long as it can keep the hubris of its own hubris slayers in check.

But here the center of Ms. Tett’s concerns on excessive hubris is Bill Gross, ex-Pimco, and he is really nothing compared to the hubris that is still rampant among bank regulators. Their mind-boggling hubris caused them to believe they could, with their risk-weighted capital requirements for banks, even act as the risk-managers for the whole banking world.

Ms. Tett reminds us of slaves who walked alongside victorious Roman generals reminding them they were mere mortals. That is exactly the role for a FT, and with its motto FT shows it knows it, but, over the recent years, it has too often instead fed the hubris of some of those most at risk, like for instance "whatever it takes" Mario Draghi… in whom it trusts so so much.

For the last decade I have diligently walked along FT, trying to un-requested perform the role of such a slave. Unfortunately those at FT seem not to be anything like a Roman general wanting to hear the truth.

October 03, 2014

With his track record I would not trust ECB’s Mario Draghi with a firecracker to help the real economy

Sir, you hold “Draghi’s colleagues should pass him the ammunition…outright [huge]purchases [by ECB] of asset backed securities and covered bonds”, and that “Criticism of Draghi’s action is misguided” October 3.

May I remind you that Mario Draghi, for years chair of the Financial Stability Board, is one of those responsible for while requiring banks to hold 8% in capital (equity) when lending a little to an SME, allowed banks to hold huge exposures, against a measly 1.6 percent in capital, only because these were perceived as "absolutely safe".

Sir, a central banker who allows banks to leverage their capital (equity) a mindboggling 62.5 times to 1 when buying AAA rated securities, or when lending to Greece; and who does not understand how risk-weighted capital requirements distorts credit allocations, is a central banker who might know a lot about many central banking issues, and Wall Street, but he sure has no idea about what really makes banks unstable, or about how money moves around on Main Street.

And so, when it comes to getting the real economy going, I would not even trust a firecracker to Draghi. In fact he and some of his bank regulatory colleagues, are some of those most stopping it.

October 01, 2014

Why would ABS “junk loan bundles” be safer on ECB’s balance sheet than on the banks’?

Sir, Claire Jones and Sam Fleming report that “Draghi in push for ECB toaccept Greek and Cypriot ‘junk’ loan bundles” October 1.

And my question is… would these “junk loan bundles” be safer on ECB’s balance sheet than they are on the banks’? Because, if not, why not ask the Basel Committee to reduce the capital banks are required to hold against these “junk loan bundles” to what regulators allowed banks to hold against these assets when they placed it on the books, back at those good old days no one treated those assets pejoratively as “junk loan bundles”.

I guess the Basel Committee should be open to that plea by the ECB, since it was the Basel Committee which painted the whole banking system in the corner of too high exposures against was previously, ex ante, perceived as “absolutely safe” holding too little capital.

And even if these “junk loan bundles” might end up in something related to ECB… if you could solve it in other ways, meaning allowing banks to use the liquidity they have but that they cannot use because of lack of capital, what’s the rush of getting that “junk” there?

Martin Wolf, why do those against inequality so readily accept inequality in fair access to bank credit?

Sir, Martin Wolf writes about “Why inequality is such a drag on economies” October 1.

Indeed and one of the most devious sources of inequality that affects the economy, and one that Wolf does not care one iota about, I don’t know why, is the discrimination in fair access to bank credit, in favor of “the infallible” and against “the risky”, and which regulators have imposed by means of the credit risk weighted capital requirements for banks.

Wolf writes “It makes no sense to lend recklessly to those who cannot afford it. Yet this suggests that the economy will not become buoyant again without a redistribution of income towards spenders or the emergence of another source of demand. Unfortunately, it is not at all clear what the latter might be.”

Indeed it never is clear where the saviors might appear, but, looking back at history, our best chances might lye with those tough risk-taking borrowers like SMEs and entrepreneurs that we need to get going when the going gets tough, but who have been denied access to bank credit only because they are perceived as “risky”

And seemingly all that odious discrimination serves no purpose at all, since it only results in banks dangerously overcrowding safe havens carrying very little in terms of capital life vests.

To Martin Wolf, “the greatest costs [of rising inequality] are the erosion of the republican ideal of shared citizenship.” I entirely agree, but let me remind Wolf of that at least in the case of bank regulations, the discriminations, would never ever be approved by a congress or a parliament. These are the result of having delegated enormous republican powers to some few unaccountable men, debating in some small smoke free-rooms of a mutual admiration club. A case of pure intellectual incest!