Sunday, November 19, 2017

Those absolutely no good at something, lack exactly the skill they need to know that they are no good at it. John Cleese dixit.

Monty Phyton’s John Cleese, fabulously interviewed at the Commonwealth Club by Adam Savage, the host of “Mythbusters”, and in reference to a theory by David Dunning, a professor at Cornell, says around minute 57:40 the following:

“In order to know how good you are at something requires almost exactly the same aptitude as it does to be good at that think in the first place.

Which follows, as a corollary, that if you absolutely no good at something, you lack exactly the skill that you need to know that you are no good at it.

And once you realize that, you see there are thousand of people out there that have absolutely no idea of what they are doing, and so they have absolutely no idea of that they have no idea what they’re doing.”

I wonder, could John Cleese by any chance be referring to those regulators who, when deciding on the risk weighted capital requirements for banks, assigned a meager 20% to those dangerously rated AAA, and a whopping 150% for those who rated below BB- have been made so innocous for the banking system?

Here some personal observations on those cuckoo risk weighted capital requirements for banks developed by the Basel Committee, for the world to use, God Help Us!

Saturday, November 18, 2017

Could this be a theme that for some strange reason TED Talks does not like me to talk about?

How long should we allow bank regulators, like the Basel Committee for Banking Supervision and the Financial Stability Board, to feed us their dangerous and hubris filled besserwisser bullshit?

How can any system that makes it easier for those who already have it easier to access bank credit, and harder for those who already find that harder be defined as a “fairer financial system”?

How can any system that risk weights with 20% the so dangerous AAA rated, and with 150% the so innocous below BB- rated, be defined as a system that fosters financial stability?

How can any regulator who does not care about the purpose of what he is regulating hold that he knows what he is doing? “A ship in harbor is safe, but that is not what ships are for”, John A Shedd

How can any regulator allowing banks to leverage their equity different with different assets and not understanding or caring about how that distorts the allocation of bank credit to the real economy, hold that he knows what he is doing?

How many more houses built because its financing is risk weighted 35%, will have its basements occupied by unemployed children, because the risk weight for unrated SMEs and entrepreneurs is 100%?

Friday, November 17, 2017

Is freezing at Christies US$ 450 million in purchasing capacity in Leonardo Da Vinci’s Salvator Mundi something good or something bad?

Clearly Leonardo da Vinci has to personally, from above, be extending his deepest gratitude to Janet Yellen of the Federal Reserve and Mario Draghi of the European Central Bank. Had it not been for their quantitative easing (QEs) and ultra low interest rates, he would never ever have seen his Salvator Mundi valued, so soon, at an incredible US$ 450 million.

Of course the wealth redistribution profiteers will scream bloody murder. The US$450 millions is like a voluntary tax that has escaped their franchise. 

The real question though is: Was the freezing of US$ 450 million in purchasing capacity in a painting something good, or something bad. If bad how do you reverse it without other negative unexpected consequences?

Saturday, November 11, 2017

Who nudged regulators into using stupid and dangerous risk-weighted capital requirements for banks? The bankers?

Banks not capable of perceiving risks correctly, or not adjusting to perceived risks correctly, with size of exposure and adequate risk-premiums, should fail as fast as possible.

Banks capable of perceiving risks correctly, and to adjust to these correctly with size of exposure and adequate risk-premiums, would in fact not need to hold any capital.

Unfortunately, since banks could belong to the first group, and there is also the risk of unexpected events that could affect even the best of banks, regulators need to require banks to hold some capital.

Curiously, unfortunately, bank regulators, with the Basel Accord of 1988 introduced risk weighted capital requirements. These spelled out more risk more capital, less risk less capital. 

Though at first sight that might all sound quite logical, in terms of searching for more financial stability it makes no sense whatsoever, as what’s perceived as risky poses by just that fact alone less danger to the banks. It is what is perceived as safe than can cause banks to create excessive exposures, which if these later turn out risky could put a whole bank system in danger. 

To top it up it the risk weighting translates into allowing banks to leverage differently different assets, thereby producing different risk adjusted returns on equity than what would have been the case in the absence of this regulations, and so it introduced a serious distortion in the allocation of bank credit that is affecting the real economy.

Who could have nudged regulators to do so? Since being able to earn the highest risk adjusted returns on equity on what is perceived as safe sounds like a wet dream come true for bankers, I have my suspicions.

PS. Here an aide-mémoire on the principal mistakes of risk weighted capital requirements

Tuesday, October 31, 2017

OAS-IACHR, dare opine on economic violations against human rights

The Charter of the Organization of American States establishes among its principles that "the elimination of poverty ... is the common and shared responsibility of the American States (Art: 3f)… And also to “devote their utmost efforts ... to achieve equitable distribution of national income”; (Art. 34.b)

The American Convention on Human Rights (1969) states (Art: 26) that "States parties undertake to ... achieving progressively the full realization of the rights implicit in the economic, social and educational, scientific and cultural standards set forth in the Charter of the OAS ... to the extent of available resources, through legislation or other appropriate means ".

And in the case of "Discharged and Retired Employees of the Comptroller vs. Peru" (2009) case law has been established, when in the judgment we read that the Commission on Human Rights "is competent to decide whether the State has committed a violation or breach ach of any of the rights recognized in the Convention, including with regard to Article 26 of the same ".

OAS has yet to define though what it means with a violation or breach of economic, social and educational, scientific and cultural standards. That is sad. Had it done so, much unnecessary human suffering could have been avoided.

For instance there are some economic policies or economic crimes that causes such harm to so many humans, so as these should classify as punishable violations against human rights.

I can think of corruption; of loony foreign exchange systems; of runaway monetary policies causing hyperinflation… and of course, of Venezuela’s domestic gas prices.

In the international market gas is sold at about $1.60 per gallon, in Norway, another oil country, it is sold domestically at US$ 8.40 per gallon, and in Venezuela, where people are dying because of lack of food and medicines, it is given away, at US$ 1 cent per gallon.

In Venezuela this horror is not discussed. The political price for proposing to correct it is perceived way too high by both those in government as by those in the opposition.

If gas were sold there at the price it could fetch in international markets, the reduction in the demand would allow much more gas to be exported, and much more food and medicines to be imported.

Would the prices be even higher, and all new revenues shared out directly among Venezuelans, then the incentives in the fights against inequality and against climate change would even be aligned.

So, can you imagine how much more sanity could prevail if the Inter American Commission of Human Rights declared gas giveaways to be a violation of human rights; something which could cause anyone directly responsible for such criminal policy to be hauled in front of an International Court of Human Rights… or even just in front of a local judge?

I tried to do something about this in 2009. No chance! I denounced this to OAS’ IACHR or OEA’s CIDH in July 2015. I am still waiting for a response.

Can somebody lend me a hand?


Sunday, October 22, 2017

Like sales taxes are considered regressive, aren’t corporate taxes too?

Sales taxes are considered regressive because they take a larger percentage of income from low-income taxpayers than from high-income taxpayers.

Does that not apply equally to corporate taxes? I mean they tax income that is going to poorer shareholders with fewer shares with the same rate they tax the income of those with millions of shares?

But then again that might just be me hating corporate taxes, since I believe that the only ones to should pay taxes to the government are we the citizens… so that governments have no doubt about who they work for.

Wednesday, October 11, 2017

World Bank, please dare tackle the issue of what could be considered punishable economic crimes against humanity

Could we challenge the World Bank, as the world’s premier development bank, to put on its agenda to try to qualify which economic policies could be so egregious so as to qualify as punishable economic crimes against humanity?

For instance in a country where people are dying for lack of food and medicines, could selling gas at less than US$ 1 cent per gallon be such a crime?

An Executive Director of the World Bank answered me with: “We already name and shame those who engage in outrageous subsidies of fuel”

That is good, but far from enough! That the World Bank names and shames, is sometimes in some shady circles even taken as evidence of good behavior. No, I am referring to the possibility of having an energy minister face charges in the International Court of Justice in Hague.

Tuesday, October 10, 2017

If one were to construe a systemic risk that could bring bank systems down, this is one way

First: Make capital requirements for banks based on perceived risk. More risk more capital, less risk less capital. That would allow banks to leverage more with The Safe than with The Risky. That would allow banks to earn higher risk adjusted returns on equity lending to The Safe than when lending to The Risky.

Second: Allow banks to use their own risk models to decide what is risky and what is safe and therefore how much capital it needs. Alternatively allow some very few human fallible credit rating agencies to decide what is safe and what is risky.

Third: Sit down and wait for banks lending too much against too little capital to The Safe, like sovereigns, the AAArisktocracy and mortgages; within an economy weakened by too little lending to The Risky, like to SMEs and entrepreneurs.

But, oops, hold it there! Someone already did that! I think it was the Basel Committee for Banking Supervision.

Thursday, October 05, 2017

Who should lead the Fed? There’s one initial and essential screening of the candidates.

Fact: Banks are allowed to leverage more with assets considered safe, like loans to sovereigns, the AAArisktocracy and mortgages, than with assets considered risky, like loans to SMEs and entrepreneurs.

So ask the candidates:

Does that mean “the safe” have even more and easier access to bank credit than usual and “the risky” have even less and on more expensive terms access to bank credit than usual?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

Do you think that might dangerously distort the allocation of bank credit to the real economy?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

In terms of what can pose the greatest risk to the bank system, would you agree with Basel II’s risk weights of 20% for what is rated AAA to AA and 150% for what is rated below BB-?

If the answer is yes, disqualify the candidate.

If the answer is no, then ask: 

Do you agree with a 0% risk weighting of sovereigns?

If the answer is yes, the candidate should be classified as an incurable statist and accordingly dismissed.

If the answer is no, you can then proceed with the rest of the tests.

Good luck!

PS. How many of those currently in the Board of Governors of the Federal Reserve System, would pass this test?

Tuesday, October 03, 2017

Boredom is great for great thinking

I translate the following from Helena Henschen’s (1940-2011) marvelous book "In the shadow of a crime”, 2004

"Sometimes it is necessary to expose yourself to the boredom of loneliness… I welcome the winter power outages.

It is as if the psyche must have silence and time in order to be able to activate and initiate a creation process. I have to get away from everyday life with ever-inbound data that occupies space, a stream of impressions that flows inwards and requires sorting, valuation, and action. It is only when the noise of outer life ceases that a conversion occurs. The power switches direction. From boredom, an opposite outward movement grows.

It seems that boredom and creativity have to do with each other; as well as the listening to nothing.

When the electricity goes out again, a filled kerosene lamp is on the table next to the sofa. I look for the matchbox that I have put next to it, and curl up with a block and a pen in my pocket. I'm prepared; no time is going to be wasted. 

The power outage can last forever, but I do not fall asleep. The brain is on high, the spirits have woken up ..."

Below the original text in Swedish 

"Ibland känns det nödvändigt att utsätta sig för ensamhetens tråkighet… jag välkomnar vinterns elavbrott. 

Det är som psyket måste ha tystnad och tid för att kunna aktiveras och sätta igång en skapandeprocess. Jag måste bort från vardagslivet med ständig inkommande data som upptar utrymmet, en ström av intryck som forsar utifrån och in och kräver sortering, värdering och åtgärd. Det är först när slamret från det yttre livet avstannat som de uppstår en konvertering. Strömmen växlar riktning. Ur tråkigheten växer en rörelse från motsatt håll, inifrån och ut. 

Det verkar som om tråkigheten och skapande har med varandra att göra liksom lyssnandet på ingenting."

När elektriciteten bryts igen, står en fylld fotogenlampa på bordet intill soffan. Jag trevar efter tändsticksasken som jag har lagt bredvid den och kryper upp med ett block och en penna i fickan, jag är beredd och ingen tid får förspillas. 

Elavbrottet kan vara hur länge som helst men jag somnar inte. Hjärnan är på högvarv, andarna har vaknat…

"I skuggan av ett brott", 2004 Brombergs

PS. Jag hade turen att veta om denna bok tack vare min Mamma Ingas kära vän Marjorie Cronstedt. Hon sa till mig en gång ”den boken bör du läsa Per”, och i den kopian jag då hittade stod det: “‘Ett litet arv’ från Marjorie. För en lugn stund så småningom. 29/8-06”  Den är nu ett mycket kärt arv till mig.

Monday, October 02, 2017

Would not those willing to cut taxes belong to the anti-Sheriff of Nottingham party?

Sir, E.J. Dionne JR refers to the Republican Party that “only knows how to cut taxes for the very rich”, as “The anti-Robin Hood party”, Washington Post October 2, 2017.

I do not want to enter the discussion of whether taxes should be lowered or raised, but I do believe there could exist some fundamental mistake in the terminology used.

As I best remember it was the Sheriff of Nottingham who served as Prince John's chief enforcer, collecting unlimited taxes from the people of Nottingham, and forcing Robin Hood and Little John to take refuge in the Sherwood Forest, where they did no one harm, much the contrary, ask friar Tuck.

Saturday, September 16, 2017

Should we not know to whom we are kicking the public-debt-can down the road?

With respect to that congressional authorization for U.S. military operations against U.S. enemies, Senator Elizabeth Warren, very correctly, recently tweeted: 

“Congress owes our troops & their families a full debate to authorize the use of military force before we send them into harm’s way.”

But in the same vein each time an increase of public debt is authorized, or the public-debt-can is kicked further down the road, OMB should prepare a detailed report on who are expected to serve that debt.

Because let’s face it, public debt is, before anything, if it is going to be duly served, an anticipation of tax revenues to come... and future taxpayers might like to be informed of that.

To have in black and white that we might be asking our grandchildren to pay for some of our current societal requests, might be a good way to better live up to that intergenerational social contract Edmund Burke spoke about.

Sunday, August 27, 2017

3 tweets that should rock the world of bank regulators, and one day will

Motorcycles are riskier than cars, so if they have a choice, people prefer cars; so more die in car accidents than in motorcycle ones

Below BB- rated are much riskier than AAAs, so bankers much prefer AAAs, so big crises happens with AAAs turned risky, not with below BB-

Our bank regulators never understood that, and assigned 20% risk weight to AAAs and 150% to below BB-s So now what?

Regulators and bankers looking out for the same risks

Wednesday, August 09, 2017

Many lesser impact sanctions, on many more soft-liners (50.000?) are also needed in Venezuela.

It includes to “Extend the use of individual sanctions, and potentially some entity-focused sanctions, to fracture the regime soft-liners from the hard-liners with nothing to lose.” 

I agree, but I do not think that only severe sanctions, of some few very responsible hard-liners, like to “block all property belonging to those individuals and entities subject to US jurisdiction and prohibit US persons from engaging in transactions with them”, will suffice.

Lesser impact sanctions, extended to many more soft-liners, could prove easier to implement and be even more effective.

For this it might suffice with USA, Canada, Europe and all those nations that recently signed a declaration in Lima, informing they were now contemplating issuing a blank prohibition to all members of the Constituent Assembly, and of the National Guard, sort of 50.000 Venezuelans, to access any kind of visa. 

If that prohibition could, at a later moment, perhaps also be extended to include all their close relatives, it would ignite many serious discussions and doubts in the homes of the soft-liners.

Friday, July 14, 2017

I believe my one line health sector reform to be better than those long ones proposed by democrats or republicans

You, all suppliers of medicines or health services, thou shall not discriminate [with more than perhaps 5%] in the prices offered to those who pay for those insured against the prices demanded from those uninsured.

Saturday, July 08, 2017

When regulators, to bankers’ lack of testosterone added their own lack of it, the Western civilization started its descent

Fact: Major bank crises result from unexpected events, criminal behavior, or excessive exposures to something ex ante perceived as safe, but that ex post turned out to be risky.

Fact: No major bank crisis ever has resulted from excessive exposures to something that was perceived as risky when placed on banks’ balance sheets.

Mark Twain with his supposedly: “A banker is one who lends you the umbrella when the sun is out and wants it back as soon as it looks it could rain” would attest to that.

Fact: Nonetheless bank regulators scared witless by the same perceived risks, imposed larger capital requirements for what is ex ante perceived as risky, than for what is ex ante perceived as safe.

That means bank can now leverage more their equity with “the safe” than with “the risky” 

That means bank can now earn higher expected risk adjusted returns on equity on “the safe than on the risky.”

Consequence 1: That day banks finds that excessive exposures to what was perceived, decreed or concocted as safe turns out risky, something that happens sooner or later, like with the AAA rated securities or sovereigns like Greece, the banks will stand their more naked than usual.

As Voltaire said: “May God defend me from my friends, I can defend myself from my enemies

Consequence 2: Bank stop financing the "riskier" future the next generations need to be financed, like SMEs and entrepreneurs; in favor of refinancing the "safer" present.

As John A Shedd said: “A ship in harbor is safe, but that is not what ships are for”.

Our current regulators had no clue of what they were doing. In order to hang on to their jobs and hide their mistake, they are clouding the whole issue with more and more complexity.

They must be stopped, remembering of course Einstein’s: “No problem can be solved from the same level of consciousness that created it”.

Wednesday, June 21, 2017

“The inevitable climate solution” also helps to face structural unemployment, economic growth, and inequality

George P. Shultz and Lawrence Summers sign up completely on a revenue neutral carbon tax proposed by the Climate Leadership Council. “The inevitable climate solution” Washington Post, June 20.

Indeed a carbon tax which revenues are equally redistributed to all is the way of how to align the market signal that will help to face the current environmental challenges, the current concerns about inequality, the current proposals of a universal basic income to face growing structural unemployment, and the current concerns about the lack of sustainable economic growth.

So please, even if this could make Trump to become a greater green hero than Al Gore, swallow it, for the best of our young.


Saturday, June 10, 2017

A simple but complex question from a humble Venezuelan economist to any outstanding Venezuelan international lawyer

"Article 12. Mining and hydrocarbon deposits, whatever their nature, existing in the national territory, under the territorial sea bed, in the exclusive economic zone and on the continental shelf, belong to the Republic, are the property of the Public domain and, therefore, inalienable and imprescriptible. "

Suppose a Revised Constitution would establish: "Article 12. Mining and hydrocarbon deposits, whatever their nature, existing in the national territory, under the territorial sea bed, in the exclusive economic zone and on the continental shelf, belong to Venezuelan citizens, as long as they live and, therefore, inalienable and imprescriptible."

Suppose also that the current PDVSA bankruptcy and all its assets are acquired by a PDVSA II or by any other national or foreign company that, on behalf of the citizens of Venezuela, has been entrusted to extract and market that oil providentially deposited in Venezuela. 

So then a tanker would be transporting, not the oil of a sovereign country, but the oil privately owned by millions of Venezuelan citizens.  My question to expert lawyers would then be:

Could the financiers of the Bolivarian Revolution of Venezuela, or old PDVSA, embargo that tanker? Could a tanker for instance belonging to ExxonMobil, be seized by creditors of the United States or the state of Texas in the event that any of the latter fail to meet financial obligations?

Of course, current Venezuela and Pdvsa creditors would claim before judges they always lent against estimated future oil revenues. But, can a government mortgage something that the constitution itself declares as inalienable?

Would the world, knowing then that the oil revenues carried by the tanker would be delivered directly to millions of Venezuelans, the rightful owners of the oil, and which will help these to satisfy some basic human needs, like food and medicines ... allow that tanker to be embargoed in order to satisfy the cravings of a few speculating financiers?

Dear friends, our Venezuela has been ransacked. It is the obligation of every Venezuelan to seek to try to save our nation in any way we can. 

If expert lawyers respond to me with a "You’re crazy Kurowski, that’s not possible", then, shamelessly, I’ll try to find other ways.

And if that means governments’ of Venezuela will not get access to credit in the future, I would almost count that as a blessing.

Wednesday, May 31, 2017

Goldman Sachs’ Lloyd Blankfein should perhaps go to jail, for violating the FCPA, or be fired, for being too dumb

1. For years (decades) I have argued that any sovereign (and I really mean any sovereign) that has to pay something like 100-200% more in interest rates than that sovereign who at that time pays the least, in order to obtain finance, has not earned the right to take on public debt, and with that to mortgage the future generations. 

The current rate the US has to pay for 5-year money is about 2%.

2. There are plenty of persons currently in jail in the US because of acts committed against the Foreign Corrupt Practices Act (FCPA).

3. Goldman Sachs, has just handed over about US$800 million to the notoriously corrupt and human rights violating government of Venezuela, in order to obtain $2.8billion Venezuelan bonds paying a 12.75% interest rate, which if repaid would provide GS with about a 42% yearly return, 2.000% more than what US pays. Has it in fact not committed the mother of all corruptions acts punishable under the FCPA?

4. Of course, if Lloyd Blankfein, the chairman of Goldman Sachs, can see a 42% return for lending to a sovereign, and not conclude that something extremely corrupt and fishy is going on, then he should, as a minimum minimorum, instead be fired for being too dumb.

Many people have been arguing for decades for the need of a Sovereign Debt Rescheduling Mechanism (SDRM).

I totally agree with that, but that must begin with classifying credits as bona-fide, doubtful, or outright odious. This specific Venezuela debt referred to here, clearly belongs to the latter, and should not be repaid.

PS. Venezuela, a nation with tremendous food and medicine shortages sells gas at less than US$ 2 cents a gallon. What else can I say?

PS. Still not the slightest sign of a "Sorry" from Lloyd Blankfein.

PS. If there's no social sanctioning of the elites there will be no society left to sanction.

PS. Today June 27 Maduro, he who was financed by Goldman Sachs stated "If we don't win with votes we will win with our weapons".

Saturday, May 27, 2017

“Whut you goin' to do when a [lefty] starts to talk purty? I'm jist a [socialist] who cain't say no”

Socialists are never ever able to resist the siren songs of false sirens like Venezuela’s Hugo Chavez and Nicolas Maduro. They always remind me of Oklahoma’s Ado Annie singing “I Cain't Say No!

“Whut you goin' to do when a [lefty] gits flirty
And starts to talk purty? whut you goin' to do?
Whut you goin' to do when he talks that way
Spit in his eye?
I'm jist a [socialist] who cain't say no”

Here for instance Noam Chomsky: “What's so exciting about visiting Venezuela is that I can see how a better world is being created."

Here for instance Sean Penn: “Maduro is similar to Chavez in that he is ‘in love with his people and his country’”
Of course there are those not so much convinced by purty talk but much more by purty pay, like here Pablo Iglesias