Tuesday, October 25, 2016

I tweeted: How do you morph a $200 million Picasso hanging on a wall of a wealthy into real purchasing power for the poor?

Someone answered: "If owner says $200m & you think it's worth more, then you buy it for $200m, else you tax it 1/2%/yr"

I answered: "If you buy it for $200m then you used $200m you could have otherwise given the poor"

And I answered: "And if you tax it 1/2% year... how many will then want to own a $200m Picasso?"

Then someone answered (I think): “You mortgage that painting and invest that money into some job generating venture”

And I answered: "That's perhaps a great idea, if I make a really good job-generating investment. But, what if the markets get nervous about too much art being mortgaged at banks? Then the price of art might come down, or interest rates for banks go up… and then we might sort of be getting back to square one."

And I thought, if you hit especially at art wealth, will that not affect the expectations of art being worth more? And if so, will not the price for the paintings of the current painters go down… and so painters have less chance to make it?

And so I am getting closer and closer to conclude: In essence, he who hangs a $200m Picasso painting on the wall, has paid a $200m wealth tax.

I am a bit at loss. I hate unfair wealth creation as much as anyone, but once that purchase power has been frozen on a wall, how do you convert it into food, education and health services? Do you know of some arguments that could shed light on this issue?

Or phrased even more confusing: He who has agreed to freeze $200m of his purchasing power, hanging a Picasso on a wall, and so therefore does not to compete with other's purchasing powers, has he not already paid a $200m wealth tax?

Do you have another idea on this? Then email me

The wealth of 62 richest equals that of 3.6 billion poorest” That‘s a deviously false odiously divisive argument.

"Panama Papers" Don't let redistribution agitation profiteers raise your expectations.

Saturday, October 22, 2016

The Basel Committee’s risk weighted capital requirements for banks, is one cultural genocide of the western world

Frequently we read about how the destruction of monuments amounts to cultural genocides. But are monuments all there is about cultural heritages? No! Also such heritages as a cultural willingness to take risks.

In 1988, with the Basel Accord, Basel I, regulators introduced risk based capital requirements for banks; which were further amplified in 2004 with Basel II.

That regulation allows banks to earn higher risk adjusted returns on equity when holding “safe” assets, than when holding “risky” assets.

The layer of regulatory risk aversion it introduced, made banks abandon financing the riskier future, in order to just refinance the safer past and present.

The willingness to take risks is part of the cultural heritage of my western world, in churches we sang a psalm that prayed for “God make us daring”.

The willingness to risk making mistakes, has provided the western economies with the raw material necessary for the successes that helped to buildup its economy.

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

But now: “If God can’t make our bankers sufficiently coward, then we have to!” Bank regulators

In short, the Basel Committee for Banking Supervision’s regulatory imposed risk aversion, constitutes a destruction of a cultural heritage of our western world.

And all for nothing! The regulators justified it with that it would make our banks safer. What nonsense! Major bank crises never ever result from excessive exposures to something ex ante perceived as risky; these always result from either unexpected events, or excessive exposures to what was ex ante perceived as very safe, but that ex post turned out to be very risky.

May God defend me from my friends, I can defend myself from my enemies” Voltaire

PS. Actual risk weights: AAA to AA rated 20%, Below BB- 150%. Can it be more loony than that?

Sunday, October 16, 2016

So much in the world, like art, to become a reality, has required tremendous doses of inequality.

Walking around the museum Louvre in Paris I suddenly I saw an amazingly decorated silk embroidered full with gold filaments shield, made around 1555-1560 by Pierre Reddon for King Charles IX.

I then asked myself who in his sane mind would request this type of absolutely useless shield? Clearly it had to be someone extremely wealthy and powerful, someone who did not care one iota about his own security being threaten on a close range, or about its enormous costs.

In that moment it suddenly dawned on me that basically nothing of what I was seeing at the museum would exist, if it had to be produced by a society were income and wealth was equally distributed. In other words, all this art around me, to have become a reality, has actually required a very unequal society. 

In other words, shhh... between you and me...the museum of Louvre is, unwittingly, a homage to inequality.

So are all those of us who with good intentions are fighting for a more equal society truly aware of what we could be giving up, of all unexpected consequences, if we were too successful?

I then tweeted: What would Thomas Piketty’s France exhibit at Louvre, had not huge societal inequality allowed the financing of so much "unnecessary" art?

Then of course you find cases like Vincent Van Gogh who did not require much inequality to give us his marvels, much more of a loving brother.

PS. That’s not only at Louvre just go to the BritishMuseum.

PS. Without inequality the world would never ever have been able to see a Fabergé egg.
Would that have been a better world? I don’t know. You tell me! At least we would not have to envy that some got more impressive burial gaskets than us.

Tuesday, October 11, 2016

Should there be clawbacks clauses for university professors? Yes! Especially for finance professors.

University professors have been able to earn much higher salaries thanks to the availability to their students of credit for education.

Now many of their students are struggling to repay their loans, because market conditions, and the economic benefits of education, did not turn out as expected.

So clearly there is a case to ask whether there should not be some claw-back clauses applicable to them

I surely think so, and especially in the case of the professors in finance.

There, right before their eyes, with Basel I in 1988, and with Basel II in 2004, the bank regulators introduced risk weighted capital requirements for banks.

And these regulations discriminated against that financing of the riskier future that the students needed to be financed in order to aspire to get good paying jobs; and those regulations discriminated in favor of the safer present that had grown out of the risk-taking of the past, and which was of more interest to soon retiring professors.

I believe that never ever before, has an education community let down its students so much.

There’s just got to be some formal claw-back.

PS. Here again is an aide memoire that explains some of the regulatory monstrosities.

Monday, October 10, 2016

Ideas on how to start discussions and implementation of a Universal Basic Income, or Societal Dividend

We must all be aware that the Redistribution Profiteers will be out on force trying to confuse the discussions on Universal Basic Income. 

Therefore I believe some very few principles needs to be established and firmly held on to.

First that we are always talking about a “basic” universal income that in no way should reduce the incentive of people to try earn some additional income. In essence it could initially be argued as a complement to the gig economy.

The UBI should start to be tested in low amounts that are slowly moved upward in line with the experiences.

It should be clear from the very start that all UBI needs to be funded with real money… no funny inflationary money. Initially it should be funded exclusively with taxes already collected; although special taxes like on pollution could also be useful to align UBI with other important objectives.

From the very beginning we need to identify who could provide the payment services in the cheapest way possible. 

And then of course it needs to be clear that UBI is NOT a government handout. It is a societal dividend decreed by all the shareholders, all the citizens.