If 1988’s Basel I had been imposed thirty years earlier, would the Berlin Wall have needed to fall?

1988, with Basel I, a Global Statist Revolution was launched. It was not to be acknowledged, much less televised.

Here's a very brief but yet 99% description of it:

It imposed risk weighted bank capital/equity requirements explained by the following decreed weights:

Central government debt: 0% 

Residential montages: 50%

Loans to e.g., small businesses and entrepreneurs: 100%

With the basic 8% capital requirement imposed, that translated into following capital/equity requirements:

Central government debt: 0% 

Residential montages: 4%

Loans to e.g., small businesses and entrepreneurs: 8%

That allowed the following bank capital/equity leverages:

Central government debt: unlimited

Residential montages: 25 times to one

Loans to e.g., small businesses and entrepreneurs: 12.5 times to one.

And all that translates, de facto, into:

Bureaucrats and politicians knowing better what to do with bank credit for which repayment they’re not personally responsible for, than small businesses and entrepreneurs. 

Residential mortgages being more important for the economy than loans to small businesses and entrepreneurs.

End of explanation.... and you do not need to take my word for it:

Paul Volcker, in his autobiography "Keeping at it" of 2018, penned together with Christine Harper confessed:“The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits and home mortgages. The American ‘overall leverage’ approach had a disadvantage as well in the eyes of shareholders and executives focused on return on capital; it seemed to discourage holdings of the safest assets, in particular low-return US government securities."

Later, without much altering Basel I’s rulings, 2004 Basel II introduced risk weights much dependent on credit ratings; a systemic risk. Again, in words of Paul Volcker “Ironically, losses on sovereign credits and home mortgages would fuel the global crisis in 2008 and a subsequent European crisis in 2011.” 

Currently: Basel III, yet not fully decided or implemented, diminishes the differences in allowed leverages but, on the margin, there were it all counts, the favoring of “safe” assets over “risky” ones, still reign supreme.

And that’s what has, in much of the world, generated extremely high levels of central government debts and residential mortgages. It would be hard to argue that the economy has grown sufficiently strong and resilient, so as to be able to service those levels of debt. If you doubt me, ask ChatGPT. 

Summing up; decreed risk weights: 0% Federal Government – 100% We the People introduced financial communism, which is the reason for the question of this brief note.

Sadly, if Basel I had been implemented three decades earlier, both Russia and America, West and East Germany, would then all have become so weakly alike.

Would then John F. Kennedy have delivered his 1963 speech "Ich bin ein Berliner" in 1989? No! Not the John F. Kennedy we knew.

Would then Ronald Reagan have told Mr. Gorbachev in 1987 “Tear down this wall!”? No! Not the Ronald Reagan we knew.

Would the Berlin Wall then have fallen? 

Why would that then have been necessary? That wall had simply become a useless Maginot Line.

In summary,  by means of bank regulations the virus of communism contaminated the Western Free Market World. And, incredibly, so many still opines it's living under the "weight" of neoliberalism.

Why have universities, especially its professors in economic and finance, kept conspicuous silence on this? Is it because they all want to be members or beneficiaries of the so empowered reigning Bureaucracy Autocracy?

I would now ask any East Berliner old enough to remember his life before 1988: 

When now seeing the farmers striking and suffering electricity shortages, do you not experience some Deja vu?

Has Orwell’s Big Brother already captured our “inner faith”?

Note: Napoleon in George Orwell's Animal Farm, was a large, cunning Berkshire boar. But, beware, nowadays it could, as we know, just as probably be a dangerous and cunning sow of many different pig, swine or hog breeds.

Dominic Green titles his review of D.J. Taylor’s “Orwell: The New Life” as “The Conscience of our age” and rubs it in with: “Eric Blair (George Orwell’s first name) created Orwell to be the conscience of his age, and Orwell became the conscience of ours”

Sadly, that conscience has by far been insufficient.

Green writes Orwell believed “the centralizing modern state is the enemy of decency” and in “Notes on Nationalism” Orwell wrote: “One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.”

And yet, when a group of technocrats in a mutual admiration club, the Basel Committee for Banking Supervision, overflowing with hubris thinking they know all about risks, in 1988 imposed risk weighted bank capital/equity/skin-in-the-game requirements, with decreed weights 0% government – 100% Citizens, the world, after many decades, still keeps silence.

Can’t you hear Napoleon announcing? “To make your bank system safer, here we give you our risk weighted bank capital requirements. These decree the more creditworthy, Me & my Apparat-Pigs, more worthy of credit, and you, less creditworthy, less worthy of it.” And all the animals on the farm saying: “Thanks Napoleon!”

“Assets for which bank capital/equity requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

Inequality was decreed

And to add salt to injury D.J. Taylor/Green reminds us that Orwell opined that the centralizing modern state was the enemy of decency, and he believed that modern totalitarians differed from the tyrants of the past because technology would allow them to breach the window into men’s souls. In “Nineteen Eighty-Four”, the torturer O’Brien demands more than outward conformity. He demands inner faith.

“The rules are simple: they lie to us, we know they're lying, they know we know they're lying, but they keep lying to us, and we keep pretending to believe them.” From "A Mountain of Crumbs" by Elena Gorokhova.

And how is the farm doing? Just look at the growth, in peace time, of the outstanding level of debt managed by the Bureaucracy Autocracy.

Technology? Like artificial intelligence, like central banks digital currency, like digital ID, like polarization with the aid of social and main media?

2015, walking in Singapore I observed “I don’t see any police on the street”. I was told “Don’t worry they see you” Friends, look up, behind that camera, one of Napoleon’s Pigs is watching you.

"Since I and my Pigs, know better what you should do with your money, I give you my cent­ral bank digital cur­ren­cies, CBDC."

Will we, the other on the farm, say "Thank you Napoleon"?

"We Pigs, to make absolutely certain that others do not put you other in any danger, we give you our digital ID."

Will we, the other animals on Orwell’s farm say: “Thank you Napoleon!"?

“Mommie, Big-Pig told me you could not buy more meat this month with your CBDCs. It looks like I exceeded my Cow-Farting quota." "That’s okey Little-Baa, just go ahead and thank him for all of us."

"To make sure the chat­bot on your phones give you inform­a­tion, not pois­on­ous prejudice, I and my Pigs will train AI's learn­ing via pro-social inform­a­tion such as pub­lic service news." "The other animals on Orwell's farm said: “Thanks Napoleon!”

"I’ve no reason whatsoever to believe that those ordering lockdowns are in any way, shape or form wanting to impede Covid-19 herd immunity, but they sure seem more interested in pursuing herd docility."

And my observations on the "No Ordinary Man could be Such Fool" goes way back 

https://youtu.be/tD201OQwsFI

Now the question is: Artificial Intelligence is a child of Human Intelligence. What happens if their umbilical cord is cut?

#AI OpenAI - ChatGPT: The discrimination in access to credit with risk weights 0% government - 100% citizens fits best Russia, Argentina or the United States?

I asked ChatGPT:

"The type of discrimination in the access to bank credit bank capital/equity requirements with decreed risk weights 0% government - 100% citizens produce, from a political philosophy’s angle, where would it seem most likely to fit: Russia, Argentina or the United States?"

ChatGPT answered:

"The type of discrimination in access to bank credit resulting from bank capital/equity requirements with decreed risk weights (0% for government assets and 100% for citizen assets) would most likely fit within the political context of Russia or Argentina rather than the United States.

1. Russia: Historically, Russia has had a strong tradition of state-controlled economic systems, with the government playing a significant role in shaping economic policies. The scenario you described, where government assets are given a preferential treatment in terms of risk weights, aligns more closely with a political philosophy that emphasizes state intervention and control in the economy. This kind of policy could be seen as a reflection of the Russian government's desire to support and prioritize government-related entities.

2. Argentina: Argentina has experienced periods of government intervention and economic instability throughout its history. The country has seen a mix of state control and market-oriented reforms. Policies that discriminate in access to credit based on the type of asset (government vs. citizen) could be associated with a political philosophy that emphasizes a stronger role for the government in economic affairs. In Argentina's context, such a policy may reflect attempts to support government-related entities or prioritize certain sectors.

3. United States: The United States, while having its own political and economic complexities, generally operates within a framework that emphasizes free market principles and individual rights. The scenario you described, where government assets receive preferential treatment over citizen assets, would not align with the prevailing political philosophy in the United States. The U.S. financial system, although regulated, typically aims to ensure fair and equal access to credit for both government and citizen entities.

It's important to note that political philosophies can evolve over time, and policies can vary within countries based on specific circumstances and periods. The descriptions provided here are generalizations and may not capture all the nuances and complexities of each country's political landscape."

Note: The answers are copied exactly from those given to me by ChatGPT

PS. Has the US Congress approved risk weights of 0% Federal Government – 100% We the People? 

Here my many other questions to ChatGPT – Grok on bank regulations

 

My Fourth of July 2019 tweets to the United States of America

This Fourth of July 2019 here are two tweets in which I expressed, to that United States of America that I admire and that I am so grateful to, some very heartfelt concerns.

In 1988 America signed on to the Basel Accord’s risk weighted capital requirements for banks. 

These gave banks huge incentives to finance what was perceived as safe, and to stay away from the “risky”. 

It is so contrary to a Home of the Brave, opening opportunities for all.

And regulators decreed risk weights: 0% sovereign, 100% citizens

That implies bureaucrats know better what to do with credit than entrepreneurs

That has nothing to do with the Land of the Free, much more with a Vladimir Putin’s crony statist Russia

http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

PS. Why “grateful”? Had my father, a polish soldier not been rescued by American’s from a German concentration camp April 1945, I would not be.

PS. As one of those millions Venezuelan in exile, I know my country’s future much depends on America’s will to support its freedom.