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

I asked OpenAI:

"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?"

OpenAI 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 OpenAI

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

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

 

A Bureaucracy Autocracy has been constructed with stealth

Sir, below I quote from Didi Kuo’s review of Moisés Naím’s “The Revenge of Power”, “How the world has been ‘made safe for autocracy’” Washington Post, April 24.

“Today’s autocrats are savvy, with new stratagems fit for a world upended by technological change. They exploit, and sow, distrust in experts, authorities, the media. They manufacture truth, invent enemies and use legal pretexts to consolidate power.”

The regulators in the Basel Committee for Banking Supervision, launched Basel I in 1988. In order to “save” our banks from that “enemy” of excessive risk-taking, these “savvy” experts concocted risk weighted bank capital/equity requirements; and for which they decreed weights of 0% the government and 100% citizens.

That translated effectively into banks being able to leverage much more their capital/equity with  e.g., Treasuries, than with loans to citizens. That has made it much easier for banks to obtain desired risk-adjusted returns on equity with Treasuries, than with any private sector assets. That de facto implies that bureaucrats know better what to do with credit for which repayment they’re not personally responsible for, than e.g., small businesses and entrepreneurs

You don’t need to take my word on it. Paul A. Volcker, in his 2018 autobiography “Keeping at it” which he penned together with Christine Harper, valiantly confessed: “Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities”

Add to that central banks’ QEs, which primarily includes the purchase of government debt, and the empowernment of a non-transparent Bureaucracy Autocracy becomes evident. 

If that is not a prime example of “what Naím terms stealthocracy: a way of maintaining the architecture of liberal democracy while gutting accountability” what is?

Sir, as a Venezuelan just like Naím I too heard Hugo Chavez with concern and dislike. But, just like Venezuela’s centralized oil revenue curse has allowed truly bad autocrats to remain entrenched even when the walls are tumbling down, what I now most fear, is that world wide easy-government-money curse. 

Let me also remind you Washington Post, that none of the excessive bank exposures that resulted in major crises, or bubbles that have burst, have ever been built up with assets perceived as risky, always with what was perceived as safe.

I could go on and on, but let me end with two questions:

The Founding Fathers of the Land of the Free and the Home of the Brave, what would they have opined about the Federal Reserve decreeing risk weights of 0% the Federal Government and 100% We the People?

Where would America be today, if its immigrants centuries ago, had been met by this type of risk averse regulations?

PS. My first ever Op-Ed, in the Daily Journal of Caracas, was on the theme of bank regulations. 

PS. An example of how the Bureaucracy Autocracies work.

PS. I have recently enlisted #AI ChatGPT - OpenAI to help me fight the Bureaucracy Autocracy. "What would you opine of risk weighted bank capital requirements with risk weights assigned for political reasons?"

Here's a letter the Washington Post published August 2023. It refers to Paul Volcker’s valiant courageous and honorable confession on what happened 1988. Thanks @PostOpinions for not ignoring it.

My proposal for this Earth Day 2015.

Stop using purposeless, dangerous and silly credit-risk weighted equity requirements for banks, those which allow banks to earn higher risk adjusted returns on equity when lending to those perceived as safe than when lending to "the risky".

Purposeless: because major bank crises never ever result from excessive exposures to what is perceived as “risky” but always from excessive exposures to what was erroneously perceived as “absolutely safe”. 

Dangerous: because that completely distorts the allocation of bank credit to the real economy.

Silly: because why on earth should we taxpayers lend our support to banks if their only goal is to act as safe mattresses to stash away money in. Better to build a super-safe storage facility then.

Begin using more purposeful potential of planet-earth sustainability, job generation and poverty reduction weighted equity requirements for banks.

That way our banks will earn their highest risk adjusted returns on their equity when financing what is deemed useful for the society.

That way it makes sense for us taxpayers to lend our banks the support they need, in order for these to take the astute risks we need for the world to move forward in a sustainable way generating jobs and poverty reduction.

Who shall you tell about this proposal? All bank regulators starting by the Basel Committee for Banking Supervision and the Financial Stability Board; and to multinational entities such as the UN, IMF, and World Bank.

If they do not listen to you, at least force them to try to justify why they are supporting current credit-risk weighted equity requirements. These only impede the access to bank credit of "the risky", thereby killing opportunities and increasing inequalities.