My tweets on what the coronavirus should inspire in the USA

Coronavirus inspires:

Immediate elimination of all US health sector discrimination in price, access or quality, between insured and uninsured

As is all get the short end of the stick of non-transparent deals between insurance companies and health sectors

https://teawithft.blogspot.com/2009/06/but-there-is-minimum-minimorum-reform.html

The elimination of risk weighted bank capital requirements that so dangerously distort allocation of credit in favor of sovereign and “the safer”, thereby disfavoring “the risky”, the always so much needed, and so much credit needing, SMEs / entrepreneurs

http://subprimeregulations.blogspot.com/2019/07/risk-weights-are-to-access-to-credit.html

It marks a beautiful opportunity to introduce an unconditional universal basic income UBI, a citizens’ dividend, that could be funded with high carbon taxes and a tax on the advertising revenues derived from exploiting the citizens’ personal data.

http://myubi.blogspot.com/2017/01/my-universal-basic-income.html

Many of our young will be without jobs, and will have to live in the basement of their parent’s houses, as a direct consequence of abominable bank regulations

Fact: The financing of house purchase is usually, with reason, perceived by bankers as much safer than financing entrepreneurs.

Fact: That means that, on their own, unregulated, banks would be expected to finance the purchase of houses more, and at lower risk adjusted interest rates, than financing entrepreneurs. 

Fact: But then bank regulators in 1988 doubled down on the same ex ante perceived risk and introduced risk weighted capital requirements. 

Fact: In those capital requirements (2004, Basel II) regulators assigned a much lower risk weight to the financing of houses (35%) than to the financing of entrepreneurs (100%).

This means regulators allow banks to hold less capital when financing the purchase of houses than when financing entrepreneurs. 

This means banks can now leverage their equity more when financing the purchase of houses than when financing entrepreneurs. 

This means banks can now obtain higher expected risk adjusted returns on equity when financing the purchase of houses than when financing entrepreneurs. 

This means that banks will even more prefer financing the purchase of houses, at even lower interest rates, than the financing of entrepreneurs.

This means easier, regulatory subsidized, access to house financing, causing higher house prices. How much of the easier  financing conditions when purchasing houses do we now have to finance when financing a house purchase?

This means a lesser, taxed by regulations, access to credit for entrepreneurs, causing less job creation and a slower growing real economy.

So, compared to what would be the case in the absence of these risk-weighted regulations this means:

For the young: Fewer possibilities of jobs and of buying their own houses. 

For house owners: They are sitting on assets that at current real valuations will not find buyers in the future.

For the aging: Lesser possibilities of taking care of their future needs.

For social peace: The young might revolt and shout: “Parents we’ve been cheated out of our future by crazy bank regulators, and you said nothing! So now you move down to the basements and we move upstairs!”

PS. Those more interested in providing our young affordable housing than in helping our young to afford the houses, which is of course not the same thing, are as I see it just some other vulgar redistribution profiteers.

PS. Here a brief aide memoire on the major mistakes with the risk weighted capital requirements

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?

More than going after that painting, why do they not go after the one who sold that painting. He has now the purchase capacity power, that is unless he already used it to.

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.

What a sad bunch of “progressives”, and what a sad bunch of “free-market supporters”, you both groups are

Current capital requirements for banks favor the access to bank credit of “The Infallible”, like the sovereigns and the AAAristocracy, those already favored by markets, because they are perceived as “absolutely safe”; and thereby discriminate, odiously, against the access to bank credit of “The Risky”, like the small businesses and entrepreneurs, those already discriminate against by the markets, precisely because they are perceived as “risky”.

What a sad bunch of “progressives” you are, not caring about widening the gap between “The Infallible” and “The Risky”

What a sad bunch of “free-market supporters” you are, not caring about how the current bank regulations distort.

“Oh but it is all to make our banks safer” Bullshit! Our banks are never ever threatened by what is perceived as “risky”, only what is considered “absolutely safe” cause major crises.

"The ‘Mistake’ that shall not be named” Journal of Regulation and Risk - North Asia 

To download the whole Journal of Regulation and Risk - North Asia, Volume V Issue II Summer 2013: here

God make us daring!

The index of perceived Corruption

Transparency International (TI) has developed an index by means of which it ranks countries around the world according to their perceived levels of internal corruption. I have a Danish friend who recently came to me for the umpteenth time with this list clutched firmly in his fist, proudly crowing over the fact that Denmark once again tops the list as the least corrupt country while Venezuela once again comes in toward the bottom, beaten out for the basement spot by only seven countries among which we find Colombia and Nigeria.

As a Venezuelan, I immediately went into a defensive mode. I argued that since the index is based on the perception of corruption, it could be that the results merely indicate a serious problem of exactly that, the perception, not the reality. Additionally, should this actually be true (evidently not the case), I told him that although I did lament the fact that Venezuela was not mentioned in the top half of the list, I was at least satisfied that we were definitely not occupying any “not too human” first place.

My good friend, observing my discomfort, realizing that I have some Swedish blood in my veins, and in a sincere effort to console me, blurted out that in reality he also did not understand why Denmark had been ranked first while Sweden was ranked third. My immediate reply was “Chico, Denmark must simply have paid more for it.” 

Jest aside, the index is the result of a serious effort on the part of professionals of diverse backgrounds who, using the few tools available, have managed to develop a system of evaluation which is useful and of great support for every citizen wishing to combat this age-old plague. 

Its importance is of even greater significance when we hear that Transparency International suggests that we don’t attribute more accuracy than necessary to its index. Venezuela’s ranking on this list of 85 countries is such that it is evident, to say the least, that the country’s level of corruption is far greater than average. This is bad enough!

Any debate over whether Venezuela should be ranked higher could be perceived simply as a strategy aimed at discrediting the index. Only the beneficiaries of corruption could possibly have an interest in doing this. A true patriot would not waste one single second of his or her valuable time in debating why people speak poorly of our country. On the contrary, he would dedicate all his time and energy to correct the reality instead of objecting to the perception.

This debate on corruption is truly difficult and complicated. Even though we should be pleased that such an index exists, I am worried that the mere fact that we are trying to reduce corruption to terms of a measurable dimension may lead us to oversimplify the problem dangerously.

The index, in principle, only measures the perception of corruption in general terms. This is defined in ample terms as “the abuse of public office for private gain.” In this sense, and because of the nature of the problem, I am sure that when using the term “gain” we are referring mostly to a monetary benefit. This avoids measuring other aspects of corruption that could be just as important or more.

For instance, I believe that the appointment of someone to public office for reasons other than his or her capacity or professional integrity is a corruption that is even more pernicious and costly to the country than the sum of all monetary corruption put together.

An example of this is our recent banking-sector crisis. The costs caused by the poor administration of this crisis are far and above the costs attributable directly to the bankers involved. It’s not that the bankers are free of guilt. They did undoubtedly start the fire. But whose fault is it that the financial firemen were caught napping and did not hear the alarms, and that once they finally got to the scene of the disaster they tried to douse the flames with gasoline instead of water? 

I make these comments to remind all that the monster of corruption has a thousand heads. I would be sad if all the result of the efforts to slay this monster would simply be the elimination of the traditional offers of discounts for prompt payment, right then and there, and that we frequently receive when fined for a traffic violation.

Let me make one last comment on this quite tortuous subject. In Venezuela, perhaps more than in any other countries, there is more than sufficient evidence of the total administrative ineptitude of the state, and all of our governments have absolutely no results to show, considering all of their income. Nonetheless multilateral agencies, such as the International Monetary Fund, frequently come to the country and recommend an action (sales taxes) that could only mean allowing the state to squander even more resources. For whom then is the IMF working? For the politicians? Could we then be staring at another unknown dimension of this monster called Corruption?

As edited for Voice and Noise, 2006

Originally published The Daily Journal, Caracas, November 4 1998

PS. “Our recent banking sector crisis” I here refer to in 1998, was a Venezuelan one that happened in 1994. Reflect on how much of that comment also applies to the bank crisis suffered by developed nations in 2008. 

PS. The world needs more than a theme park of anti-corruption efforts

Traducción:

El Indice de Percepción de la Corrupción 

Hay un índice, desarrollado por Transparencia Internacional (TI), relativo a la percepción que existe sobre la corrupción en distintos países. Tengo un amigo danés que por enésima vez este año me ha suministrado la copia del ranking, donde Dinamarca aparece como el país menos corrupto y Venezuela, en corrupción, solo es superada por siete países entre los cuales esta Colombia y Nigeria.

Como venezolano, en obligada defensa, le expuse que por cuanto el índice lo que mide es la percepción que se tiene sobre la corrupción, puede que los resultados solo indiquen serias dificultades de apreciación. Además y para el caso (negado) de que fuese cierto, le comente que si bien lamentaba que Venezuela no estuviese en la parte superior de la tabla, por lo menos me satisfacía el que no ocupasen un "inhumano" primer lugar.

Mi amigo, a sabiendas que también soy de procedencia sueca y en un esfuerzo por consolarme, expreso, de forma generosa, de que en verdad no entendía sobre que bases se había determinado que Dinamarca ocupase el primer lugar y Suecia el tercero. Mi replica fue inmediata; "Chico, Dinamarca debe haber pagado mas!"

Apartemos la broma. El índice es el resultado del esfuerzo por parte de un grupo de profesionales diversos que, con base a las muy pocas herramientas disponibles, han logrado desarrollar un sistema de evaluación útil y de mucho apoyo para todo ciudadano deseoso de combatir esta plaga de vieja data.

Su importancia se hace aun más significativa cuando, siguiendo las propias sugerencias de TI, no le atribuimos mas exactitud que la necesaria. La posición de Venezuela en esta lista de 85 países es tal que sin lugar a duda podemos decir que en nuestro país tiene una corrupción mayor que el promedio. Lo anterior resulta suficientemente malo.

El debatir sobre si Venezuela debe estar en un puesto mejor, simplemente seria una estrategia para tratar de desacreditar el índice y en esto solo podrían tener interés los beneficiarios de la corrupción. El patriota no dedicaría ni un segundo al debatir el porqué se habla mal del país sino daría todo su empeño en corregir la situación.

Qué difícil resulta todo el debate relativo a la corrupción. Aun cuando reconozco que, en el papel de motivador, debemos agradecer la existencia del índice, me preocupa de que el solo hecho de tratar de medir la corrupción, al tener que reducirlo a una dimensión que permita su medición, puede conducirnos a una peligrosa simplificación del problema.

El índice, en principio, solo mide la percepción que se tiene como una corrupción general, definida esta de forma amplia como "el abuso de cargo publico en beneficio propio". En tal sentido y por la sola naturaleza del problema, estoy seguro que el termino de "beneficio propio" implica principalmente un beneficio monetario, obviando medir aspectos de corrupción que pudiesen ser tanto o mas importantes.

Creo que la corrupción presente cuando se nombra a quien habrá de ejercer un cargo público, por razones distintas a su capacidad e integridad profesional, es más perniciosa y costosa para el país que la suma de todas las corrupciones monetarias.

Como ejemplo de lo anterior, los costos derivados de la mala administración de la crisis bancaria supera, por largo rato, los costos que de forma directa son atribuibles a los banqueros. No es que los banqueros sean inocentes, sin duda prendieron el fuego, pero; ¿quién es el responsable de que el cuerpo de bomberos financieros, estuviesen dormidos sin oír la alarma y luego utilizaran gasolina para apagar las llamas?

Hago esta observaciones para recordar que el monstruo de la corrupción tiene mil caras. Seria lastimoso que el resultado de los esfuerzos que se haga para combatirla, solo culmine en que cuando se imponga una multa por violación de transito, no se ofrezca la tradicional alternativa, del descuento por pronto pago.

Por ultimo un comentario sobre este escabroso tema. En Venezuela mas que en cualquier otro país ha quedado evidenciado la total ineptitud administrativa del Estado. Todos los ingresos del mundo y nada de resultados. Cuando entonces un organismo, como el Fondo Monetario Internacional viene acá y nos receta, como única vía para salir de nuestros problemas, el que proveamos al Estado con mas ingresos aún, pagando mas impuestos, para el beneficio no individual sino colectivo de la secta política; ¿estaremos enfrentando una faceta desconocida de la corrupción?

Banking - between mirrors and piglets

Although I have never worked in the banking sector, I do remember, during the latter part of the seventies, being proud about the development of Venezuelan banks. I thoroughly enjoyed listening to anecdotes such as the fact that the most popular software application (i.e. SAFE) for the management of on-line banking operations had been developed in Venezuela. 

I was also aware of the fact that on-line banking in the country was being applied to a much greater degree than in the United States. I loved to read in the press about the participation of Venezuelan financial institutions in international loan syndications, although while doing so I pondered about the sanity of this participation and had the same ambiguous love-hate feeling as when I flew overseas with VIASA, our flagship airline. 

Finally, the fact that Venezuelan banks routinely appeared in “The Banker” magazine’s listing of largest banks, made reading this publication in London waiting rooms quite agreeable.

Twenty years later, I cannot but feel somewhat humiliated when I am asked to feel respectful and thankful that we are now to be the beneficiaries of new banking technology that in my humble opinion for the moment merely seems to imply substituting the small mirrors used by the Conquistadores to seduce the continent’s Indians with little plastic piglets.

Let me make it clear that my possible observations as a Patriot about the strategies established by financial Neo-Royalists are certainly not based on the rejection of the presence of foreign banks in general, much less of Spanish financial institutions, which due to their high profile will undoubtedly bear the brunt of humoristic expressions so proper of the Venezuelan populace. 

On the contrary, I am certain that there is an important place for foreign banks in Venezuela, although I would have liked to see an early aperture of the financial system aimed more at strengthening than at the reconstruction, in the style of the mythical Phoenix, of a system in ruins.

What motivates me is that an excessive praise heaped on the newly arrived foreign bankers, in addition to possibly causing unnecessary damage to the egos of our local bankers (that famous patriotic cry, “Vuelvan Caras”, is already audible in banking circles), clearly tends to confuse the issues and principal causes of the collapse of our financial system.

History can be written in a few words. A series of devaluations, the breach of exchange guarantee contracts, restrictions on offshore positions, obligatory preferential treatment for certain sectors of the economy, minimized participation in the financing of petroleum industry projects and surprising macroeconomic policy decisions such as the application of exorbitantly high real interest rates. 

All these factors caused a drastic decline in the quality of bank loan portfolios and an erosion of their respective net worth values to a minimum. Responsibility for all these ills lies principally with the Central Government and their main cause is again the fundamental failing of our society, i.e. the excessive concentration of national wealth in the hands of the State.

Each case must by analyzed separately but in general terms, I’m certain that should the United States, the United Kingdom and even Spain have had to suffer through similar catastrophes, the mortality rate would have been the same or higher. Likewise, I’m sure that the future productivity of Venezuelan banks will depend more on the rectification of the State’s actions than on the masterly lessons in banking we may receive from, with all due respect, the Casa Cándido strategists (Casa Cándido is a restaurant in Segovia famous for its servings of roasted piglet).

A better supervision of the banking sector by a professional Superintendency; reasonable norms that regulate the banking activities without strangling it; development of management capabilities that would insure the proper handling of banking crises without multiplying their initial cost; and responsible, professional bankers. 

All the above certainly must exist in order to head off another financial tragedy in the future, but they are certainly not enough to avoid such disasters.

As long as the size of Venezuelan State is not reduced in proportion to the private sector and the State continues to impose its omnipresent influence over all aspects of national life, the possibility of creating and environment of economic rationality is remote. Without economic rationality there is no way to avoid another financial crisis. Today’s generation of local bankers hopefully has already learned its lesson and I sincerely hope our newly arrived visitors will not have to do so as well.