Some of my tweets in times of Covid-19

On the response to COVID-19: 2 tweets Jul 27, 2020

Sweden kept all schools until 9thgrade open. Parents of children in 9th grade are almost always less than 50 years of age. In Sweden, as of July 24, out of 5,687 Coronavirus deaths 71, 1.2%, were younger than 50 years.

Conclusion: Keep schools open, keep older teachers at home and have grandparents refrain from hugging their grandchildren. Disseminating data on COVID-19 without discriminating by age, is in essence misinformation.

https://twitter.com/PerKurowski/status/1287748336913719296?s=20

The economy:

Covid-19, which mostly causes some older to die a little earlier, thereby in a very cruel way alleviating some serious social security deficits, does not really hurt so much the economy It is the responses to this pandemic that does produce the highest costs, which will be shouldered the most by the youngest, for the longest.

My tweets on debt-to-equity conversions in times of a pandemic

“I’m old, must sell my business”

Those who because of their age do not want to go back to run their business, instead of selling it at depressed prices, could do better finding a capable younger person to run it, and with whom to split any future profits.

Banks, when Covid-19 hit us.

With the intention of making bank systems safer, the regulators based their risk weighted bank capital requirements on perceived expected credit risks, the risks which bankers should clear for; and not on the risk of misperceived credit risk, like 2008’s AAA rated or unexpected events, like a pandemic. Therefore, banks now stand there with their pants down... meaning no capital... at the worse time to raise capital.

A Covid-19 breather: 

Postponing all capital and interest payment on residential mortgages coming due next 12 months to the end of current mortgages, and allowing banks to hold that refinanced portion against zero capital… would help the economy and stop some bank balance sheet bleeding.

A bad time to increase bank capital requirements

The credit distorting bank capital requirements against residential mortgages should increase to the same level as against loans to SMEs, and entrepreneurs… but in the midst of the coronavirus crisis… for the time being, the latter could be lowered to the level of residential mortgages.

Creative destruction?

Coronavirus / Covid-19 times is not the best time to engage in creative destruction since too little construction can result in a closed down economy. As I see it, both debtors and creditors would benefit immensely from keeping hungry bankruptcy lawyers at distance.

When is there an overreaction?

In Italy, as of August 17, deaths from coronavirus COVID19 are only 0.25% for those under 40 years of age.

Yes, the older need to take care, but it is those under 40 years who will for the longest bear the brunt of the economic costs of overreacting.

Winston Churchill

Reading of UK’s plan of building up herd immunity against Covid-19, I felt Winston Churchill would have agreed with such stiff upper lip policy: “I’ve nothing to offer but fever, coughing, chills and shortness of breath"

Social Media
SARS 2003, Facebook 2004, Twitter 2006, WhatsApp 2009, Coronavirus 2020 
Does this help us to understand the different intensity of how the world has reacted?
Information / attention overload, must have some dangerous unexpected consequences too.

Entrusting

Paraphrasing Georges Clemenceau’s “War is too serious a matter to entrust to military men”
A pandemic is too serious a matter to entrust to scientists/epidemiologists

Why are citizens not more enlisted in the fight?

If given timely and easily accessible data on new cases/ hospitalizations/ deaths/ other serious consequences; discriminated by age/ gender/ race/ occupation/ location/ other significant factors, so that they can take their own informed decisions, the citizens are the most effective pandemic combatants in the world.

Global comparisons

Data reported continuously on CNN indicates that, considering total population, USA suffers 6.3 times more Coronavirus cases than the rest of the world; and 5.7 times more deaths.

Are the numbers used really comparable? Is it science or is it politics?

Underlying conditions:

The most dangerous underlying condition of Covid-19, is that it broke out in the midst of a raging Polarization Pandemic, in which way too many polarization profiteers have a vested interest in blocking the development of a harmony vaccine.

A pandemic earthquake?
The Great Barrington Declaration and WHO’s acceptance of that lockdowns, places them sort of more on the side of Trump than Biden. Could that shake rattle and roll up the debate so close to elections?

History repeats itself.

With the intention of making bank systems safer, the regulators based their risk weighted bank capital requirements on perceived expected credit risks, the risks which bankers should clear for; and not on the risk of misperceived credit risk, or unexpected events, like coronavirus.

Now, to allow nations fend off coronavirus with the least societal costs, governments impose on society restrictions derived from perceived risks, risks citizens should be able to clear on their own, and not from risks of misperceived COVID19 risk, or unexpected unknown facts.

On Trust

In “socialist” Sweden, when battling coronavirus, authorities seem to trust more their citizens than in America, the Land of the Free and the Home of the Brave.

In April 2016 Swedish authorities issued my mother a driver license that would have expired when she was almost 103 years of age. Asking about the wisdom of such thing, I was told that in Sweden the Swedes were supposed to know when they were fit to drive or not.

That applies to coronavirus behavior too

Conflict of interest 

The 70 years or older, in terms of health, are more a Covid-19 vulnerable group. Since therefore we might unwittingly suggest actions way too costly for those more vulnerable to its socio-economic consequences, perhaps though we should much take care of ourselves we should totally abstain from recommending Covid-19 responses.

Quarantine for those under 40 years of age?

If the percentage of those under 40 years of age that die of all causes, is higher than the percentage rate of that same age group that die from coronavirus/COVID19, how can it make any sense to subject them to a quarantine and its economic consequences?

Don't mortgage our youngers' future

If total deaths from COVID19 to total population is 0.2%, in US that would be 700.000 deaths. 

If of those deaths the younger than 50 years are 5%, that would represent 35.000 deaths of younger Americans 

Take care of the older, but do not mortgage the future of the young

In Washington Post.

Roughly 90% of all coronavirus deaths will occur in those 60 years of age and older. Equally roughly 90% of the virus’s social and economic consequences will be paid by those younger than 60. It’s an intergenerational conflict of monstrous proportions.

Relevant Universe Bias:

For now, I have four grandchildren, all whom I love dearly.
But, if I had 100 grandchildren, if knowing that safeguarding 2 of them from the worst Covid-19 consequences could bleak the future of the other 98, would I feel the same about what we should do?

God make us daring!

And for God’s sake, if there are any moment banks should try to do ‘God’s work’, meaning taking the risks the society needs to move forward, it is now.

The risk weighted bank capital requirements based on expected credit risks, are insane!

The robots will be further empowered:

And coronavirus will most probably increase the robotization speed of our economies, so now there is more need than ever of decent and worthy unemployments, something which must include the launching of an unconditional Universal Basic Income.

SCHOOLS - Sweden

Here are current data of Covid-19 deaths in Sweden that explains the wisdom of keeping schools up to 9th grade open.

Higher education:

And our higher education systems must adapt to harsher times, perhaps by making it much more a joint venture between students and professors.

Nobel prizes in virtual online teaching:

At this moment, much more important than a Nobel Prize in Economics, is are Nobel Prizes for the Best Virtual Online Teacher/Professor in the World, in the categories of children under 10, high schools, universities, and of course business schools

What if a coronavirus II / Covid-19 II?

The capacity to borrow at a reasonable interest rate (or the seigniorage when printing money) is a very valuable strategic sovereign asset, and it should not be squandered away.

Banks, the morning after Covid-19

We need to get rid of the perceived expected credit risk weighted bank capital requirements and impose a leverage ratio of 8%-15%; and sack all dangerous equity minimizing leverage maximizing creative engineers and put our banks back into the hands of savvy loan officers. 

Do all dead from Covid-19 represent the same problem?

When responding to Covid-19 should all those residents and staffers of nursing homes and other long-term care facilities who in US represent about 40% of all Covid-19 deaths, in Sweden closer to 50%, be bundled up with all other? I don’t think so.

PS. This is a post that will be in continued revision

PS. May 16, 2020 I turned 70 and posted this

PS. December 2020: The adequate response to a Covid-190 when hopes for vaccines were two or three years away must clearly differ a lot from the one when it looks like vaccines are only two or three months away. The opportunity cost of not taken precautions has now dramatically increased.

PS. January 2021:Once the most endangered had been vaccinated, would it be so wrong to have an official market, e.g. in the US, where e.g. 30 million vaccines are sold at, e.g. US$ 2.000? That would help pay for 1.200 million vaccines, at least.

PS. February 2021: How many of our elder would still be alive if only expert epidemiologists had said that the elderly care and the senior retirements homes, needed to have independent air conditioning, heating, ventilation units, or have counted with first class air filtering systems?

PS. February 2021: I’m all for obtaining Covid-19 herd immunity, but the terminology makes me somewhat uneasy. It makes me think on whether with the alternative of strict lockdowns, some are looking to impose on humanity, on our Western civilization, some herd docility.

PS. March 2021: The battle of our times: Herd Immunity vs. Herd Docility

PS. April 2021: A return to a pre-pandemic world would have little to do with Covid-19/vaccines; much more to do with the responses to it: e.g., clearing all debt-overhangs, changes in work-methods, and many forms of herd-docility profiteering… therefore such a return, in my time, is a mirage.

PS. April 2021: When is a pandemic no longer a pandemic?

PS. November 2021: Should we vaccinated not be very thankful for that a group of without preconditions citizens, are willing (heroes) to keep on being unvaccinated (the placebo), and thereby serve the scientist as a control group for Covid vaccines, for the benefit of future generations?

PS. November 2021: Have your national health authorities identified without preconditions citizens willing to keep on being unvaccinated (placebo), and thereby serve science as a control group for Covid vaccines? If not, why? Is such research not a question of national security?

My tweets on debt to equity conversions in times of a pandemic

Debt to equity conversions

With so much corporate debt in danger of being pushed down by COVID19 into junk rated territory, both debtors and creditors might need massive debt to equity conversions, in order to buy the time needed to reactivate assets, before these also become junk.

What companies merit help?

For highly indebted companies, whether they are important and viable enough to merit help from taxpayers, from money printers or from banks, by grants and not loans, the proof in the pudding is in first seeing hefty debt to equity conversions.

Dividends? Buybacks?

How much of the investment grade rated bonds that have been downgraded to junk should have to be converted into equity so as to have the remainders of those bonds recover an investment grade rating?

Credit rating agencies, please answer: 

How much of the investment grade rated bonds that have been downgraded to junk, should be converted into equity so as to have the remainders of those bonds recover an investment grade rating, and all before company assets also become junk?

Airlines

How much of airline’s debts should be converted into equity in other to safeguard assets for the benefits of creditors and shareholders alike? 

I mean before some hungry profiteering bankruptcy lawyers move in and turn everything into junk/scrap.

Taxpayers help?

In highly indebted companies, whether they are important and viable enough to merit help from taxpayers, the proof in the pudding is in first seeing hefty debt to equity conversions.

“Just as an identity card is not a man, a credit rating is not a country”

Leonard Cohen, minute 3:50, in his the most ever amazing emotional and respectful thank you speech, in this case for Spain’s “Príncipe de Asturias” prize.

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.

On broken donor promises

Promises by donor countries should be rated by credit rating agencies, to shame those who promise lightly; and the poor countries should be able to hedge these promises in the IMF.

This way, a broken promise will not fall on the shoulders of the poor countries least able to afford it, but on the shoulders of the IMF and this way, presumably, the possibilities of the promises being broken will also be reduced.

Discrimination based on the financial profiling and risk-based pricing

Risk-based pricing actually requires creating the misinformation that allows for making borrowers who should get lower rates agree to pay the higher rates that cover the losses of those that should not have been given credit… at least not at these high impossible rates.

Risk based pricing, which is similar to placing persons that after some doubtful genetic test are presumed to be especially exposed to an illness in a separate insurance pool, could be causing much of the growing social inequality that is currently attributed by some to globalization. Risk profiling, for a discriminatory purpose, is prohibited in most spheres of our social relations, except in lending where it is very much cheered, by most.

John, Paul and Peter, because of FICO have to pay high interest. John, though he might have been able to do so at lower rates, is not able to service the debt and loses. Paul, utterly responsible, services it, barely, and Peter who is in this group because no ones no why meets the payments with ease. Question: Any winners?

John should for a starter not have been given the credit, at least not at the high rate, and both Paul and Peter, having been able to service the debt at high rates evidenced de facto they merited lower rates. Answer: No winners! Except of course those who are not to be named!

How libertarians can shut up about the financial information cartels that chain the markets to neo-non-transparent-regulations, I have never understood.

How developed countries’ progressives can shut up about the discrimination implicit in risk based pricing and that could be introducing more inequality in the societies than what they sometimes attribute to globalization, I have never understood.

My Voice and Noise on the financial sector during the spring meetings of the World Bank and the IMF, April 2008

Risk is the oxygen of development!
It is absurd to believe that the US and other countries would have reached development without bank failures. When the Basel Committee imposes on the banks minimum capital requirements based solely on default risks, this signifies putting a tax on risk-taking, something which in itself carries serious risks. The real risk is not banks defaulting; the real risk is banks not helping the society in its growth and development. Not having a hangover (bank-crisis) might just be the result of not going to the party!

We need to stop focusing solely on the hangovers and begin measuring the results of the whole cycle, party and hangover, boom and bust! The South Korean boom that went bust in 1997-1998 seems to have been much more productive for South Korea than what the current boom-bust cycle seems to have been for the United States.

All over the world there is more than sufficient evidence that taxing risks has only stimulated the financing of anything that can be construed as risk free, like public sector and securitized consumer financing; and penalized the finance of more risky ventures like decent job creation. Is it time for capital requirements based on units of default risk per decent job created?

When is the World Bank as a development bank to speak up on this issue on which they have been silent in the name of “harmonization” with the IMF?

When are we to stop digging in the hole we’re in?
The detonator of our current financial turmoil were the badly awarded mortgages to the subprime sector and that morphed into prime rated securities with the help of the credit rating agencies appointed as risk surveyors for the world by the bank regulators.

If we survive this one and since it is “human to err” we know that if we keep empowering the credit rating agencies to direct the financial flows in the world, it is certain that at some time in the future we will follow them over even more dangerous precipices.

Note: I have just read the Financial Stability Forum brotherhood’s report on Enhancing Market and Institutional Resilience and while including some very common sense recommendations with respect to better liquidity management and “reliable operational infrastructure”; and some spirited words about more supervision and oversight (the blind leading the blind); with respect to the concerns expressed above, bottom line is that they recommend we should deepen the taxes on risks and make certain that the credit rating agencies behave better and get to be more knowledgeable… so that we are more willing to follow them where we, sooner or later, do not and should not want to go.

Do micro-credit institutions make too much use of “predatory ratings”?

Any group of debtors that is charged a higher interest rate because it is considered a higher credit risk is composed by those spending their money servicing a debt that they will finally default on, and those who should have in fact deserved a lower interest rate. Are there any real winners among them?

Who is out there talking about that the extensive use of ratings signifies something like a regressive tax for the poor? Who is out there informing the poorly rated about how very dearly they are paying for their loans? Who is out there analyzing the murdering impact that credit ratings have in chipping away at the minimum levels of solidarity that any society needs to keeps itself a society?

If there is a minimum of things that needs to be done in the world of micro credits that is to focus more on transparent system of incentives that: 1. Stimulates and rewards good group behavior and returns to the compliant borrowers some of the “extraordinary” margins earned. 2. Spreads out the costs of those who cannot make it over a much wider group of debtors.

And, by the way, this applies just the same to the financing of mortgages to the subprime sector.

A B- donor?

Once again I heard in a development forum complains about the volatility of the commitments of donors. Would not rating the donor’s credibility be a good pro bono cause for the Credit Rating Agencies? Perhaps the tax deductibility allowed to funds collected by those donors could also be a function of those ratings.

The financial handicap

The financial handicap

In horse racing, to try to equalize the chances of victory among the competitors, the handicap system is frequently used, which implies putting a greater weight on the horses, which have shown a greater ability to win. The world of finance is not so benevolent, there more weight is imposed on those who, according to the market, have fewer prospects... present greater risk.

Every morning when a Venezuelan goes out to build his future and that of his Homeland, whether he is a public or private servant, he carries on his shoulders the weight of the country risk (CR) that the financial markets have set that day. That CR, which in principle is calculated based on how much more interest the market requires for Venezuela's external public debt, compared to a similar one in the United States, is currently located at 11% - 14%.

CR affects not only the public sector, but permeates the entire economy. Effectively, we see, for example, a private person who wishes to contract external debt and if he does not have external guarantees to offer, he must pay his normal interest rate, plus the CR. In terms of public service rates, the models indicate the need to reward the investor with a normal profit margin, plus the CR.

A high CR is economic contamination, which covers everything and prevents breathing normally. If Venezuela wants to recover from this economic emphysema, there is no better way than to reduce the CR fast and considerably.

Obviously, CR has many causes and many origins, but the main one is generally related to the ability to service the country's public debt.

In this sense, I guarantee you that if we only manage to spread the amortization of our public debt over a much longer term and guarantee to the market that this is not done to increase it later, due to its relatively modest size, we could quickly achieve that our debt was classified as investment grade, which would reduce the CR considerably.

All it takes is a little will and drive. If the discordant parties insist on preferring to fight suffocated and short of breath, then so be it. However, I am convinced that the oxygen that reducing the CR would produce would benefit both the Government and the opposition, not to mention the rest of our country, which needs and deserves it so much.

Translated from El Universal
http://unsustainabledebtsustainability.blogspot.com/2023/02/the-financial-handicap.html

The riskiness of country risk

How horrible it must be to work as an air-traffic controller! Any slight error can provoke an unimaginable human tragedy. No wonder these professionals burn out so rapidly. I “suppose” the same must happen with the country-risk assessors, those people who carefully pass judgment as to what the country risk is for any given nation.

The all-important mission of these risk evaluators is twofold. The first that for which they are actually paid consists of analyzing whether or not the debtor nation will ultimately be able to honor its obligations. This determines whether or not pension funds, banks, and insurance companies will be willing, or even allowed, to invest in that country’s sovereign debt instruments. The second, even more important than the first, is to send subtle signals to the governments of these nations in order to help them improve their performance.

What a difficult job this is! If they overdo it and underestimate the risk of a given country, the latter will most assuredly be inundated with fresh loans and will be leveraged to the hilt. The result will be a serious wave of adjustments sometime down the line. If on the contrary, they exaggerate the country’s risk level, it can only result in a reduction in the market value of the national debt, increasing interest expense and making access to international financial markets difficult. The initial mistake will unfortunately turn out to be true, a self-fulfilling prophecy. Any which way, either extreme will cause hunger and human misery.

What a nightmare it must be to be risk evaluator! Imagine trying to get some shuteye while lying awake in bed thinking that any moment one of those judges, those with the global reach that have a say in anything and everything, determinates that a country has become essentially bankrupt due to your mistake, and then drags you kicking and screaming before an International Court, accused of violating human rights. If I were to be in the position of evaluating country risk, I would insure that the process is totally transparent, even though this takes away some of the shine of the profession and obligates me to sacrifice some of my personal market value.

How lucky we are that we are neither air-traffic controllers nor sovereign-risk evaluators! However, since we can easily become victims of their missteps, it behooves us, if only because of our survival instinct, to make sure that both do their jobs correctly.

We have seen in recent Country Reports how, after having introduced a myriad of information into the black box of methodology, as if by magic, a credit qualification is produced. Many of these reports seem to me like the pronouncements of film critics. It would seem that, more often than not, the individual evaluator is determining more how much he likes the ways or forms the Directors of a nation try to honor its obligations than on producing an honest and profound financial analysis of the country’s capacity for servicing its debt correctly.

In his book The Future of Ideas: The Fate of the Commons in a Connected World (New York: Random House, 2001), Lawrence Lessig maintains that an era is identified not so much by what is debated, but by what is actually accepted as true and so is not debated at all. In this sense, given the risk that the perceived country risk actually becomes the real country risk, it is best not to assign an AAA rating blithely to the risk qualifiers—perhaps not even a two-thumbs-up.

El Universal, Caracas, September 26, 2002

Daily Journal, Caracas, September 27, 2002

Included in "Voice and Noise" May 2006.'

Speaking about trust and distrust

International financial risk rating entities are once again issuing their results for Venezuela. And once again, everyone begins to tremble. There is confidence! Ooops, there is no confidence! The debate is once again on the table and I take advantage of this to share some of my reflections on this issue with the readers.

It could be that I am not exact in my appreciation, but then again, when dealing with something as subjective as confidence, it shouldn’t really make much difference. In 1982, the then Minister of Finance decided that the country should be paying interest rates well below those being required by the international banking community in order to renegotiate part of Venezuela’s foreign debt. This decision blocked the restructuring of our foreign debt and together with the crisis in Mexico and other indebted nations combined to unleash the events which resulted in the devaluation of Black Friday of February 1983.

Obviously, the Minister was severely criticized. I considered this criticism to be unjust since, as far as I was concerned, the Minister was in reality a hero of the nation; almost enough so as to merit a statue in some important plaza. In my opinion, his actions, which generated international distrust, saved the country from billions of dollars in debt, which would have bloated the amounts actually accounted for after the disaster. Few heroes can be proven to have undertaken such important deeds for the good of the nation.

In reality, to inspire confidence in others should be of no concern for the country, while it has not been able to find or generate an economic and administrative model which inspires the confidence of its own people. Trying to do so simply confuses the search for in depth solutions. 

In addition, the persons for whom instruments of measurement are designed do not include those foreigners whose confidence we really seek. Rating agencies rank a country’s measure, principally the latter’s ability to service its debt. As such, their market is comprised of bankers and investors who simply wish to make a short-term financial investment. Nothing of special importance to the country.

Those foreigners who could really interest us are the ones who come to the country with resources, the ones with the intention of remaining here for the long-term, to put up factories, cultivate the land, generate employment and maybe even raise a Venezuelan family. That is to say, the one whose objectives are one and the same as those of the nation. The opinions and confidence of these people are not measured at all.

In addition, both the methods and measuring instruments as well as the professionals actually doing the measuring, probably continue to be the same. They are the same ones that not very long ago argued that it was impossible for a country to be bankrupt, thereby justifying stratospheric limits for indebtedness with such enthusiasm that both bankers (who by the way proved to be unprofessional in most cases) and the common Venezuelan, upon hearing this siren song, joined forces and created the mix-up of the century.

For those of you who may have any doubts about this, I suggest you look at the ranking of six months ago. In those listings, the majority of the Asian countries looked like nothing short of marvel of creation. Haven’t you recently heard all of the crying over the Asian financial crisis?

We must evidently listen to the opinions of the credit agencies. Their measurements reflect many variables of great importance for the well being of the country. Unfortunately they also are the principal source of information about the country for many foreigners. In other words, to lie awake at night worrying about ranking doesn’t make sense.

You may remember the story about the anguished debtor who could not sleep, but found a way of finally getting a night’s rest by transferring his insomnia to his banker with the simple words “I can’t pay you”. In this case, something similar occurs. I personally sleep better when Venezuela’s ranking goes down, since I am then sure that lenders will not be making additional resources available (in my name as well as in the name of my children, grandchildren, great-grandchildren and other future debtors) to governments that insist on misspending them.

The day the government, during electoral period, pays more attention to the opinions of its humble subjects than to those of the glamorous international agencies, we will finally stand a chance of making it out of our standard situation. The latter, according to all international norms I know of, can be objectively classified simply as “poor and moody”