There are two de facto class wars, which seemingly shall not be named

One between those working with salaries defined by minimum wages, and those looking for any job.

Another between those who own houses as investment assets, and those who just want to be able to afford a home.

On these where do you stand? Do you take a side, or do you prefer to conveniently ignore it?

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

More important than affordable houses for the young, is for them to afford houses.

A letter sent to The Globe and Mail (not published)

The Inter-American Commission of Human Rights (IACHR) has joined UN Rapporteur in recognizing Canadian Human Rights-Based Approach to Housing. When it refers to the creation of safe and affordable housing during the next 10 years for the Canadian population most in need, such as women and children fleeing family violence, seniors, persons with disabilities, those dealing with mental health and addiction issues and veterans, I cannot but concur.

But, it also makes reference to “young adults” and, in this, as a grandfather of two Canadian girls, I must raise my hand to argue that much more important than allowing the young adults affordable housing, is allowing them to afford houses.

Currently, because banks are allowed to leverage more with “safe” residential mortgages than with loans to the “risky” entrepreneurs who stand a better chance to create the future jobs our young need; and banks therefore earn higher risk adjusted returns on equity with mortgages than with loans to entrepreneurs, Canada, like all countries using the Basel Committee’s risk weighted capital requirements for banks, has put the horse before the cart.

PS. Not sent to The Globe and Mail: What would the price of a house be if there was no financing available to purchase these? Of their current price how much is represented by the intrinsic value of the house, and how much is a reflection of all one-way-or-another subsidized financing allocated to that sector? The sad truth is that our society has ended up financing the financing of houses. When all that low risk weighted mortgaging comes home to roost in a subprime unproductive economy, it will be hellish

PS. Chinese money: What’s the problem with Chinese freezing some of their wealth in Canadian real estate? What’s important is what those selling that real estate do with the money. Or not?

Research project: How much in the current house prices can be attributed to the market having priced in all preferential treatments the society has awarded the financing of houses… like the low risk weights in the risk weighted capital requirements for banks?

@PerKurowski

Here I will keep my up-today main comments on Universal Basic Income (UBI)

Years ago I wrote: “We need decent and worthy unemployments”. With ever growing structural unemployment threatening, I am sure that a Universal Basic Income is a fundamental tool for achieving that. 

Here follows my current thinking on UBI:

Universal Basic Income eats directly into the redistribution profiteers’ franchise value, and so they will be its strongest opponents. Their opposition can take many forms, like that of enthusiastically supporting UBI, but cleverly backstabbing it at any possible opportunity. We must always be alert!

There are some fundamental mistakes that could kill UBI, even after its inception, and so therefore we must see to that the enemy does not exploit any of its possible Achilles’s heels.

1. UBI is strictly for the population of working age. Children and elderly have their very specific needs that should be satisfied with different tools.

2. UBI shall strictly be related to working conditions, like 70% of the lowest fulltime salary; and NOT to any poverty related threshold.

3. UBI needs to be 100% funded with real and clearly identifiable sources of income, and not with any debts. One possibility is to apply to robots and similar automations those payroll taxes and similar that applies to humans. As am added benefit that would also allow for a more efficient allocation of labor/capital resources.

4. The more UBI is funded by sources linked to other socially relevant matters, like from carbon taxes to help stop pollution, the better.

5. UBI must always be kept as a citizen to citizens affair and so, ideally, it should be enshrined in some type of constitutional protection, so that populists trying to serve their own ambitions do not capture it.

http://myubi.blogspot.com

Canada: A Universal Basic Income, should never be more than a step-ladder to help reach up to the real economy.

Had Venezuela’s oil revenues over the last 15 years been distributed directly to the Venezuelans by means of a (in this case a variable) Universal Basic Income (UBI), instead of by redistribution profiteers, the poorest of my homeland would have received at least six times more of it, and the country would not be so close to being a totally failed state.

Be sure, the best way to increase the efficiency of our citizen-to-citizen solidarity, everywhere, is to avoid the redistribution profiteers’ tolls.

I am not a Canadian but I have two Canadian granddaughters, and so I have a vested interest in Canada’s future. I firmly believe that a UBI is a very important tool in order to meet many actual and future social and economic challenges.

But the number one objection to a UBI, and which your local redistribution profiteers will try to argue in order to keep their franchise, is that it could reduce the willingness for work.

In this respect, and referring to Andre Picard’s “Basic income is not just about work, it’s about health” Globe and Mail, November 8, I believe that the UBI to be tested, should not be set as is proposed as 75% of low income measure before tax (LIM-BT), $1,320, but as a percentage of the salary you could obtain working, for instance 60% at the minimum salary level. As I calculate it, that would yield $1,100.

For me the biggest benefit of UBI is as a step-ladder that facilitates reaching up to that gig-economy that seems to have arrived as a fixed feature. We do need worthy and decent unemployments.

UBI should never be seen as lifting anyone out of poverty but allowing millions to lift themselves out of poverty.

UBI has much less to do with human rights, "doing good", than with an intelligent society organizing itself for challenging times, "doing smart".

UBI should always be a beautiful citizens to citizens affair. At no moment should it be soiled by referring to it as a government handout. 

Of course UBI has to be funded with real money, no cheating paying it with inflation or public debt. Besides natural savings in the redistribution costs, one interesting alternative is the use of revenues from high carbon taxes. That would align the incentives between the fights for a better environment and against inequality.

PS. Joking but not really joking: Perhaps a payroll tax on robots and driverless cars could also be used as funding mechanism; that would also help us humans workers to be able to compete on a more level playing field.

http://perkurowski.blogspot.com/2016/04/the-wealthy-and-poor-should-all-be.html

http://perkurowski.blogspot.com/2016/10/how-to-start-discussions-and.html

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.

UN’s Sustainable Development Goals, SDGs, against the backdrop of the Credit Risk Weighted Capital Requirements for Banks

The fact is that current bank regulations, by allowing for lower capital requirements, allow banks to earn higher risk adjusted returns on equity when lending to what is perceived as safe than when lending to what is perceived as risky. 

That’s it! Just avoid taking credit risks and you earn more. Not a word about a purpose for banks; like helping to generate jobs for the young or making the planet more sustainable. So we have a banking system that no longer finances the future, it now only refinances the past.

And to top it up, the regulators assigned a risk weight of zero percent to the sovereigns (governments) and of 100 percent to the citizens and private sectors on which that sovereign depends. Which means they believe government bureaucrats can use bank credit more efficiently than SMEs and entrepreneurs.

And of course those regulations completely distort the allocation of bank credit to the real economy and, by diminishing the opportunities of the risky to gain access to bank credit, increases existing inequalities. 

And of course those purposeless bank regulations are also dangerously useless. We know that major bank crisis never occur because of excessive financing of what is perceived as risky; they always result from excessive financing of something erroneously believed to be very safe 

And not one iota about this is being discussed in the UN, IMF or elsewhere

Can you imagine if by allowing banks to hold less somewhat less equity when lending to what finances SDGs, we made banks earn higher returns on equity when financing SDGs?  

And so I am sorry, against this backdrop, the announcement of the Sustainable Development Goals, the SDGs, might suggest the term Pollyannaish should henceforth be spelled as PollyUNnaish.

PS. Volkswagen should have rudely reminded UN bureaucrats that there is a real world waiting out there to game their SDGs.

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.

Why should government give a 40 hour job to anyone while there are citizens with not even a one hour job?

If government takes on some responsibility for creating jobs, it should do so by gradually increasing the minimum amount of hours of work for all workers. Start with one hour and move up from there! 

If government takes on some responsibility for creating jobs, it has no role in creating more hours of work to one who already has more than the average hours of work.

Please read “We need worthy and decent unemployments”

We need worthy and decent unemployments

What politician does not speak up for the need to create decent and well paid jobs for young people? But, if that's not possible, and the economy is not able to deliver that on its own ... What on earth do we do?

Society must of course do its utmost seeking to solve the problem of youth unemployment ... including taking leisure to levels never thought of… six months vacations! But it also needs to prepare itself to handle a growing number of unemployed, not cyclical but structural, that is, those who never ever in their life will have a chance to get an economically productive job.

Two decades ago, concerned about growing unemployment, half in jest, in an Op-Ed in El Universal of Caracas, I asked something like whether it was better to have one hundred thousand unemployed running each on his side as broody hens, or to seat them all in a huge human circle where everyone would scratch the backs of one of his neighbors, charging a lot for his services, while his own back was scratched by his other neighbor, at an equally high price. The tragedy is that this question seems to me now less and less hypothetical.

And is not necessarily an act of desperation to think about what to do with the unemployed ...because sometimes, in seeking to unravel a tangled twine, starting with the other end, may be the best way to release the first. Which is better: educating for a source of employment likely to be absent and therefore only create frustration, or educate for unemployment, and suddenly perhaps reaching, when on that route, the pleasant surprise of some jobs?

The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, as a minimum in the sense of these not interrupting those working.

That the gentleman of the leisure class to which Thorstein Veblen referred did not work, was essentially a result of them being free of economic needs. But that does not also mean that the economy and the social peace of the moment, were not also in need of these men not competing for the fewer jobs to be had resulting from an industrial revolution.

The gentleman was encouraged to study philosophy and art by means of the social status he gained when knowing about such matters. In this respect, one of the most important challenges we currently have as a society is how to create social status and other incentives, for the unemployed to become solid and worthy unemployed citizens?

And we need to imbue the unemployed with special pride, because only this way will we keep them from making impossible economic demands... so far I have found no clues about how to handle a bargaining with their union representatives.

Given that we do all have to guard against the dangers of idleness, since the last thing we need is for the structurally idle to be idle, even circumstantially. Many of the current unemployed youth keeps busy with their smart-phones, and we do not want them not to be busy… and so using what is really their net oil revenues, to help them to immediately upgrade to an iPad, sounds like a good start. 

Friends, Venezuela should aspire to good jobs, but also to have the world's best unemployed.

Translated from El Universal, Caracas
PS. July 30, 2014 the new shareholders of El Universal, friends of Chavez and Maduro censored me, and all links to my 14 years of Op-Eds were erased.

PS. Minimum wages helps cause minimal wages.

PS. To get more jobs and higher salaries: Call on all capitalists to exploit any low salaries, for as much as they can. J

PS. Throw out the useless credit-risk-weighted capital (equity) requirements for banks and… if you absolutely must distort, then use potential-of-job-creation-weights instead (and throw in some sustainability-weights too for good measure). J

PS. A Universal Basic Income, since that is not a not-having-a-job-or-not related social contribution, could be a part of the efforts needed. That said these would be my minimum minimorum rules on a UBI

PS. Increased tariffs and minimum wages are superb news… for robot manufacturers L

PS. Perhaps we must put payroll taxes on robots to permit us humans to compete for jobs on more level grounds.

PS. Once social cohesion breaks down it is too late. As a Venezuelan I should know.