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.

Young unemployed … forever?

Again, as part of the “Civil Society”, whatever that means, I am not too sure about that, I was present during the meetings last week in Washington of the World Bank and the International Monetary Fund. One of the most important issues discussed there, were the frightening figures of the huge youth unemployment in the world and that, from what I gathered, no one is really sure on how to solve. My comments on the issue, made in representation of my yet unborn grandchildren, were:

If youth wants to get employment they need to start demanding it more strongly. I am sure that if there was a law that established that once the unemployment rate of youth exceeded a certain level there would be a lottery among all government bureaucrats aged for instance fifty and more, to make a large percentage of these have to resign so as to give the young some opportunities, that would certainly energize the government's attention to this problem. Inside me I was hearing a little voice reminding me of that not fully confirmed Viking tradition of their elderly jumping voluntarily from a cliff, ättestupa, when not being any longer useful to society.

In the world the regulators have imposed on banks some capital requirements based on the risks of default of their clients, as perceived by the credit rating agencies. Since banks and markets have already incorporated that information when setting their interest rates, that means the same information gets considered twice, resulting in that the banks are excessively pushed towards what is officially perceived as being less riskier, the triple-A and some sovereigns, and away from what is considered as more “risky” like the small businesses and entrepreneurs, precisely those who have more chance of creating the future generation of jobs. The young should oppose this and require that the capital requirements of banks are better aligned with the potential of creating the jobs they need.

If a young person (or an old) have interests that keep them busy when they are without jobs, giving them some food and clothing might suffice, but, if they do not possess any “healthy” interest and could therefore be tempted by something bad, you would also need to place expensive policemen next to them. In this respect I asked: “If we know that hundreds of thousands or millions of youth will find themselves without employment perhaps for life, what education can we give them?” A Master in Unemployment? In some respect this relates closely to the writings of Thorstein Veblen about the leisure class.

I also heard a very good debate about the recent incidents in some Arab countries. Most of the panelists held that what caused the explosions were not so much the existent inequalities, but the fact that these were perceived as being unjust. Absolutely, the young of nations where their governments have generation after generation wasted the revenues derived from valuable natural resources, like from oil, should demand these be paid out directly to them so as to have the opportunity of putting these to better use.

Something dramatic has to be done, NOW! As otherwise it would seem that the only opportunity many young unemployed will be able to get out of it, is when they move up, or down, to the group of unemployed old.

Translated from: El Universal

PS. We need worthy and decent unemployments
PS. An ättestupa for the baby boomers?
PS. The violated holy intergenerational bond

Does prudence in banking really have to mean purposelessness?

What is more prudent for the bank regulators, to work exclusively at avoiding the default of banks and the occurrence of a bank crisis, or to ascertain that the banking system serves a purpose for the society? These days when it has been demonstrated that the bank regulators are failing in their self imposed limited scope of functions; and indeed through the creation of the current structure of minimum capital requirements for the banks and the appointment of the credit rating agencies as risk commissars have themselves contributed to create new systemic risks, is it not time for us to take a big step back and, before digging us deeper in our regulatory hole, ask ourselves what is the purpose of our banks? Aren’t you as fed up as me having a purposeless banking sector? If we absolutely have to live with risk avoidance based regulatory system, can’t we at least start measuring units of default risk in terms of decent jobs created, youngsters educated or environmental threats avoided? Risk is the oxygen of development and so please let us not kill risk taking!

PS. My 2019 letter to the Financial Stability Board (FSB)

Let's, all whakapohane!

I remember having read a few years back about one particular method used by the Maori of New Zealand to protest about something that bothered them. This method consists of lining up a group of Maori tribesmen, turning their backs towards the person or persons that are the target of the protest, dropping their trousers and showing them their naked backsides. This rite is named Whakapohane. 

Without delving further into this tradition, and in spite of the fact that it seems primitive and is most certainly an ugly spectacle, I think it could be also classified as a civilized and most efficient way to protest. Civilized because it does no damage to anyone or anything (except to those people with a well-developed sense of esthetics) and efficient because it manages to consolidate into one single act and gesture all the sense we could possibly assign to a real social sanction.

There is no doubt that we are often frustrated at not being able to find a way to vehemently protest about the stupid, naive and criminal behavior that negatively affects our country on a daily basis.

The idea of putting together a group of citizens, family men, professionals and white-collar workers with briefcases and ties and heading out to the street to shamelessly whakapohane any deserving person is appealing. Consider the following:

What has been demonstrated without doubt over the past decades in Venezuela is an utter incapacity by government to manage its resources. The International Monetary Fund, for example, predicates that the solution to Venezuela's problems can be found by giving government even more resources to squander by way of increased taxes (as if our oil income wasn't enough taxation).

Clearly, the IMF deserves an act of Whakapohane from our citizens. 

Banking charters are usually awarded in order for them to participate actively in the development of the country's economy.

It is not enough for them to simply return the funds they have received on deposit, since if this were so, it would be better to simply buy a good mattress and put it into a large safe.

There are still many who think it is best to be puritan and to simply continue to tighten the screws on financial solvency of banks without paying attention to the real purpose of banking institutions These people deserve a solid Whakapohane.

There are many national authorities that evidently are aware of the damage to economies that short-term capital flows can cause, and also know that other countries have put workable legislation into place to limit these damages.

They cannot be bothered to take the 48 hours required to simply copy this legislation and enact it in Venezuela. There is no doubt that these authorities deserve to be Whakapohaned.

Those people related to the oil sector that have not been able to either see or warn the country about the possibility of a fall in world oil prices, who, in spite of arguing in favor of conquering new markets, run for cover behind OPEC's skirts when confronted with adverse situations, and who continue to invest scarce resources in projects of low significance such as the expansion of our gasoline stations' capacity to sell snacks, should certainly be offered a great Whakapohane.

Many illustrious representatives of the private sector applauded the privatization of CANTV, without realizing that it was all an elaborate trick perpetrated by the government to collect taxes in advance which we now have to cover through exaggerated service charges. These guys are due a good Whakapohane.

Those die-hard defenders of free trade who simply do not understand that in a globalized world economy each country must, when the chips are down, defend itself and guarantee a minimum internal level of employment should be urgently Whakapohaned.

The entire political and economic system is based on centralized income and decentralized personal apparatchiks.

Members of this system have not been able to come up with a real solution to our problems and should be considered traitors.

They should all be paraded to La Carlota Airport and given the Mother of all Whakapohanes .

We have heard that one of the people most clearly and widely questioned in our recent history is due to return to Venezuela after statutes of limitations have expired.

Just imagine what a marvelous message a small delegation of our "notables" dispatched down to Maiquetía to receive that person with a mini-Whakapohane would send. 

We should definitely not lightly discard the possibility of introducing an ancestral aboriginal custom from New Zealand in to the Venezuelan political scheme . 

Whakapohaners of the world, unite! The alternative are much worse.

Spanish translation

The first version was a blue one

Then, I don't know when... some applied the original concept