Fostering small mutual admiration club groupthink, the World Economic Forum's Davos meetings, could do more bad than good.

While being one of the 24 Executive Directors of the World Bank, 2002-2004, I told the other 23 ED’s “If by lottery we substitute with a plumber or a certified nurse anyone of you, I guarantee we will have a much wiser board”. And of course, they did not like that too much. And of course I did not include myself among the substitutable... my ego does not allow such nonsense :-)

And now, when there is to be a change of the CEO, of the World Economic Forum’s Davos meetings… a gathering of experts… I wonder if it is not high time to guarantee in Davos the presence of a more diversified gathering.

Indeed what a wonderful PhD thesis it could be, to have somebody study what really game-changing or game-savings have come out of all those yearly meetings in Davos… As I see it, by fostering groupthink and small mutual admiration club mentality, Davos could have done more bad than good.

For instance having invited a couple of aspiring entrepreneurs to Davos would have allowed these to cry out:

“What the hell are bank regulators thinking of by making it even more difficult for us considered risky to access bank credit than what we already have to face? For God’s sake, the risky have never ever caused a major bank crisis, that dishonor belongs entirely to those erroneously considered very safe”.

“Why do regulators for the risk weighted bank capital requirements, assign risk weights of 0% to the sovereign and 100% to us unrated citizens? Don’t they understand that implies government bureaucrats know better what to do with credit for which repayment they’re not personally responsible for, than us private entrepreneurs?

Here a 2004 letter in Financial Times, about one of the most dangerous mutual admiration clubs in my life time, the Basel Committee.

Diversity

My letters to FT on Davos

A Tale of Two Worlds…roaming the web or roaming the streets… drones or boots on the ground?

I have horrible visions of my descendants sitting in front of computers with ever more capacity and connectivity… sending drones and roaming the web… while some other people’s descendants roam the streets, and develop a higher capacity in being boots on the ground.

And then one day, these other descendants come... and knock the power out of my descendants’ computers.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.” ― Charles Dickens, A Tale of Two Cities

PS. My father would never have been liberated without boots on the ground

Blocking citizens from venting their concerns, because of political correctness, is as dangerous as can be.

I just came back from a week in Sweden

If political correctness blocks the discussion of citizen’s ordinary and very human concerns, whether these are right or wrong, like those many have on what they feel is an excessive immigration, and the risk of diluting the meaning of being a Swede... that is a great growth-hormone for extremism.

In other words, if you use a “That’s like Hitler” in response to all of their concerns, then too many might end up thinking “That Hitler guy sounds having been quite right to me”.

Never forget that the emotions involved in the not liking something for the wrong reason, can be just as strong as that of the not liking something for "the right reasons".

Political correctness could, in the best of cases, be a type of Neo-Victorianism... but, unfortunately, it seems more to have become the Neo-Inquisition of our days.

Stock markets and the real economy, c’est pas la meme chose.

Do not confuse the strength of the stock market with the strength of the economy.

The strength of the stock market can have to do only with the strength of owning what little there is to own. 

If central banks fueled share buybacks continue, we might end up with the strongest of stock markets, and the weakest of the real economies.

We should dilute the influence of the influencers by increasing the number of those to influence.

Many, Lawrence Lessig included, feel that our political systems have fallen under the reign of “an engine of influence that seeks simply to make those most connected rich.”… And so they are doing their outmost to curtail the influence of the few.

Though I agree with the problem, I do not think that is the sustainable way to solve it.

The modern way, instead of augmenting to number of influential, should be to dramatically increase the number of those who need to be influenced. In other words we need to dilute the power of the few.

For instance, in the US, instead of having 535 senators and congressmen representing each 600,000 persons, there should be 600.000 senators and congressmen representing each one 535 persons.

Current technology allows that!

The more people you represent, the further away you are from representing each one of them.

How many can a congressman represent before he represents no one at all... except himself?

When the US Constitution was enacted the world had about 1.5 billion people... now soon 7.5 billion. Does not the population increase indicate it is time to tweak quite substantially the representation in democracies?  

Why is the social demand for hate increasing so much?

Why is the social demand for hate increasing so much, in a world where so much good advancements have supposedly been achieved? 

Might it be some are wetting the appetite for hate? Is that their business model?

If so, who?

You tell me.

My early calls for the sort of antifragility expressed by Nassim Nicholas Taleb in his “Antifragile” of 2012.

In a statement delivered as an Executive Director at the World Bank on April 3, 2003 I wrote:

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind." 

And in my book "Voice and Noise" of 2006 I said the following:

"Too well tuned?:  Martial arts legend Bruce Lee, whom many people regarded as immortal, died at the age of only 32 of a cerebral edema, or brain swelling, after taking some sort of aspirin. I have not the faintest idea whether that pill actually had anything to do with his death but I have frequently used (or misused) this sad death as an example of how an organism could be in such a highly tuned and perfect condition that it could not resist a small external shock. 

And I used this metaphor to explain why companies nowadays, pressured by the stock market’s expectations for the next quarterly results; the latest theories in corporate finance as to how squeeze out the last drop in results; and, perhaps, even some bit of creative accounting, might be so well-tuned (no little reserve fat left) that they would not be able to withstand any minor recession.

And here other two of my early warnings on fragility

In 1999 in a Op-Ed in I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”

January 2003 in FT I wrote: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds”

November 2004 in FT I wrote: “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing, by favoring so much bank lending to the public sector?”

PS. Professor Nassim Nicholas Taleb, author of "Antifragile" 2012, please stop referring to the last financial crisis as a “Black Swan”… it was a perfectly predictable manmade event.

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.

For each drone kill, the “home of the brave” might become more vulnerable.

I refer to Karen J. Greenberg’s review of Grégoire Chamayou’s “A theory of the drone”, Washington Post’s Outlook of March 22.

In it Greenberg writes: “Drones are the opposite of warfare… a warrior culture in which readiness to kill has been inseparable from the willingness to die. With drones the ethics of warrior cultures have been superseded, and the warriors have turned into invulnerable, cold-hearted executioners.”

As to “invulnerable”, I am not sure. For each drone kill, as opposed to a combat kill, the executioner distances himself more and more from the real world, and so becomes perhaps more and more vulnerable to it. What we already so often hear about “not wishing boots on the ground” might be just an appetizer of things to come.

Currently many kids, by the web, walk the whole world, but rarely set their feet out in the real world. Others have no access to the web, but keep on learning how to fight it out on the streets. When push comes to shove, who are going to prevail… those handy with drones, or those handy with pliers able to cut the power lines off?

@PerKurowski

PS. My father would never have been liberated without corageous boots on the ground

A letter not published L

The myth of the unused wealth

Every day we read of some excessive wealth that has quite shamefully accumulated in some very few hands, and which should be redistributed for some good purpose that most often sounds very meritorious.

Unfortunately that wealth is not some magic unused wealth stored under a mattress, but something that represents value somewhere. 

If for instance part of that wealth is invested in public bonds that helped finance education in the wealthiest’ home lands, should these bonds be sold in order to finance education in the land of the poor?

Or should it finance education in poor lands before financing some green investments that could make planet earth more sustainable?

And for one wealthy to sell the Picasso he owns or a bar of gold to another wealthy does not really seem to be the source of a solution for getting rid of the inequalities either.

To phrase good intentions, without fully spelling out the full range of possible opportunity costs, and upfront suggesting squarely what should be cut, is irresponsible and does little to help to solve the great challenges the world faces.

On that we need to call out all those who make a career of creating false illusions among the needed… offering one big redistribution party but not saying a word about the morning after.

By the way, how can we redistribute wealth without redistributing powers and paying commissions to profiteering wealth-redistributors?

If a Hitler imprisoned my grandchild, could he hope to be liberated by the Americans, like my father was?

I ask this because:

Seeing the number of safety instruction posted on the pool where I live in Maryland.

Hearing rumors about sport-teams being sued for allowing players to take risks

Seeing, in the Home of the Brave, how they are using sissy bank regulations, which require banks to hold more equity when lending to “the risky” than when lending to “the safe”.

And seeing the development of the taste for drones... and distaste for boots on the ground.

I have enough reasons to get nervous about America, slowly but surely, getting to be too risk-adverse for its, and for ours, the rest of the world's, own good.

June 1940, my father was on that train which carried polish prisoners and which was the first train to arrive to Auschwitz. He had the number 245 stamped on his arm for the rest of his life. In April 1945, 70 years ago, he was liberated from Buchenwald, by American boots on the ground.

Tracing the origins of the selfie, at the Louvre

Yes! to the Call for a Global Constitutional Convention Focused on Future Generations

Stephen M Gardiner makes “A Call for a global Constitutional Convention Focused on Future Generations” to avoid the “tyranny of the contemporary”. In general terms Gardiner bases his argument on that “current decision-makers, and indeed the current generation more generally, face a serious temptation: they can take benefits now (for themselves), but defer many of the costs of their behavior far into the future (to others), even when this seems ethically indefensible”. And as a specific example he puts forward the challenges of climate change. 

I agree very much with his arguments and would propose the following two items are put on the agenda of that convention.

First to analyze the possibility of awarding all citizens, including children, the right to vote. The fact that for instance mothers or fathers could exercise the voting rights of their children under a certain age, like 15, would presumably put some pressure on parents to consider more their children’s future... for instance with respect to climate change.

Second, to exhaustible present as clear evidence of the tyranny of the contemporary the case of current bank regulations. With these, baby-boomers concerned exclusively with the immediate safety of the banks, imposed credit risk weighted capital requirements, which de facto stop banks from financing the “risky” future and have these only refinancing the “safer” past. We do not need climate change to evidence the costs of shortsightedness, when millions of young unemployed Europeans are currently threatened to become a lost generation. It would be a good opportunity to make a call for bank capital requirements based on job creation and sustainability ratings.

It would also be a good opportunity to make clear that, were we to put the climate change challenge into the hands of something as little accountable as the Basel Committee for Banking Regulations, then most likely planet earth would be toast.

PS. And if it was for me to decide, given that so much would have to do with ethics, I would try to squeeze in a session on the need for ethic ratings, since I am fed up with banks and regulatory authorities only using credit ratings, as if financing the construction of concentrations camps would be morally permissive, as long as its credit risk has been adequately priced.

On an odious bond issue to finance an odious government

Ricardo Hausmann and Miguel Angel Santos, in their “Should Venezuela default?” refer to a “$5 billion private placement of ten-year bonds with a 6% coupon, it effectively had to give a 40% discount, leaving it with barely $3 billion” 

That in cost represents approximately the same as a $3 billion ten-year bond issue with a 13.5% coupon. 

That type of financing of a sovereign should be prohibited for two reasons: 

First, that is, as you can understand, especially when the exact placement price of the issue is rarely reported, a completely non-transparent way of financing. 

Second, in the 2nd alternative, any new government who could obtain access to better credit terms, could much easier offer to repay the $3 billion issue, and thereby free the nation from those usury rates. As is, unless it enters into a default, it has to repay the full usury interests that are hidden away in the repayment of the $ 2bn in principal not received. 

And I would also like to know… who arranged that private placement and who bought it… so that I could express my contempt for it. Do they not know that Human Right’s Watch has clearly established that in Venezuela human rights are being violated? I mean where does the limit go? Would it be right to buy bonds to finance the building of concentration camps... if the price, the risk premium, is right? 

If financiers need credit ratings to base their decisions on, we citizens need governance ratings and ethic ratings to base the permission for our sovereigns to take on debt. 

Also… speculative investors should not have the right in any restructuring to have the cake and eat it too, meaning collecting their high-risk premiums and the full principal.

If you define clearly and effectively what needs to be considered as odious credits you solve about 90 percent of the problems with odious debts.

Here the famous Venezuelan/Nicolás Maduro method to eliminate income inequality among citizens.

For all of you who like Thomas Piketty are very concerned with income inequality, you can sleep like babies now. 

Venezuela´s president Nicolás Maduro has designed an easy 3 step method that will forever condemn to bad memories all inequality among citizens.

1. With expropriations, price and foreign exchange controls, and similar creative methods, you create a scarcity of many vital consumer products.

2. Then you introduce a rationing system which allows for limited purchases of some of the really scarce consumer products, and which requires you to present your right hand thumb at a machine, for fingerprint recognition.

3. Finally, you allow the poor to negotiate freely in the market the lease of their right hand thumb.

It is a beautiful method. The more severe the scarcity, the more are the rich prepared to pay in order to lease the right hand thumbs of the poor, and so the less the inequalities. It can´t go wrong… that is for as long as you are still alive!

PS. I guess they will try to make the thumb of the left hand work too! That way you can lease out two thumbs at the same time… and make the inequalities disappear much faster. Hurrah!

My current list of prominent inequality drivers

I do not care about some having much more wealth than others, for instance having Picasso's on their walls that if taken down only had to go up on somebody else’s wall… and I fret where all those jobs which are based on obnoxiously expensive manual procedures would be were it not for the insanely wealthy… and, if there were no accumulation of wealth where would all those savings that can be invested come from?... 

But I do care profoundly when wealth is acquired by ways of opportunities not accorded to everyone... like mothers (and fathers), not getting any direct monetary societal reward, for their extraordinary efforts when staying home to lovingly take care of their children.

And here are some new non traditional inequality drivers of which I am currently most suspicious.

Intellectual property rights which give way to incredible fortunes… there should be some more explicit limits on these… like a maximum amount of profits covered … a fixed number of units produced protected… or at least that profits derived from intellectually protected activities should be taxed at a higher rate than profits derived from competing naked in the market.

Monopolies… profit derived from monopolies should perhaps be taxed at a higher rate than ordinary profits.

Market shares/globalization… profit derived from activities that have achieved especially large local or global market shares should perhaps be taxed at a higher rate than ordinary profits.

Financial returns produced by the fact that banks because of implicit government guarantees are able to hold less capital than other normal commercial entities should be taxed at a higher rate than ordinary on their profits… something which they could naturally avoid by simply keeping more capital. 

And then there are those regulatory inequity drivers like pushing quantitative easing flows through a banking system with risk-weighted capital requirements, which so much favoring what is perceived as absolutely safe so much discriminates against what is perceived as risky, and something which of course impedes that liquidity and credit gets to where it is needed the most.

And had it not been for bail-outs and QEs Piketty’s book Capital in the 21st Century would not stand a chance to have seen the light as so much wealth would have been wiped out. 

And then there is the wealth tax, which if applied in a system where inequalities like those explained above persist, will only end up concentrating wealth more and more among fewer and fewer Plutocrats.

And, of course, perhaps foremost, all those other sources of discrimination that exist and hinders some from having the same opportunities as others... and all those resulting from the many existing inequalities at the start point.

And the list goes on, and the list goes on.. most likely including the low interests too.

And I also utterly dislike those who are only out to make a buck on the redistribution of wealth. If there is going to be redistribution do it through a system that guarantees that at least 99% goes where it was supposed to go… and that it all does not end in the hands of for equality fighting opportunists

But before ending let me pose the BIG Q.: Professor Thomas Piketty. What’s better, to live in your own inequality, or in somebody else’s equality?

Today I was censored in my homeland Venezuela

Since January 2000 I had been a pro-bono columnist at El Universal. It was recently sold to a group supposedly very friendly and cozy with the Nicolás Maduro government.

Today, July 29, 2014, two days before the centennial of the discovery of oil in Venezuela, something which has enriched governments so much so as to make a true democracy impossible, I was informed there was no room for me in the paper anymore.

Am I sad? Of course! It is truly hard to be censored in one´s own country, especially when one has so much one wants to say, especially when so much needs to be said.

Thank God there are now such things a blogs otherwise I might have had to start putting up a print-shop in the basement or practicing graffiti.

The title of the article I was to publish July 31? “100 years of submission”... in it I was as always wanting for the oil revenues to be shared out directly to the citizens... so that we do not have to live any longer in somebody else's business.

Think of how you would feel if your government was receiving and disposing of over 97% of all the exports of your country. That is my Venezuela. That is the country where the price of milk, if you can find it, is 278 times the price of gas (petrol) and that is not viewed as something immoral.

That is an oil curse as big as oil curses can come!

PS. But, on the other hand can you think of "Daddy why are you not censored?" Indeed it is not easy to live in a low profile dictatorship! 

What does it matter whether the Picasso, hanging on my wall, is worth 5 or 50 million? I did not pump up its value.

Yes, I accept that you might have a point thinking it is not fair that the Picasso that had I been rich could be hanging on my wall, should now be worth 50 million, instead of the 5 million it was valued when I would have had to pay inheritance taxes to keep it in my family? But I did not pump up its value...that was done by those who with their QEs and fiscal deficits injected so much liquidity. 

I swear, it is the same Picasso as always, I did absolutely nothing to it… in fact it has perhaps even lost some of its shine.

If the government now takes my Picasso in a Thomas Piketty wealth-tax, to help repay its debt… would it not then have to sell it, causing it only to hang on somebody else’s wall? 

Of course the government could export the Picasso to pay for oil… but what about when we run out of Picasso’s on our walls… and these all hang on their walls? Is that fair?

PS. Down here, on earth, with no Picasso, I am still envious of that 50 million Picasso hanging on somebody’s wall and wondering whether a little wealth tax would not be such a bad idea.

Shamelessness is taking over the web!

The big web players are becoming more and more shameless… and there seems to be nothing that can stop them…

Initially they were quite respectful of your information… lately I have seen messages reading like “we will import your address book”… and, as a token, we will not store your email and password. Holy moly!

Why does Bill Maher, so funny when exploiting what’s exploitable, remind me so much of Monsieur Thénardier in Les Miserable?

Madame Thénardier: Master of the house isn't worth my spit. Comforter, philosopher, and life-long shit. Cunning little brain; regular Voltaire. Thinks he's quite a lover, but there's not much there.

One question, and one opinion, on the Scottish independence referendum of September 18, 2014

Question: How many Scots under 16 years of age will not have a chance to vote on what will affect them the most? Why not give all thirteen and more that right and allow those over 50 to vote only if they do so in representation of a child or a grandchild under thirteen? That could really make this vote on the declaration of independence a real game changer.

Opinion: The draft of June 2014 of the Scottish Independence Bill states that “In Scotland, the people have the sovereign right to self-determination”. Great, but unfortunately, it would not seem that “self-determination” will include each Scottish citizen managing his share of natural resources his country has been endowed with, like oil.

And friends, speaking as an oil-cursed Venezuelan, who has had to live in somebody else’s business, until he could not endure that anymore and had to leave his country, you might think more about this issue.

If not, I assure you that this independence of yours could turn out to be a real Pyrrhic one, when all of you Scots will become dependent on the clan that manages those natural resource revenues for you.

Please don’t let that happen!