Saturday, December 09, 2017

How can we, the 99.99%, in order avoid suffering the tragic consequences of any awful leveling events, coexist in a friendly and mutually beneficial way with the extremely wealthy 0.01%?

Edoardo Campanella reviews five books debating “the growing wealth gap between a narrow upper class and the rest of the human population” that which he argues may be the greatest economic challenge of our time. “Inequality and the Coming Storm” Project Syndicate, December 8. 

The books reviewed are: The Great Leveler, by Stanford University historian Walter Scheidel; Global Inequality, by CUNY economist Branko Milanovic; The Vanishing Middle Class, by MIT economist Peter Temin; The Broken Ladder, by University of North Carolina at Chapel Hill psychologist Keith Payne; and Plutocrats, by the former journalist and current Canadian Minister of Foreign Affairs Chrystia Freeland.

There are many origins of that wealth that feeds inequality, some abominable and odious, like crime and corruption, other, like Chrystia Freeland writes, “built their fortunes through hard work, talent, and discipline. But, once that wealth has been created, it can be destroyed by what Walter Scheidel calls the “Four Horsemen of Leveling”, exemplified by “the twentieth-century world wars, the Russian and Chinese Revolutions, the fall of the Roman Empire, and the Black Death, respectively. 

Surely the consequences of such horrendous levelers, especially for the much more numerous poor, cannot justify us ever wanting to get rid of inequalities that way… that is except if we have a need of a schadenfreude with masochistic characteristics. 

When Scheidel argues, “all societies eventually reach the level of inequality they can tolerate. Once this pain threshold is breached… Only carnage, chaos, and destruction can restore fairness in the system… extreme inequality yields only to extreme equalizers” our first and only concern should be, how on earth can we learn to live well and prosper in a world of runaway inequalities? 

Campanella, seemingly agreeing on that goal writes: “What can be done? Many commentators recommend improving the availability and quality of public education. Others have proposed more effective ways to tax wealth, such as a global tax on capital income, higher marginal tax rates, more aggressive estate taxes, or even a tax on robots. And still others are calling for a universal basic income (UBI).”

But Campanella is no optimist… “none of these will be a panacea. Educational policies take years to gain traction; taxing the global super-rich would require a level of international cooperation that does not exist today; and a UBI is simply unaffordable for most – if not all – governments.”

I instead, hopefully since I see no other remedy, think we have a chance to coexist in a friendly and mutually beneficially manner with the unbelievable wealthy. But for that to happen there’s a need:

1. We appreciate what inequality might produce. For instance when Campanella writes “Most of the great temples, royal palaces, pyramids, castles, and other monuments of history are the lasting evidence of past wealth disparities”, we should immediately ask ourselves whether those monuments would have existed at all without rampant inequality and, if our answer is no, would the world have been a better world for all of us? 

In this respect I had a wake up experience a couple of years ago when reflecting on a beautiful richly adorned but totally useless shield at the Museum of Louvre, it dawned upon me that most of it would not exist were it not for immense inequality. I suspect that Thomas Piketty, as a Frenchman, would not want to have sacrificed Louvre either, in the name of some unknown equality…we know the inequality we have.

2. We begin to understand that much of the wealth that exists cannot just be redistributed without the possibility of serious unexpected consequences. For instance what harm can it do that one person has now decided to freeze on a wall, with a sort of voluntary tax, US$450 million of his main-street purchase capacity, in Leonardo da Vinci’s Salvator Mundi? If anything we should go after those who got the US$450 million and see what they do with it… and if they pay their taxes. Those US$450 million on the wall should also help to raise expectations about the value of art, which might lead to some thousands of painters getting a dollar or more for their paintings, something which though it might not decrease inequality much, would in general be very good. (Disclosure, my daughter is an art consultant J)

3. We fully comprehend that all that wealth that, if it were ours, would surely help us to solve many of our daily problems, does not really guarantee its current owners one iota more of happiness.

4. We fight against all that hinders opportunities, like the risk weighted capital requirements for banks with which regulators have basically decreed inequality. In the same vein we need to combat all criminal or unproductive accumulation of wealth, like that obtained by means of corruption or the excessive exploitation of monopoly elements. 

5. And finally (especially as a Venezuelan) we have to fight tooth and nail against all the redistribution profiteers, those who instigate envy and class hatred only in order become themselves the neo-Plutocrats.

PS. And though for much more than reducing inequality, I do believe in a Universal Basic Income.

Wednesday, December 06, 2017

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

A letter sent to The Globe and Mail
 
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. 

@PerKurowski

Saturday, December 02, 2017

Fiscal waste's decades out

Some want tax cuts.
Some wants tax increases
But no one want tax spending cuts
So its the fiscal waste's decades out

But why worry when it is so easy to finance it with QEs, low interest rates and regulatory subsidies.

Regulatory subsidies? 
1988, Basel I's risk weighted bank capital requirements that decree 0% risk-weight for sovereigns and 100% entrepreneurs. 

Tuesday, November 28, 2017

Those bothering us and wasting our limited and valuable attention span on social media should not be able to do so at a zero marginal cost.

Those who on social media send us their advertisements, surely pay Google and Facebook the most, if we respond to their ads. In that sense all those players have a vested interest in targeting us as good as they can. 

But if they do not target us adequately, the marginal cost of that for them is zero.

And that is not good for us. That because we the ad-recipients have to pay the cost of using up too much of our limited attention span on ads, info and fake news we do not really need.

So therefore if all who we have not directly designated as friends, had to pay us something for contacting us on social media; like a one hundred of a $ cent, I am sure the Google and Facebook would be a bit more concerned about not wasting our time... and would then target us even better.

Nowadays they generously allow us to message them with an “I am not interested”. But, is that just not too late? We have already been bothered and since there are millions of vendors out there, I would hate to look forward to a future of having to waste years of my life sending “I am not interested” replies.

PS. Although sometimes we should not ignore it could be of much benefit to us to be targeted by something outside our comfort zone, so as to avoid incestuous intellectual degeneration. 

Sunday, November 19, 2017

Those absolutely no good at something, lack exactly the skill they need to know that they are no good at it. John Cleese dixit.

Monty Phyton’s John Cleese, fabulously interviewed at the Commonwealth Club by Adam Savage, the host of “Mythbusters”, and in reference to a theory by David Dunning, a professor at Cornell, says around minute 57:40 the following:

“In order to know how good you are at something requires almost exactly the same aptitude as it does to be good at that think in the first place.

Which follows, as a corollary, that if you absolutely no good at something, you lack exactly the skill that you need to know that you are no good at it.

And once you realize that, you see there are thousand of people out there that have absolutely no idea of what they are doing, and so they have absolutely no idea of that they have no idea what they’re doing.”

I wonder, could John Cleese by any chance be referring to those regulators who, when deciding on the risk weighted capital requirements for banks, assigned a meager 20% to those dangerously rated AAA, and a whopping 150% for those who rated below BB- have been made so innocous for the banking system?

Here some personal observations on those cuckoo risk weighted capital requirements for banks developed by the Basel Committee, for the world to use, God Help Us!

Saturday, November 18, 2017

Could this be a theme that for some strange reason TED Talks does not like me to talk about?

How long should we allow bank regulators, like the Basel Committee for Banking Supervision and the Financial Stability Board, to feed us their dangerous and hubris filled besserwisser bullshit?

How can any system that makes it easier for those who already have it easier to access bank credit, and harder for those who already find that harder be defined as a “fairer financial system”? https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

How can any system that risk weights with 20% the so dangerous AAA rated, and with 150% the so innocous below BB- rated, be defined as a system that fosters financial stability? https://subprimeregulations.blogspot.com/2017/07/what-if-traffic-regulators-to-make-your.html

How can any regulator who does not care about the purpose of what he is regulating hold that he knows what he is doing? “A ship in harbor is safe, but that is not what ships are for”, John A Shedd https://subprimeregulations.blogspot.com/2015/12/our-current-bank-regulatory-tragedy.html

How can any regulator allowing banks to leverage their equity different with different assets and not understanding or caring about how that distorts the allocation of bank credit to the real economy, hold that he knows what he is doing? http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

How many more houses built because its financing is risk weighted 35%, will have its basements occupied by unemployed children, because the risk weight for unrated SMEs and entrepreneurs is 100%? https://subprimeregulations.blogspot.com/2017/11/crimes-against-humanity-can-also-be.html

Friday, November 17, 2017

Is freezing at Christies US$ 450 million in purchasing capacity in Leonardo Da Vinci’s Salvator Mundi something good or something bad?

Clearly Leonardo da Vinci has to personally, from above, be extending his deepest gratitude to Janet Yellen of the Federal Reserve and Mario Draghi of the European Central Bank. Had it not been for their quantitative easing (QEs) and ultra low interest rates, he would never ever have seen his Salvator Mundi valued, so soon, at an incredible US$ 450 million.

Of course the wealth redistribution profiteers will scream bloody murder. The US$ 450 millions is like a voluntary tax that has escaped their franchise. 

The real question though is: Was the freezing of US$ 450 million in purchasing capacity in a painting (or in a storage room), like with a sort of voluntary tax, something good, or something bad. If bad how do you reverse it without other negative unexpected consequences?

But, for the time being, what is much more interesting is what are the vendors to do with US$ 450 millions in cash?

Saturday, November 11, 2017

Who nudged regulators into using stupid and dangerous risk-weighted capital requirements for banks? The bankers?

Banks not capable of perceiving risks correctly, or not adjusting to perceived risks correctly, with size of exposure and adequate risk-premiums, should fail as fast as possible.

Banks capable of perceiving risks correctly, and to adjust to these correctly with size of exposure and adequate risk-premiums, would in fact not need to hold any capital.

Unfortunately, since banks could belong to the first group, and there is also the risk of unexpected events that could affect even the best of banks, regulators need to require banks to hold some capital.

Curiously, unfortunately, bank regulators, with the Basel Accord of 1988 introduced risk weighted capital requirements. These spelled out more risk more capital, less risk less capital. 

Though at first sight that might all sound quite logical, in terms of searching for more financial stability it makes no sense whatsoever, as what’s perceived as risky poses by just that fact alone less danger to the banks. It is what is perceived as safe than can cause banks to create excessive exposures, which if these later turn out risky could put a whole bank system in danger. 

To top it up it the risk weighting translates into allowing banks to leverage differently different assets, thereby producing different risk adjusted returns on equity than what would have been the case in the absence of this regulations, and so it introduced a serious distortion in the allocation of bank credit that is affecting the real economy.

Who could have nudged regulators to do so? Since being able to earn the highest risk adjusted returns on equity on what is perceived as safe sounds like a wet dream come true for bankers, I have my suspicions.

PS. Here an aide-mémoire on the principal mistakes of risk weighted capital requirements

Tuesday, October 31, 2017

OAS-IACHR, dare opine on economic violations against human rights

The Charter of the Organization of American States establishes among its principles that "the elimination of poverty ... is the common and shared responsibility of the American States (Art: 3f)… And also to “devote their utmost efforts ... to achieve equitable distribution of national income”; (Art. 34.b)

The American Convention on Human Rights (1969) states (Art: 26) that "States parties undertake to ... achieving progressively the full realization of the rights implicit in the economic, social and educational, scientific and cultural standards set forth in the Charter of the OAS ... to the extent of available resources, through legislation or other appropriate means ".

And in the case of "Discharged and Retired Employees of the Comptroller vs. Peru" (2009) case law has been established, when in the judgment we read that the Commission on Human Rights "is competent to decide whether the State has committed a violation or breach ach of any of the rights recognized in the Convention, including with regard to Article 26 of the same ".

OAS has yet to define though what it means with a violation or breach of economic, social and educational, scientific and cultural standards. That is sad. Had it done so, much unnecessary human suffering could have been avoided.

For instance there are some economic policies or economic crimes that causes such harm to so many humans, so as these should classify as punishable violations against human rights.

I can think of corruption; of loony foreign exchange systems; of runaway monetary policies causing hyperinflation… and of course, of Venezuela’s domestic gas prices.

In the international market gas is sold at about $1.60 per gallon, in Norway, another oil country, it is sold domestically at US$ 8.40 per gallon, and in Venezuela, where people are dying because of lack of food and medicines, it is given away, at US$ 1 cent per gallon.

In Venezuela this horror is not discussed. The political price for proposing to correct it is perceived way too high by both those in government as by those in the opposition.

If gas were sold there at the price it could fetch in international markets, the reduction in the demand would allow much more gas to be exported, and much more food and medicines to be imported.

Would the prices be even higher, and all new revenues shared out directly among Venezuelans, then the incentives in the fights against inequality and against climate change would even be aligned.

So, can you imagine how much more sanity could prevail if the Inter American Commission of Human Rights declared gas giveaways to be a violation of human rights; something which could cause anyone directly responsible for such criminal policy to be hauled in front of an International Court of Human Rights… or even just in front of a local judge?

I tried to do something about this in 2009. No chance! I denounced this to OAS’ IACHR or OEA’s CIDH in July 2015. I am still waiting for a response.

Can somebody lend me a hand?

PS. December 2017: If gasoline was sold in Venezuela at current world market prices (0% tax) then between eliminating its smuggling and reducing its local demand, one could easily obtain US 10 million a day. At US$2 per day, that would help feed five million people, one sixth of Venezuela’s population.

@PerKurowski

Sunday, October 22, 2017

Like sales taxes are considered regressive, aren’t corporate taxes too?

Sales taxes are considered regressive because they take a larger percentage of income from low-income taxpayers than from high-income taxpayers.

Does that not apply equally to corporate taxes? I mean they tax income that is going to poorer shareholders with fewer shares with the same rate they tax the income of those with millions of shares?

But then again that might just be me hating corporate taxes, since I believe that the only ones to should pay taxes to the government are we the citizens… so that governments have no doubt about who they work for.

Wednesday, October 11, 2017

World Bank, please dare tackle the issue of what could be considered punishable economic crimes against humanity

Could we challenge the World Bank, as the world’s premier development bank, to put on its agenda to try to qualify which economic policies could be so egregious so as to qualify as punishable economic crimes against humanity?

For instance in a country where people are dying for lack of food and medicines, could selling gas at less than US$ 1 cent per gallon be such a crime?

An Executive Director of the World Bank answered me with: “We already name and shame those who engage in outrageous subsidies of fuel”

That is good, but far from enough! That the World Bank names and shames, is sometimes in some shady circles even taken as evidence of good behavior. No, I am referring to the possibility of having an energy minister face charges in the International Court of Justice in Hague.


Tuesday, October 10, 2017

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.

Thursday, October 05, 2017

Who should lead the Fed? There’s one initial and essential screening of the candidates.

Fact: Banks are allowed to leverage more with assets considered safe, like loans to sovereigns, the AAArisktocracy and mortgages, than with assets considered risky, like loans to SMEs and entrepreneurs.

So ask the candidates:

Does that mean “the safe” have even more and easier access to bank credit than usual and “the risky” have even less and on more expensive terms access to bank credit than usual?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

Do you think that might dangerously distort the allocation of bank credit to the real economy?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

In terms of what can pose the greatest risk to the bank system, would you agree with Basel II’s risk weights of 20% for what is rated AAA to AA and 150% for what is rated below BB-?

If the answer is yes, disqualify the candidate.

If the answer is no, then ask: 

Do you agree with a 0% risk weighting of sovereigns?

If the answer is yes, the candidate should be classified as an incurable statist and accordingly dismissed.

If the answer is no, you can then proceed with the rest of the tests.

Good luck!

PS. How many of those currently in the Board of Governors of the Federal Reserve System, would pass this test?

Tuesday, October 03, 2017

Boredom is great for great thinking

I translate the following from Helena Henschen’s (1940-2011) marvelous book "In the shadow of a crime”, 2004

"Sometimes it is necessary to expose yourself to the boredom of loneliness… I welcome the winter power outages.

It is as if the psyche must have silence and time in order to be able to activate and initiate a creation process. I have to get away from everyday life with ever-inbound data that occupies space, a stream of impressions that flows inwards and requires sorting, valuation, and action. It is only when the noise of outer life ceases that a conversion occurs. The power switches direction. From boredom, an opposite outward movement grows.

It seems that boredom and creativity have to do with each other; as well as the listening to nothing.

When the electricity goes out again, a filled kerosene lamp is on the table next to the sofa. I look for the matchbox that I have put next to it, and curl up with a block and a pen in my pocket. I'm prepared; no time is going to be wasted. 

The power outage can last forever, but I do not fall asleep. The brain is on high, the spirits have woken up ..."



Below the original text in Swedish 

"Ibland känns det nödvändigt att utsätta sig för ensamhetens tråkighet… jag välkomnar vinterns elavbrott. 

Det är som psyket måste ha tystnad och tid för att kunna aktiveras och sätta igång en skapandeprocess. Jag måste bort från vardagslivet med ständig inkommande data som upptar utrymmet, en ström av intryck som forsar utifrån och in och kräver sortering, värdering och åtgärd. Det är först när slamret från det yttre livet avstannat som de uppstår en konvertering. Strömmen växlar riktning. Ur tråkigheten växer en rörelse från motsatt håll, inifrån och ut. 

Det verkar som om tråkigheten och skapande har med varandra att göra liksom lyssnandet på ingenting."

När elektriciteten bryts igen, står en fylld fotogenlampa på bordet intill soffan. Jag trevar efter tändsticksasken som jag har lagt bredvid den och kryper upp med ett block och en penna i fickan, jag är beredd och ingen tid får förspillas. 

Elavbrottet kan vara hur länge som helst men jag somnar inte. Hjärnan är på högvarv, andarna har vaknat…


"I skuggan av ett brott", 2004 Brombergs

PS. Jag hade turen att veta om denna bok tack vare min Mamma Ingas kära vän Marjorie Cronstedt. Hon sa till mig en gång ”den boken bör du läsa Per”, och i den kopian jag då hittade stod det: “‘Ett litet arv’ från Marjorie. För en lugn stund så småningom. 29/8-06”  Den är nu ett mycket kärt arv till mig.

Monday, October 02, 2017

Would not those willing to cut taxes belong to the anti-Sheriff of Nottingham party?

Sir, E.J. Dionne JR refers to the Republican Party that “only knows how to cut taxes for the very rich”, as “The anti-Robin Hood party”, Washington Post October 2, 2017.

I do not want to enter the discussion of whether taxes should be lowered or raised, but I do believe there could exist some fundamental mistake in the terminology used.

As I best remember it was the Sheriff of Nottingham who served as Prince John's chief enforcer, collecting unlimited taxes from the people of Nottingham, and forcing Robin Hood and Little John to take refuge in the Sherwood Forest, where they did no one harm, much the contrary, ask friar Tuck.

Saturday, September 16, 2017

Should we not know to whom we are kicking the public-debt-can down the road?

With respect to that congressional authorization for U.S. military operations against U.S. enemies, Senator Elizabeth Warren, very correctly, recently tweeted: 

“Congress owes our troops & their families a full debate to authorize the use of military force before we send them into harm’s way.”

But in the same vein each time an increase of public debt is authorized, or the public-debt-can is kicked further down the road, OMB should prepare a detailed report on who are expected to serve that debt.

Because let’s face it, public debt is, before anything, if it is going to be duly served, an anticipation of tax revenues to come... and future taxpayers might like to be informed of that.

To have in black and white that we might be asking our grandchildren to pay for some of our current societal requests, might be a good way to better live up to that intergenerational social contract Edmund Burke spoke about.

Sunday, August 27, 2017

3 tweets that should rock the world of bank regulators, and one day will

Motorcycles are riskier than cars, so if they have a choice, people prefer cars; so more die in car accidents than in motorcycle ones

Below BB- rated are much riskier than AAAs, so bankers much prefer AAAs, so big crises happens with AAAs turned risky, not with below BB-

Our bank regulators never understood that, and assigned 20% risk weight to AAAs and 150% to below BB-s So now what? http://bit.ly/1TgB6EJ

Regulators and bankers looking out for the same risks

Wednesday, August 09, 2017

Many lesser impact sanctions, on many more soft-liners (50.000?) are also needed in Venezuela.


It includes to “Extend the use of individual sanctions, and potentially some entity-focused sanctions, to fracture the regime soft-liners from the hard-liners with nothing to lose.” 

I agree, but I do not think that only severe sanctions, of some few very responsible hard-liners, like to “block all property belonging to those individuals and entities subject to US jurisdiction and prohibit US persons from engaging in transactions with them”, will suffice.

Lesser impact sanctions, extended to many more soft-liners, could prove easier to implement and be even more effective.

For this it might suffice with USA, Canada, Europe and all those nations that recently signed a declaration in Lima, informing they were now contemplating issuing a blank prohibition to all members of the Constituent Assembly, and of the National Guard, sort of 50.000 Venezuelans, to access any kind of visa. 

If that prohibition could, at a later moment, perhaps also be extended to include all their close relatives, it would ignite many serious discussions and doubts in the homes of the soft-liners.

Friday, July 14, 2017

I believe my one line health sector reform to be better than those long ones proposed by democrats or republicans

You, all suppliers of medicines or health services, thou shall not discriminate [with more than perhaps 5%] in the prices offered to those who pay for those insured against the prices demanded from those uninsured.

Saturday, July 08, 2017

When regulators, to bankers’ lack of testosterone added their own lack of it, the Western civilization started its descent

Fact: Major bank crises result from unexpected events, criminal behavior, or excessive exposures to something ex ante perceived as safe, but that ex post turned out to be risky.

Fact: No major bank crisis ever has resulted from excessive exposures to something that was perceived as risky when placed on banks’ balance sheets.

Mark Twain with his supposedly: “A banker is one who lends you the umbrella when the sun is out and wants it back as soon as it looks it could rain” would attest to that.

Fact: Nonetheless bank regulators scared witless by the same perceived risks, imposed larger capital requirements for what is ex ante perceived as risky, than for what is ex ante perceived as safe.

That means bank can now leverage more their equity with “the safe” than with “the risky” 

That means bank can now earn higher expected risk adjusted returns on equity on “the safe than on the risky.”

Consequence 1: That day banks finds that excessive exposures to what was perceived, decreed or concocted as safe turns out risky, something that happens sooner or later, like with the AAA rated securities or sovereigns like Greece, the banks will stand their more naked than usual.

As Voltaire said: “May God defend me from my friends, I can defend myself from my enemies

Consequence 2: Bank stop financing the "riskier" future the next generations need to be financed, like SMEs and entrepreneurs; in favor of refinancing the "safer" present.

As John A Shedd said: “A ship in harbor is safe, but that is not what ships are for”.

Our current regulators had no clue of what they were doing. In order to hang on to their jobs and hide their mistake, they are clouding the whole issue with more and more complexity.

They must be stopped, remembering of course Einstein’s: “No problem can be solved from the same level of consciousness that created it”.