Annie (1982) - Easy Street

Easy Money - Easy Street

By favoring banks financing the “safer” present, public debt and residential mortgages, over the “riskier” future, loans to small businesses and entrepreneurs, the regulators, generously assisted by central banks with abundant QE, and by the MMT preachers, provided the last generations loads of Easy Money, something which allowed these to live very happily on Easy Street. 

But, now it is all coming home to roost. Nations, needing more debts in order to service their current debts, are turning into zombies. 😢

Q. If we compare the economy to a human body, have not regulators, with risk weighted bank capital/equity requirements, imposed a lousy diet with way too much carbs and way too little proteins? Has that not produced dangerous obesity? 😡

Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

Note 1988: "Assets for which bank capital [equity] requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

A letter in the Washington Post

Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

In much of Peter Orszag’s Nov. 22 op-ed, “GOP threats to weaponize the debt limit are dangerous,” one can agree with his conclusion, but when he mentioned, “The evolution of debt is also influenced by the economy, market interest rates and other factors, but those are mostly outside the control of policymakers,” he omitted vital aspects. Let me explain it with a question:

What would the United States’ public debt be in the absence of regulatory subsidies, such as bank capital requirements with decreed risk weights of zero percent against federal government debts and 100 percent against citizens’ debts; copious amounts of Treasury purchases by the Fed with quantitative easing programs; and the preaching by modern monetary theory fans that has definitely promoted a dangerous lackadaisical attitude when discussing the limits of public debt?

Yes, Congress must approve increasing the debt level. It’s too late to do otherwise, but to do so without even trying to answer that question would be to irresponsibly kick the debt can forward and upward with disastrous consequences.

And, by the way, the Supreme Court should look at what the Founding Fathers might have thought about the aforementioned risk weights.

PS. The links displayed above are the ones placed on the web by the Washington Post

PS. Here’s a dialogue with ChatGPT about the moral hazard easy public debt causes. 

PS. The decreed risk weights 0% Federal Government - 100% We the People, seem clearly un-American. Have these been discussed and approved by the US Congress in accordance to the Constitution?

PS. Here’s a dialogue with ChatGPT about zombie nations.

In short: Regulatory subsidies, QEs and MMT preaching, allowed governments the very Easy Debt that generated the Easy Money which, for decades, has kept bureaucrats/politicians/apparatchiks living on Easy Street 

Déjà vu! Not the first time I warn about a crisis can being kicked forward. The 2007-2008 was.

My other letters published in the Washington Post related to this issue:

September 6, 2007: Factors in the Financial Storm
June 20, 2008: An Aspect of the Bubble
December 27, 2009: Another 'worst': Faulty bank regulation
January 6, 2012: Handcuffed by a triple-A rating
May 1, 2013: An American approach to banking
December 23, 2014: Let the market rule on risky trades
November 11, 2015: Reverse-mortgaging the future
August 9, 2016: Banks, regulators and risk
April 16, 2017: When banks play it too safe
July 11, 2018: There is another tariff war that is being dangerously ignored.
December 30, 2018: Affordable homes or investment assets?
April 18, 2020: The capacity to borrow at reasonable rates is a strategic sovereign asset

A letter in Washington Post: Reverse-mortgaging the future

Reverse-mortgaging the future

The reverse mortgage on the economy the baby boomers allowed will forever shame their intellectual elite.

In 1988, the Basel Capital Accord introduced the concept of credit-risk-weighted capital requirements for banks. More risk, more capital — less risk, less capital. That allowed banks to leverage more, and therefore to earn higher risk-adjusted returns on equity when lending to the safe as opposed to the risky.

As a result, it also imposed a de facto reverse mortgage on the economy, which extracted the value it already contained, as banks focused more on refinancing the safer past than the riskier future.

And that also meant we refused those coming after us the risk-taking that brought us here and, in such a way, we baby boomers — or at least our elite — allowed the intergenerational holy bond that Edmund Burke wrote about to be violated. That is something the good we might have done in the 1960s will never be able to excuse.

Read what AI – ChatGPT and Grok answered in 2025, when I asked whether current bank regulations aligned with the Western Civilization

When will US Congress or Scotus review the constitutionality of current risk weighted bank capital requirements?

PS. The capacity to borrow at a reasonable cost is a very valuable strategic sovereign asset. It should not be squandered away by the generation in turn only to benefit its members, or with some non-productive investments. 

PS. In 1988, when bank regulators decreed a 0% risk-weight for US public debt, its debt was $2.6 trillion, 50% GDP. Now on way to $ 30 trillion, about 130% GDP, it still has a 0% risk weight. When do you think its risk weight should increase to 0.01%?

PS. The response to Covid is another occasion in which the holy intergenerational contract Edmund Burke wrote about is being violated.

PS. Some couples might benefit from a reverse mortgage on their house, but it would be very irresponsible for a whole nation/generation, to place a reverse mortgage on all the economy. Modern Monetary Theory (MMT) is a poisonous Love Potion Number Nine.

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

It should not be surprising if those young living in the basements of their parents’ houses one day shout out: “Ma-Pa, now it’s our turn to live upstairs, you move down to the basement!” 

This letter in The Washington Post 

My letters in the Washington Post on bank regulations:
September 6, 2007: Factors in the Financial Storm
June 20, 2008: An Aspect of the Bubble
December 27, 2009: Another 'worst': Faulty bank regulation
January 6, 2012: Handcuffed by a triple-A rating
May 1, 2013: An American approach to banking
December 23, 2014: Let the market rule on risky trades
November 11, 2015: Reverse-mortgaging the future
August 9, 2016: Banks, regulators and risk
April 16, 2017: When banks play it too safe
July 11, 2018: There is another tariff war that is being dangerously ignored.
December 30, 2018: Affordable homes or investment assets?
April 19, 2020: The capacity to borrow is a valuable sovereign asset.
November 28, 2022: Before the debt ceiling is lifted
August 22, 2023: The economic revolution