And, who is Elizabeth Warren to speak about “The system is rigged”?

If there is something that you can really accuse the financial system of being rigged by, that are the capital requirements for banks based on perceived risks. These requirements favor immensely those already being favored by the markets, namely those borrowers perceived as “The Infallible”, and thereby discriminate immensely against those already being discriminated against by the markets, namely those borrowers perceived as “The Risky”, like small businesses and entrepreneurs. 

And that odious discrimination, constitutes a regulatory wedge which only increases the existing the inequalities and reduce the opportunities, as the “The Infallible” are most often the haves, and, the “The Risky”, the not haves. 

And since Elizabeth Warren, having been involved with regulations for such a long time, has not uttered a word against that regulatory discrimination, I am not sure what moral right she has to speak out about “The system is rigged”?

What nonsense is believing in a "level playing field", and then not speaking out against colleagues and regulations un-leveling it? What has regulatory discrimination against those perceived as "risky" to do with "giving everyone a fair shot"? What has this extreme regulatory risk-adverseness to do with the need to "restore the values that built the nation"? Is not just betting on The Infallible "betting against the American people"?

She said in her recent Democratic Convention speech: “I talk to small business owners all across Massachusetts. Not one of them—not one—made big bucks from the risky Wall Street bets that brought down our economy.” And I must say: “No, Elizabeth Warren, of course they did not, they were too busy having to pay all that extra interest rates to the banks that the bank regulations caused.” 

She said in her recent Democratic Convention speech: “We turned adversity into progress because that's what we do” And I must say: “No, Elizabeth Warren, you did not! You were among those many regulators who want to turn progress into risk-adversity! And this, amazingly, in the land of the brave!” 

But, let me be absolutely clear, I could use exactly the same arguments against all those on the other side of the political spectrum who extol the benefits of a free market, but who also keep absolute silence about this dirty regulatory intervention and distortion of the market. And so they should shut up too!

Does this mean I do not support the Consumer Financial Protection Bureau? Of course I support it! Only that I believe that one of that Bureau´s first responsibilities, is to see that those perceived as “risky”, are not also discriminated against by the regulators.

Albert Einstein dixit: “No problem can be solved from the same level of consciousness that created it”

What are the thickheaded bank regulators smoking?

It is truly mindboggling to hear so much about job creation, without a single word uttered against how bank regulators discriminate against our prime job creators, the small businesses and entrepreneurs… only on account of these being perceived as “risky”.

What are they smoking... might they be talking about jobs on Mars?

Our current bank regulators seem incapable of understanding that when they allow the banks the goody of being able to leverage their capital more if lending to the “not-risky” than when lending to the “risky”, they are effectively discriminating against the “risky” small businesses and entrepreneurs, precisely those we most need to get into action in order to create the next generation of jobs. 

Honestly, how thickheaded can we allow them to be?

Two whys on bank regulations

How can I, as an ordinary citizen, obtain a decent return on my savings when investing in safe securities, having to compete with banks who can leverage their equity more that 60 to 1 when they do so?

How can I, as an ordinary small businesses or entrepreneur, get a decent interest rate on my bank loans, when banks can leverage their equity so much more when lending to those officially perceived as not-risky? 

It is so unfair! Who are these bank regulators? Who invested them with so much power?

How sad bank regulators didn’t listen to Pope John Paul II

The Basel Committee for Banking Supervision, and other assorted bank regulators, decided to increase the risk-adverseness of banks by imposing on them capital requirements based on officially perceived risk, among other as perceived by some few officially appointed risk-perceivers, the credit rating agencies.

And, naturally, if when doing so one favors the financing of houses, public debt and whatever has managed to temporarily hustle up a good credit rating, and discriminate against all of what is officially perceived as “risky”, like small businesses and entrepreneurs, one will, naturally, end up with a lot of houses, dangerously excessive lending to what is triple-A rated, a huge public debt, and very few jobs which, to create, requires a lot of risk-taking.

How sad the regulators did not listen to Pope John Paul II when he said “Do not be afraid. Do not be satisfied with mediocrity. Put out into the deep and let down your nets for a catch.”

If the IMF and the World Bank bites the Basel Committee, that should be news.

Capital requirements for banks that discriminate based on ex-ante perceived risk of default, with higher requirements when risks are perceived as higher and lower when risks are perceived as lower, is about the only tool in the Basel Committee for Banking Supervision’s toolbox. This single tool is completely inadequate, even outright dumb, on two counts:

First, it is totally counterfactual as all the financial and bank crisis have always originated from excessive investments in what ex-ante is perceived as having a low risk of default and no crisis has ever originated from excessive investments in what is perceived as risky. The perception of being risky is as big a weight as it comes and does not need to be supported by additional arbitrary risk-weights imposed by regulators. Risk premiums reflected in higher interest rates that goes directly to the capital of the banks are more than sufficient risk-weights. If anything we might need regulatory risk-weights to make up for the risk of the ex-ante perceptions of low risk turn out to be false.

Second, these capital requirements unduly and odiously discriminate against those perceived as having higher risk like the small business and entrepreneurs, and who happen to be precisely those whose financial needs the society has the largest interest in that the banks help to satisfy.

That a Mr. Kurowski voices the above arguments over and over again is of no importance, but, when these arguments begin to find an echo in the World Bank and the IMF… which would mean that these two institutions would be the one calling out that “The Basel Committee has no clothes” then one could presume they get to be newsworthy.

Below is the link to the video where you can find the questions I made during a Civil Society Town-Hall meeting (minute 47.28) and Dominique Strauss-Kahn’s answer (minute 1.01.08) and Robert Zoellick’s answer (minute 1.16.32)

http://www.imf.org/external/mmedia/view.aspx?vid=628246206001

Today I had a great day

For someone who since 1997 has been opposing the regulatory paradigm used by the Basel Committee for Banking Supervision, even as an Executive Director of the World Bank 2002-2004, today was a great day.

As a member of Civil Society, whatever that now means, at a Civil Society Town-hall Meeting during the 2010 Annual Meetings, I had the opportunity to pose a question to Dominique Strauss-Kahn, the Managing Director of the International Monetary Fund, and to Robert B. Zoellick, the President of the World Bank:

My question: (minute 47:35) “Right now, when a bank lends money to a small business or an entrepreneur it needs to put up 5 TIMES more capital than when lending to a triple-A rated clients. When is the World Bank and the IMF speak out against such odious discrimination that affects development and job creation, for no good particular reason since bank and financial crisis have never occurred because of excessive investments or lending to clients perceived as risky?”

Dominique Strauss-Kahn's answer: (minute 1:01:05) "Well, the question about requirements, a couple of requirements for banks. You know, it's a very technical question and a very difficult one, but the way you asked the question, which is why there any kind of discrimination against SMEs is an interesting way of looking at that. In fact, there is no reason to have any kind of discrimination. The right thing for the Bank is to know whether or not their borrower is reliable, but you can be as reliable being a small enterprise than not reliable when you're a big company. So this kind of systematic discrimination has, in our view, no reason to be.

Robert B. Zoellick's answer: (minute 1:16:30) "On the new rules for global finance, you asked when would speak up on the bank capital. I've been doing so for two years. It's all over the website, because I started with trade finance, knowing that field pretty well. Pascal Lamy, the head of the WTO, and I have led a campaign that said you're going to make it harder for trade finance for developing countries if you have higher capital levels for doing trade finance. So we've pressed very hard on that issue. You get an advanced notice, because tomorrow morning I'll be doing a PowerPoint briefing of all the Governors, and what I'll be mentioning is that for developing countries as a whole, we are seeing foreign direct investment go up, access to bond markets go up, but a net negative inflow of banks, in part, because I think of some of the capital standards and other regulatory issues."

The question that now floats around there out in the open, is what the Basel Committee on Banking Supervision, the supreme global regulatory authority, has to say about that, because bank capital requirement discriminations based on perceived risks is precisely the heart and soul of their regulatory paradigm… without that they have nothing!

The video of the meeting

On the discrimination based on the financial profiling and risk-based pricing

Risk-based pricing actually requires creating the misinformation that allows for making borrowers who should get lower rates agree to pay the higher rates that cover the losses of those that should not have been given credit… at least not at these high impossible rates.

Risk based pricing, which is similar to placing persons that after some doubtful genetic test are presumed to be especially exposed to an illness in a separate insurance pool, could be causing much of the growing social inequality that is currently attributed by some to globalization. Risk profiling, for a discriminatory purpose, is prohibited in most spheres of our social relations, except in lending where it is very much cheered, by most.

John, Paul and Peter, because of their opaque FICO have to pay high interest. John, though he might have been able to do so at lower rates, is not able to service the debt and loses. Paul, utterly responsible, services it, barely, and Peter who is in this group because no ones no why meets the payments with ease. Question: Any winners?

John should for a starter not have been given the credit, at least not at the high rate, and both Paul and Peter, having been able to service the debt at high rates evidenced de facto they merited lower rates. Answer: No winners! Except of course those who are not to be named!

How libertarians can shut up about the financial information cartels that chain the markets to neo-non-transparent-regulations, I have never understood.

How developed countries’ progressives can shut up about the discrimination implicit in risk based pricing and that could be introducing more inequality in the societies than what they sometimes attribute to globalization, I have never understood.