Those in Davos 2015 might be famous and rich but, as the elite the world needs, they don't cut it.

Dumb bank regulators that should be concerned with the possibilities of banks perceiving credit risks wrongly, decided instead to introduce equity requirements for banks based on ex ante perceived credit risks.

And simplistically they applied a more-risk-more-equity and less-risk-less-equity rule, ignoring that a real bank system crisis only results from when something ex ante perceived as absolutely safe, turns out ex post to be very risky.

And that caused banks to lend excessively to some infallible sovereigns, the AAArisktocracy and real estate, which brought on the current crisis 

And that keeps us from getting out of the crisis, since those tough risky risk taking small businesses and entrepreneurs we need to get going when the going gets tough, are denied fair access to bank credit by equity starved banks. 

And this fundamental problematic was not even part of the agenda discussed in Davos 2015. I must say, they might be very famous and rich, but as the financial elite the world needs, those in Davos 2015, they sure don't cut it.

PS. Is there a record of all those who, since 1971, have assisted the WEF meetings in Davos?

Where were Joseph Stiglitz and Paul Krugman when the Basel Committee decided to odiously discriminate against "the risky"?

We have Nobel Prize winners complaining, over and over again, about how de-regulated bankers messed up the world, without saying one iota about how it really was, with regulators who with their portfolio invariant credit risk-weighted equity requirements for banks, are all to blame for that.

Those bank regulators odiously discriminated in favor of those who already have more access to bank credit, namely the “infallible sovereigns” and the AAArisktocracy. 

Those regulators odiously discriminated against the fair access to bank credit of those we most need to have access to bank credit, like the "risky" small businesses and entrepreneurs. 

Many correctly argue that bankers should have to give back much of their bonuses, if in the medium and long term what they did did not work out alright. In the same vein there should perhaps be a claw-back clause on Nobel Prizes.

There was the Western world, tagging along quite nicely, when BAM! in 1988, it got hit by the Basel Accord Asteroid.

The first consequence of the impact, Basel I 1992, was bad enough as it ordained that all bank lending to those designated as “infallible sovereigns”, was to require banks to hold much less equity than any lending against “the risky citizens”

The second impact, Basel II 2004, was even worse because it mandated that all bank lending to those private belonging to the AAArisktocracy was to require banks to hold much less equity than any lending against some lowly unrated citizens.

And that meant that lending to small businesses and entrepreneurs, the driving forces which kept the Western world moving forward, so as not to stall and fall, was not going to be able more to generate banks sufficient risk-adjusted returns on their equity… and so that kind of lending was abandoned.

And now the Western world is drowning in excessively dangerous exposure to what is perceived as absolutely safe, at silly low rates, while no banks are lending to the tough risky risk-takers the Westerns world needs to get going, most especially when the going is tough.

Unless it wakes up fast to what its bank regulators have done to it, the Western world, as we knew it, will be long gone.

If you think Basel III has solved it… forget it, with it we are only being dug deeper in the hole we’re in.

All our bankers (including Jamie Dimon) betrayed us citizens by selling out to sovereigns and the AAArisktocracy.

Bank regulators, and because these borrowers are perceived as absolutely safe, allow banks to have much less equity when lending to sovereigns and the AAArisktocracy, than when lending to “risky” small businesses and entrepreneurs.

And that means that banks make much higher risk adjusted returns on equity when lending to the safe than when lending to the risky… and bonuses receiving bankers of course love it.

Some bankers, those who use very low equity requirements as hormone supplements, in order to grow into Too-Big-To-Fail-Banks, love it especially much.

And the bankers love it so much they do not care one iota about that this effectively blocks “The Risky” from gaining fair access to bank credit; or about that this pushes our economies more into the hands of the unholy alliance of governments, AAArisktocrats and some few TBTF-banks.

Yes, we citizens, we who need our banks to give small businesses, entrepreneurs and start-ups lots of access to bank credit, because that is how the future of our grandchildren is financed, we have been betrayed.

We are told that this is all in our best interest, because that is the way banks avoid taking the risks which would cause us tax-payers having to pay for supporting failed banks. Lies, lies, lies! 

What’s so good about low taxes when these regulations stand in the way of our possibilities of high pre-tax earnings? 

And, on top of it all, the real risk for banks never really exist for that which is perceived as "risky", it always derives from that which is perceived as "absolutely safe"… like “infallible sovereigns” and splendid credit ratings.

Unless they’re idiots, bank regulators, the Basel Committee, are total lunatics. You pick! To me they're both!

Regulators, like those of the Basel Committee and the Financial Stability Board, allow banks to hold much less equity when lending to a sovereign than when lending to a small businesses or an entrepreneur.

With that they are explicitly telling us they believe a government bureaucrat knows much more about how to deploy other peoples money efficiently for the society, than what the small business or the entrepreneurs know when they invest in their own projects… and, if so, I hold that to be sheer lunacy.

Of course, that is unless the regulators believe that the sovereigns are truly less risky for banks (and society) because sovereigns can always pay by collecting more in taxes, or having central banks print money… in which case it is pure idiocy.

Have your pick! Personally I think they have a lot of both!

“The empires of the future are the empires of the mind”, said Winston Churchill, and sadly we’re losing ours.

A Western world that, without questioning, allows its regulators to require banks to hold more equity when lending to those perceived as risky, than when lending to those perceived as safe, is showing serious evidence of losing its mind.

Not only are those perceived as “risky” not really risky for the banking system; it is those perceived as "absolutely safe" which can be; but that also impedes our banks from allocation credit efficiently to the real economy.

It is only daring and reasoned audacity that can keep us moving forward, so as not to stall and fall. Have we become so risk-adverse so as to blind ourselves to the real risks of avoiding taking the risks we must take?

What did we in the Western world do, to deserve getting saddled with so dumb bank regulations/regulators?

The pillar of current bank regulations issued by the Basel Committee for Banking Supervision is “the risk weighted capital requirements for banks”.

For those interested, a more accurate name would be “the portfolio invariant credit-risk-weighted equity requirements for banks”

In essence it signifies that the more the ex ante the perceived credit risk is, the more equity banks need to hold.

That does not make any sense! It is never what the perceived credit risk is that constitutes any real risk for a bank and much less for a banking system. It is only how wrong banks could have perceived the risks to be, which represents the real risk.

If something is perceived as safe and turns out risky, everything is ok.

If something is perceived as risky but turns out to be less risky, then that is only good news.

If something perceived as risky turns out to be even more risky, then that is bad, but at least in that case one can suppose the balance sheet exposures to be lower, and that the bank has been receiving higher risk premiums that partly compensate.

But, if something perceived as safe turns out ex post to be risky, that is where the real dangers lie.

And so we can only conclude in that: the safer a bank asset may seem the more dangerous it becomes… and which is 180 degrees opposite of what current regulators think.

And that mistake also stops the banks from financing precisely those our society most need to be financed, in order to move forward, namely "the risky" small businesses and entrepreneurs.

What did we do to deserve that?

The difference between reasonable parents and the Basel Committee for Banking Supervision

Normal reasonable parents may advice their children “Please be careful when crossing the street”, because they know that children might be somewhat careless, especially when they do not perceive a special risk.

We would definitely find it curious if we heard parents waving goodbye to their children with the admonition of: “Children please don’t go bungee-jumping, cause that seems very risky”.

The Basel Committee for Banking Supervision though, does completely the opposite. It tells its bank-children, by forcing them to have more equity, not to take any risks on what is perceived as risky bungee-jumping bank lending, like lending to small businesses and entrepreneurs;

... while stimulating the carelessness of banks, by allowing them to have much less equity, when engaging in perceived safe street-crossing lending, like...

   

Please, can’t we send some normal reasonable parents to guide and mentor our loony bank regulators?

   

Scene 6 on the crazy reality lived while “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: “But Sir, how can we put this 30 years, 11 percent, lousily awarded mortgage into a security that aspires an AAA rating?” 

Bank President Wally: “Easy, let me explain it to you Martin. To put a proper AAA quality mortgage, with a proper interest rate into that security, would be absolutely useless, as it would generate no profits for us. But, if we put that very bad mortgage you refer to in a security, and manage to get an AAA rating for it, then we can resell it as earning solely a six percent return… and that would mean an instant profit to be share among us all of $210.000. Irresistible eh?” 

Jr. Credit Officer Martin: “But Sir, would not the bankers find out how bad these AAA rated securities were?” 

Bank President Wally: “Dear Martin, when you are allowed, by your regulator, to leverage your equity more than 60 times, only because an AAA to AA rating is present, and which means that if you believe you can make a 1 percent margin means you expect a 60 percent return on your equity, you do not make a lot of questions. You see, if the ratings only go down to the range of A+ to A, then banks can only leverage those securities less than 25 times. Imagine from more than 60 to less than 25!...

In fact Martin, it is the European banks and our US investment banks who are demanding these AAA securities so much that frankly we have to cut corners… don’t forget that we are a service company… and we do what our clients wants us to do... hi-hi-hi!”

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Scene 5 on the crazy reality lived while “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: “Sir, I am not sure AIG deserves its AAA rating, and we keep somewhat important exposures to it. May I take a couple of our officers and assign them to do a little credit worthiness research on their own?”

Bank President Wally: “Have you gone raving mad? Do you know what that would cost? And who is going to pay us for that? The credit rating agencies have access to privileged information that AIG would never ever dream of giving to you, much less if they got hold of that you questioned their AAA rating...  So forget it! If the Basel Committee and the Financial Stability Board considers that being able to get an AAA rating from a credit rating agencies merits us to being able to leverage our equity more than 60 times to 1, then those ratings must be good enough for us”

Jr. Credit Officer Martin: “But Sir?”

Bank President Wally: “No! No I do not want to hear any more buts from you! Have you no idea what the low, almost non-existent equity requirements for anything related to a good credit rating, the AAArisktocracy, has to do with the extremely high returns on equity our shareholders obtain... or with the fairly decent bonuses we get?”

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Scene 4 on the crazy reality lived while “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: "Sir, do you not think that our exposure to Greece is way too big and risky? You know we only earn a 0.7 percent in margin on it and you know that country is so crazy it has an official retirement age of 50."

Bank President Wally: "Of course I do Martin. But since the Basel Committee allows us to leverage our equity with loans to Greece 60 times or more, tell me: how do you expect me to explain to our board we should withhold from a lending to Greece that produces us more than 42 percent in annual returns on equity?

And Martin, don't forget the bonuses we get... while nothing happens to Greece!"

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Scene 3 of the crazy reality lived while “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: "Sir Bank President, do you not think that, no matter how safe it looks, this 100 million of exposure to Mr. Absolutely safe, must be a hundred times more risky for the bank, than all those half million exposures to the more risky, and from which we anyhow get much higher risk premiums?"

Bank President Wally: "Dear Martin, I know it sounds sort of crazy that the Basel Committee, in a portfolio invariant way, requires us to hold only a fraction of equity when lending to Mr. Absolutely safe, when compared to what we must have when lending to “The Risky”…. you might be right… but who are we to doubt those experts in the Basel Committee and the Financial Stability Board? 

Besides, as your mentor and friend, I strongly suggest you keep your concerns hushed up. As you surely must know much of the returns to our shareholders, and the size of our bonuses, depend on those ultralow equity requirements allowed when doing “ultra-safe” business."

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Carney first stop supporting risk-weighted equity requirements for banks, those that discriminate against “the risky”.

“We have had to start reinvesting in social capital to rebuild trust in the system” holds Mark Carney… the Chairman of the Financial Stability Board.

Mr. Carney, before you have a right talk about social capital, you should stop supporting those antisocial distorting credit-risk-weighted equity requirements for banks, which so odiously discriminate against the fair access to bank credit of those perceived as “risky”… those whose small diversified bank borrowings anyhow never ever constitute a real risk to the banking system.

Here’s another crazy real life scene from “Banking in times of the Basel Committee”

Bank President Wally: "Colleagues, in order to obtain a higher risk adjusted return on our equity, it is more important to ascertain that the loans is perceived as safe, so that they require us to hold less equity against it, than to negotiate a higher interest rate with the borrower.

And so lets go out there and fight to find us those real low equity requirements that helps us maximizes our return to our shareholders (and our bonuses) because, if we don’t, you can be damn sure our competitors will."

Jr. Credit Officer Martin: "Hear, hear!"

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Here’s a crazy real life scene from “Banking in times of the Basel Committee”

Jr. Credit Officer Martin: “But Sir, I believe that borrower to be riskier than what the credit rating agencies and we perceive” 

Bank President Wally: “That might be Martin, but that possible extra risk is more than compensated by the fact that having to hold less equity against it, produces us anyhow a higher risk adjusted return on equity than many of our other loans… and so you better keep that perception to yourself… don’t forget our bonuses”

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You in Davos, anyone, tell us: How risky to the banking system can a borrower perceived as risky really be?

Regulators require banks to have much more equity against assets perceived as risky, than against assets perceived as safe.

I am totally opposed to that because banks, being able to leverage more, will make higher risk-adjusted returns on when lending to the safe than when lending to the risky. And that causes a dangerous distortion in the allocation of bank credit to the real economy.

But all that is obviously based on that regulators think that those perceived as risky, from a credit point of view, are much more risky to banks than those perceived as safe.

Why? How risky can a borrower perceived as risky really be? Is not the opposite true? That what really poses dangers to the banking system is what is ex ante perceived as absolutely safe, but that ex post might turn out to be very risky?

The risk of any asset to the banking system is a function of the length of the road it can travel from being safe to being risky... and that road is obviously much longer for what is perceived as absolutely safe than for what is perceived as risky.

In the same vein, the purpose of banks can be said to be a function of the length of the road a borrower has to travel from risky to absolute safe... and that road is obviously much longer for what is perceived as risky than for what is perceived as quite safe.

Friends, in Davos you might see some very famous bank regulators walking around. Please do not be intimidated by them. They do not know what they are doing... and if they do, so much the worse.

I have a very specific question for President Obama on his State of the Unions address.

President Obama in his State of the Union Address — Remarks As Prepared for Delivery states:

“Will we accept an economy where only a few of us do spectacularly well? Or will we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?”

And which makes me ask: Are we supposed to keep bank regulations who so much favors the infallible sovereigns’ and the AAArisktocracy’ access to bank credit, when compared to that of the “risky” small businesses’ and entrepreneurs’?

To me it is amazing to see how much regulatory aversion against “the risky” exists in the home of the brave.

http://subprimeregulations.blogspot.com/2010/04/please-explain.html

http://subprimeregulations.blogspot.com/2013/11/have-risk-weights-of-current-bank.html

http://subprimeregulations.blogspot.com/2012/07/complaint-i-presented-to-consumer.html

Excuse me Mme. Lagarde, but you and the IMF, are so astonishingly wrong

Christine Lagarde, the Managing Director of the International Monetary Fund, in a speech titled Three “Rosetta Moments” for the Global Economy in 2015 delivered January 15, 2015 stated:

“If there is one lesson from the Great Recession, it is that you cannot have sustainable economic growth without a sustainable financial sector.”

Sincerely, excuse me Mme. Lagarde, but you are so astonishingly 180 degrees wrong.

Current difficulties derive directly from the fact that bank regulators, trying to bring stability, sustainability, to the banks, concocted portfolio invariant credit risk weighted equity requirements. And these allowed banks to earn much much higher risk adjusted returns on equity when lending to the “infallible sovereigns”, the housing sector and to members of the AAArisktocracy than when lending to “the risky”.

And so, as should have been expected, because it is always excessive exposures to what is perceived ex ante as absolutely safe that causes bank crises, we ended up with excessive banks exposures, against much too little bank equity, to AAA rated securities, to the real estate sector (Spain) and to sovereigns like Greece.

And so, as should also have been expected, because banks naturally search to maximize their risk-adjusted returns on equity, the banks abandoned those who are most in need of credit, those same our real economy most need to have access to bank credit, namely “the risky” small businesses and entrepreneurs.

And all this simply because regulators obnoxiously regulated our banks without defining a purpose for these any different from just being safe and convenient mattresses in which to stash away our money.

Mme Lagarde: If there is one lesson from the Great Recession, it is that you cannot have a sustainable financial sector without sustainable economic growth.

We hear all the time about the need to save taxpayer, but to save taxpayers by reducing even more their taxable earnings, sounds about as silly as can be.

Mme Lagarde states: “we must complete the agenda on financial sector reform”. Absolutely, but not by having the same regulators, taking us with their Basel III on even more shady and curvy roads, in the same dumb direction.

PS. Mme Lagarde, this is not the first time I comment on this to you... for example:

http://subprimeregulations.blogspot.com/2013/10/my-question-for-umpteenth-time-to-world.html

Bank regulation for dummies! Dedicated to those in the Basel Committee for Banking Supervision.

First, be aware that even though some individual banks could have troubles because a whole lot of issues, the banking system is never ever threatened by what is ex ante perceived as risky, but only by what ex ante is perceived as absolutely safe but that, ex post, surprises everyone by not being so.

So rule No.1: Make damn sure that banks have enough equity… especially against what is perceived as absolutely safe… which is, unfortunately, just the opposite of what is being required now.

Second, be aware that for the long term stability of banks, there is nothing as important as a sturdy economy. And that for a sturdy economy to exist, it is vital that the allocation of bank credit to the real economy is as efficient as can be.

So rule No.2: Make damn sure that banks allocate bank credit as efficiently as possible… and especially that those who most need access to credit, like small businesses and entrepreneurs get it… which is, unfortunately, just the opposite of what is happening now.

Consumption will be postponed because of deflation? How much truth… how much nonsense?

We so often read of central banker’s being very scared of deflation because the expectation of lower prices would cause consumption to be postponed and therefore economic activity to be reduced. How much truth is there in this… and how much nonsense?

I guess no one in the upper 1% would postpone one iota of their demands because of this… nor is deflation much likely to affect the products and services they demand.

I guess that all who have unsatisfied needs, by far the largest proportion of the population, will just appreciate the possibility of satisfying more of these needs, and also not postpone one cent of their aggregate demand.

And I guess that of all those who could perhaps benefit from some purchase postponement, but who suffer the instant-gratification virus, will also not postpone satisfying any demands.

And so we come down to trying to estimate how much of the population have satisfied their current demands sufficiently; and who at the same time are sufficiently disciplined not give to in to instant gratification, and who therefore would save and net postpone some purchases.

And the savings resulting from those postponements, where would these go?

To sum up... I have no idea!

But I do know that inflation... is a tax that primarily hurts the poor... and so in a world full of Pikettys, it is sort of strange hearing central banker's wish for it... just as hearing central bankers who one normally think of in terms of being very thrifty fellows... wanting to rob value from their children's piggy banks. 

PS. Europe, should oil reach US$ 150 a barrel so as to allow ECB to celebrate having reached its inflation target?

At what moment does intuition turn into an overpowering prejudice that blocks all deliberate decision making?

Intuitively bank regulators think “risky is risky and safe is safe” and impose on banks credit-risk-weighted capital (meaning equity) requirements… more risk more capital – less risk less capital.

But then, in the hope of provoking a better and more deliberate decision, I sit down with them and explain:

First, that what has always turned out really risky for the bank system, has never ever been something perceived as risky, but always something that ex ante was perceived as absolutely safe but that, ex post, turned out to be very risky.

And second, that discriminating this way for risk already perceived by bankers, and already cleared for through interest rates, size of exposures and other terms, dramatically distorts the allocation of bank credit to the real economy.

And they say: “Yes, you are entirely correct Per”… but still insist on doing the same… How come?

At what moment does intuition turn into an overpowering prejudice that blocks all deliberate decision making?

Have anyone of you who participated writing in “Think-ing” edited by John Brockman any idea of how to break through intuitions when these are too powerful?

I appreciate all the help I can get… as these regulations have introduced a very faulty and extremely dangerous risk aversion that is really messing up all the economies of the Western World. These regulations are stopping our banks from financing the risky future by keeping them busy profitably re-financing the safer past

I also read the following on the site of Edge.org founded by John Brockman:

“To arrive at the edge of the world's knowledge, seek out the most complex and sophisticated minds, put them in a room together, and have them ask each other the questions they are asking themselves.”

And that makes me want to ask anyone of you about when complex and sophisticates minds, put together in a room, could turn into a dangerous mutual admiration club?

I say this because there are such monstrous errors in these bank regulations that could perhaps only be explained by the possibility that no one dared to ask the questions… as these had to reflect too badly on a member of the club 

Thanks… and best regards

Per Kurowski

PS. I have discussed part of this regulatory mistake while reading Professor Daniel Kahneman’s “Thinking Fast and Slow”

How much are European taxpayers paying in reduced taxable income?

There is a photo that I cannot let go; that of four European leaders, sitting in a row boat, in a small lake, close to shore, surely surrounded by dozens of security officers and photographers… and they all carry life vests. The only objective reason I can think of for taking that security precaution, is that they might suspect that one of them harbors suicidal instincts and wants to take one of the others down with him… and, if so, perhaps life vests should be prohibited, so as to allow the good-riddance to operate.

And I react the same way when over and over again I hear about how important it is that tax payers should not have to pay for bank failures, without any consideration to whether those bank failures have helped to produce enormous taxable incomes or not.

A damn nannie mentality has taken over bank regulations and is destroying Europe (and others)… it does not even reflect the risk aversion of an average nannie but the risk aversion you get when adding up the risk aversion of two nannies. Absolutely insane!

As a result banks in Europe are now allowed to make much higher risk-adjusted returns on equity for exposures considered as safe from a credit perspective than on exposures considered as risky. And that completely ignores the fact that it is primarily the access to bank credit of the risky borrowers, the small businesses and the entrepreneurs, which will decide the sturdiness of tomorrow’s economy.

If I was a finance minister of any European country I would in fact want to allow the banks to leverage their equity the most, precisely when lending to small business and entrepreneurs… and not like now when they are allowed to do that lending to infallible sovereigns, to members of the AAAristocracy and to the housing sector.

How much less taxable income, how much less availability of jobs results from the regulatory risk aversion in banking is anyone’s guess… but I assure a lot more than any taxes that would temporarily be saved by forbidding banks to take those risks that bankers are anyhow also adverse to take.

Being too right is too bad for your voice

In 1999 in an Op-Ed 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”

And so of course when I surprisingly got appointed to the World Bank as an Executive Director, among the million things management had us doing so that we would have no time to disturb, bank regulations was something I looked at. 

Here are the formal things I said as an Executive Director at the Board of the World Bank, about bank regulations. In retrospect you might have thought I would have a strong voice in the debate. Not so, I was way too right for my own good.

March 2003: In this otherwise very complete Global Development Finance 2003, there is no mention about the issue of the growing role of the Independent Credit Rating Agencies, and the systemic risks that might so be induced, when they are called to intervene and direct more and more the world’s capital flows. 

This is not a small issue… for instance the document states: Basel II “risk weights would be set for a bank’s exposure to sovereigns, corporations, and other banks based on ratings from major credit-rating agencies… the new methods of assessing the minimum-capital requirement is expected to have important implications for emerging-market economies, principally because capital charges for credit risks will be explicitly linked to indicators of credit quality…”

March 2003: Basel is getting to be a big rule book,” and, to tell you the truth, the sole chance the world has of avoiding the risk that Bank Regulators in Basel, accounting standard boards, and credit-rating agencies will introduce serious and fatal systemic risks into the world, is by having an entity like the World Bank stand up to them—instead of rather fatalistically accepting their dictates and duly harmonizing with the International Monetary Fund.

April 2003: Basel Committee dictates norms for the banking industry that might be of extreme importance for the world’s economic development. In Basel’s drive to impose more supervision and reduce vulnerabilities, there is a clear need for an external observer of stature to assure that there is an adequate equilibrium between risk-avoidance and the risk-taking needed to sustain growth. Once again, the World Bank seems to be the only suitable existing organization to assume such a role.

Ages ago, when information was less available and moved at a slower pace, the market consisted of a myriad of individual agents acting on limited information basis. Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg. Once again, perhaps only the World Bank has the sufficient world standing to act in this issue.” 

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. Who could really defend the value of diversity, if not The World Bank?

October 2004: Phrases such as “absolute risk-free arbitrage income opportunities” should be banned in our Knowledge Bank. We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.

And then of course is the speech I gave to some hundred regulators, but that none of them heard :-(