Tuesday, August 22, 2023

A letter in Washington Post: "The economic revolution"


In his Aug. 17 op-ed, “Team Biden wants an economic revolution,” Robert B. Zoellick wrote, “National security adviser Jake Sullivan has argued that reliance on private businesses and markets has resulted in major economic and social failures. The Biden administration instead relies on state direction in areas of the economy far beyond infrastructure, R&D and education.” That might be so, but such a revolution has already been going on for 35 years.

Former Federal Reserve chairman Paul A. Volcker, in his 2018 memoir, “Keeping at It,” co-written with Christine Harper, wrote that assets for which bank capital and equity requirements were nonexistent were what had the most political support, sovereign debt. A leverage ratio discouraged holding low-return government securities.

That referred to Basel I’s 1988 risk-weighted bank capital requirements with decreed risk weights: zero percent federal government, 100 percent taxpayers. If that’s not an economic revolution, what is?

Independent of Treasurys being safer than other bank assets, those risk weights de facto imply that American bureaucrats know better what to do with credit for which repayment they’re not personally responsible than, e.g., American small businesses and entrepreneurs.

What would the Founding Fathers think?

Per Kurowski, Rockville

“Assets for which bank capital and equity requirements were nonexistent were what had the most political support, sovereign debt.”
If that’s not a valiant, courageous and honorable confession by Paul Volcker what is?
Thanks Washington Post for not ignoring it.




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

Friday, August 11, 2023

Few things fertilize populism as much as excessive government resources.

Few things fertilize populism as much as excessive government resources.

Sir, I refer to “Populism thrives because people are mad, and also because they’re sad” Charles Lane, Washington Post, August 10, 2023.

Without opining on its arguments, as someone from a nation cursed by centralized oil revenues (Venezuela) I must remind you that few things propel populism, of the good, bad or ugly types, as too much government financial power. 

So let me quote Paul Volcker from his 2018 autobiography “Keeping at it” penned together with Christine Harper: “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”. Which, for the risk weighted bank capital requirements of Basel I in 1988, meant decreeing risk weights of: 0% Federal Government – 100% We the People.

That has set the America I admire on a course much different from what its Founding Fathers dreamt of. Neither the US Congress or SCOTUS have ever questioned such regulatory overreach.

I asked ChatGPT – OpenAI: “From a political philosophy’s angle, where would those risk weight most likely fit: Russia, Argentina or the United States?  It answered Russia and Argentina. “Government assets receiving preferential treatment over citizen assets, would not align with the prevailing political philosophy in the United States.”

Sir, has AI got it all wrong?

The more there's in the piñata, the larger it is, the harder will be the fight for its contents, so as to gain access to what can be shared out (against support/votes) to admiring/needing supporters.

Pocas cosas fertilizan populismo y autocracias tanto, como excesivos recursos gubernamentales. Cuanto más en la piñata, más dura la lucha por su contenido, para tener acceso a que compartir, entre admiradores y partidarios, contra su apoyo y sus votos.


@PerKurowski

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