Promoting the thoughts of Per Kurowski.
A few days ago, I published a delightful story sent to me by Richard Maugham about Helga’s Bar. It was a tongue-in-cheek look at the crazy world of finance and banking that we seem to be living in at present.
One of the regular readers of Learning from Dogs is Per Kurowski and he left a couple of comments. The first being,
As a former ED at the World Bank, 2002-2004, living close to Washington, writing articles and being an assiduous blogger, I’ve been in the middle of many discussions about those many of the challenges our world faces. And my friend, I am sorry to say, our prospects to solve these problems, do not seem good.
One of the main reasons for that negative outlook, is that I have been able to witness how the discussion of many of these problems, no matter how urgent these are, so often get hijacked by a political agenda, or by a group that decides making a business, or a living, out of it.
If we cannot break out of this mold, unfortunately, the world is toast, and this, not only from a global warming perspective.
which was then followed up by,
By the way, I managed to sit down a prominent and important bank regulator in my chair yesterday, though he was invisible and quite silent!
I then replied,
Per, just love that. Any chance of you penning a guest post that could set the background to that video in terms that make it easy for the punter to understand?
So here is Per’s interview (sound volume is a little low) and his views.
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Paul… well here is “a brief summary of my thoughts on banks and risks”
Capital requirements for banks which are lower when the perceived risk of default of the borrower is low, and higher when the perceived risk is high, distort the economic resource allocation process. This is so because those perceptions of risk have already been cleared for, by bankers and markets, by means of interest rates and amounts of exposures.
All the current dangerous and obese bank exposures are to be found in areas recently considered as safe and which therefore required these banks to hold little capital. What was considered as “risky” is not, as usual, causing any problems. This is not a crisis caused by excessive risk taking by the banks, but by excessive regulatory interference by naïve and nanny type regulators.
And, if that distortion is not urgently eliminated, all our banks are doomed to end up gasping for oxygen and capital on the last officially perceived safe beach… like the US Treasury or the Bundesbank.
Bank regulators have no business regulating based on risk perceptions being right, their role is to prepare for when these perceptions turn out to be wrong.
A nation that cares more for history, what it has got, the haves, the “not-risky”, the AAA rated or the “infallible” sovereigns, than for the future, what it can get, the not-haves, the risky, the small businesses or the entrepreneurs, is a nation on its way down.
Per.
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You may read more from Per on his blog here, and also read Per’s Tea with FT blog! So let me close by saying that Per’s summary seems like a blast of sanity in an otherwise crazy world!
Learning from Dogs 
Paul, what more can I say, but thanks for this kind words.
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Per, my honour.
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Dear Per;
We need vision. Indeed.
So what are banks for, what do they do? Should Shadow Banking and Derivatives be eliminated? Where does money come from? What is it? What’s the connection with government? What’s private about a private bank?
Should Royal Bank of Scotland be nationalized fully so that it can be forced to lend to the future, as you put it, id est small and medium companies, as is presently discussed even in the right wing Cameron government?
Many of these philosophical and quasi philosophical, and some even mathematical, questions are not discussed, but they are central to the present Greater Depression.
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Dear Per 2: To quote you in comment 28 in the preceding post about you:
PA. So to understand my frustrations have a look at some of my early public opinions on this and take in consideration that I was not a banker and not a bank regulator.
http://subprimeregulations.blogspot.com/2004/11/some-of-my-early-public-opinions-on.html
So, to impersonate Paul, I would say: who are you? OK, I will look at the link. BTW I agree about the rating thing, of course. It ought to be something government mandated, regulated, etc. With possible pursuits of gov officials in full exposure.
Certainly there should be government owned rating agencies. In competition with private ones. Same for banks.
PA
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Very interesting post indeed, Paul. Thanks for sharing
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Dianne, thanks for that feedback, Paul
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