Thank God the adults have arrived, finally. The IMF has just come out with its suggestions for how we might want to tax and reform parts of finance and is saying things which are sensible, at least in part. In doing so they've continued the process of killing the Robin Hood Tax stone dead, which is great news. Well, something …
But shoorli minishtur
The UK Government now owns shares in lots of organisations so rather than RHT there might be a more modest income based on dividends and/or selling shares at a reasonable price?
on the share prices as this would kill the value of the banks. Lets say the government decide to sell RBS share on the cheap to allow Joe public to have a chance of owning them. Presently they are just over 53p (53.775 at the time of writing), if the Government offer them to the public for, say 30p a pop, they've just halved the value of the company. Ok what I've written is some what simplified, but it is correct. Also it result in the bank being very heavily shorted in the lead up to the share release.
On the dividends - the government already gets a preferential one on their 'special' shares, which is why Lloyds have already bought some back and both Lloyds and RBS are looking to buy back the rest ASAP.
While it is nice to see someone put the arguments in proper economic terms, the basic principle here has been well espoused by others: If you tax the bankers they will simply pass that along to us through charges, lost interest and additional taxes elsewhere to prop up the system that in turn props the bankers up.
The correct solution is to go after the assets of all those who took risks (remember how they used the word risk a lot when justifying salaries and bonuses, right up to , oh, 2 years ago) .
We take back the salary and bonuses, or property realised off them, until they are living in a 2 bedroom terrace and cannot afford a new car. No excuses, they become controlled individuals and it is up to them to prove that any money they now display was earned -after- they f**ked up, and honestly so.
That won't earn much for us in the short term, I'm sure they have already gone to great lengths to salt their bonuses away. But it will greatly benefit us all going forward if the bankers (and others in similar sinicures) suddenly have to work in an environment where the risks they take include themselves, as well as us little people.
I think you need to re-think that
Who F* up? We don't realy know, but mostly the US. UK banks caused very few of the problems.
Basicly the US banks took to many risks with lending to people who could not afford it. This would be fine, except due to the way the bonds backing these were traded the risk got to allot of places it should not. The markets took on these debts because the bad debts had been mixed up with good debts like govenment bonds, and due to the way they were traded they looked like they were AAA rated (Its very complex and I don't understand it at all TBH).
This then ment that the finance markets got worried and stopped lending to banks with poor, but not as bad as the US, loan books. This caused the banks to, basicly, run out of money.
It is realy not as simple as "the city boys f*d up", as the artical explaines.
not just greedy US banks
but greedy US politicians. If they didn't push the banks to make the loans, and didn't cook the regulatory books, the whole thing would have imploded long ago, with a whimper instead of a bang. Just a few politicians lose their jobs.
Banks, after all, aren't into making loans to lose money, and if there's going to be risk, somebody else is going to be holding the bag. That would be Joe Taxpayer.
The noise about CDOs just obscures the fact that they were a risk transferal scheme, and the people who foolishly bet that the government wouldn't be fool enough to push trillions in bad loans learned a valuable lesson regarding the malfeasance of politicians. It's like the old saying about playing cards with strangers. If you don't know who the sucker is, go to the bathroom, look in the mirror, and see if he's shaved his chin as clean as his wallet will be.
Now, it looks like the US government plans to institutionalize the bailout system, rather than using the bankruptcy court to separate the men from the boys.
Money in their vaults? LMFAO
How can you believe that banks still keep "money" in their "vaults"? Or was that a figure of speech intended to simplify things for those who think that people's savings are used to create loans.
When banks get deposits they invest them to so they can make some profit and pay the interest due to the investor, yes. But when they create loans they just write the amount of the loan into the borrower's account. They used to have to actually deduct some percentage of the loan (usually 10%) from their balance sheet (google Fractional Reserve banking). But thanks to Gordy removing the reserve requirements, even high-street banks can create money out of nothing, lend it out and then have the cheek to demand interest on it. Interest is intended to compensate the lender for loss of investment opportunity. But if the money didn't exist until it was loaned, where's the loss?
And where does the borrower get the extra money to pay the interest on the loan? Well, if you follow it for long enough it can only come from another loan, made to somebody else. Which in turn requires interest. So the whole system* creates poverty by design as there can never be enough new money created for everybody to pay off their loans, so some people always default and the bank takes their house / business to sell off.
It only works because most people don't know how it works. Somebody will come along in a minute to declare that the above is all just a conspiracy theory and everything's fine.
* The banking system, not capitalism.
Sod conspiracy theories
I think you just gave a rather good, though simplified, account of Northern Rock.
although banks needing money to pay interest to depositors? Your havin a laugh...
Considering the uproar on bankers bonuses and so on - it seems to me that two potential solutions are: 1) massively increase the tax on bonuses above a certain amount (i.e. 50% tax on bonuses of > £100,000 or some similar stepped taxation). 2) regulate that bonuses can only be X% of profits after tax. Option 1 would be easier to manage.
As for preventing World Banking Crisis 2.0 - implementing jail terms for the selling/forwarding of toxic loans (same as fraud offences) might go some way to preventing a repeat performance...
Won't work unless it's world wide
When RBS went to limit their bonuses, it was done on a world wide scale. Promptly they lost 1/3rd of their top investors in Singapore (Far East markets) - think it was Jan 20th when that headlined the FT.
Until Germany said they would consider joining in the new regulations that were being talked about, guess where the US bankers were going, and as Switzerland has said it will not impose any bonuses taxes/limitations, guess where many of Europe's bankers are now going, and we're talking about the ones who do make money, not the ones who don't.
Switzerland, Arab Emirates, Singapore, are all refusing to implement any restrictions as they know this will (and already is) allow them to cherry pick the cream of US and European banking, moving the world's financial centres out of London, Tokyo and New York to them.
A 50% tax on bonuses > £100,000 effectively exists with the new 50% income tax on earnings > £150,000 as most people on that kind of bonus will have a base > £50,000 anyway... So, by the time the banks paid the 50% corporate bonus tax levied this year, the goverment walks away with about 75% of it anyway. Not much left to tax really.
Fraud is bussiness nowadays, at least in banks
"As for preventing World Banking Crisis 2.0 - implementing jail terms for the selling/forwarding of toxic loans (same as fraud offences) might go some way to preventing a repeat performance..."
Brazil has a good way of preventing that: Every banker is _personally responsible_ while working and 5 years after that to banks well-being. That means bankers and familys personal property, all of it.
No matter if fraud is detected or not. That's a threat that keeps even bankers honest.
No surprise that Brazilian banks are doing very well.
Why isn't this used in EU/US? Because bankers _know_ what will happen and they have enough power to prevent this kind of legislation for ever.
Responsibility in US is seriously negative, most fraudsters got 10 years pay in cash when they were fired for fraud. If you do frauds, not only you earn more, you could also get a golden parachute worth of 10 years pay, usually millions!
Only problem is to fraud without breaking the law but that's the lawyers are for and top banks have top lawyers, they know how how do you steal legally.
Tim Worstall in "Don't Tax The Rich" shocker!
"So, the Robin Hood Tax is not a tax on bankers, it's a tax on us and a very expensive one to boot."
Yes, well, I'm sure that Tim and his buddies would argue that every super-tax would really be a tax on us the plebs, dontcha know.
Why is this news, or even in the Register (which is descending into an online Torygraph)?
When you've lost the argument, attack the person making it.
Is this the best you can do?
The purpose of a financial regulator is to say "No!"
After decades of deregulation, it is painfully obvious that the banks will inflate any bubble as much as possible for as much profit as possible and deny that it must burst, even though it's a mathematical certainty and repeated throughout history. That is, anything the banks want leads to instability. Therefore, to ensure stability, we must deny anything the banks want. If the banks aren't complaining, a regulator must investigate what is going on and stop it.
Securitisation makes the inflation and subsequent burst far worse. This is why this banking crisis is far worse than the last one. It is imperative that the banks are screaming like toddlers because that's what they are, irresponsible toddlers. But with our pensions.
even more reckless ?
If there is the danger that the banks get rckless when insured then the insurance compny has to keep the bank under control to avoid the worst risks.
Nice in theory
But what happened to AIG proves it does not work alas.
Isn't the problem
that we and the banks just borrow too much too cheaply? From the outside it looks like a pyramid game.
Surly we've got to slowly move away from everyone borrowing for everything, to having some lenders and some borrowers.
I'm also unsure about this whole 'we lost money" business. I invest in a fund, they give the money to some American bank or other, then the money goes to someone to buy a house. I never see my money again as the house owner can no longer pay. However, someones now go the house on the cheap, so the money hasn't just disappeared, it's just gone to whoever ended up with the house on the cheap.
Anyway, yes the IMF ideas aren't so bad but they don't really address the issue. I'm sick and tired of my life being screwed up by a bunch of stupid bankers I didn't elect. It's bad enough with the government, but at least I can vote against them!
It's also it as too easy to borrow
The amount of interest earned on loans is always greater for the banks than the amount of interested paid out for the same value in savings - it's traditionally been a profitable way for the banks to make money. It all works very well until the people with the loans find they can't afford them and start to default. Suddenly the money to pay the interest of savers is not coming in and the paper value of the bank goes down. Guess what happened in the US and set off the last world crisis.
Due to people being given loans, mortgages and credit card limits they could not afford (over here as well), the value of funds dropped, causing the value of banks to drop, causing hedge funds to short the hell out of the banks, reducing their values even further (RBS, HBOS, Northern Rock, ...)
The IMF idea may well work, and banks are now far more restrictive on who they're willing to loan to (some would say too restrictive) but most the bankers who got us in to this mess (Sir Fred Goodwin and his huge ego being a rare exception), are not the ones who receive the high bonuses, but more the mortgage advisors, credit controllers, etc ....
The high up underwriters, who set up the automated credit checking, and the people who bullied them in to making the credit policy more and more libral. The advisers do what they are told (except the ones who told people to fake income, which is a diffrent matter), and the credit controllers in banks are mostly debt collection, because they have underwriters.
Agree there as well.
The banks going bust was one thing, getting bailed out and then spunking it on massive bonuses means they deserve to be fucked over. Bastards.
The point isn't revenue, it's raising the cost of gambling.
We had a bubble and a crunch because the stock exchanges made complicated deals where the amount of money risked was disproportionate to a small expected reward. Because making a small money deal or a big money deal costs about the same to administer, there was no disadvantage to making bigger deals except for putting the whole world economy at risk. The next money making scheme is equally breathtaking: moving your money from one investment to another every one-thousandth of a second. It's insane. The role of tax in all this, then, isn't to raise a great revenue, but to impose an extra cost on each deal so that only deals that are individually and unambiguously worth something are done.
All very well Carnegie - but if you read the article, you'll know why the Tobin Tax won't work.
Why are you wasting your time and everyone else's advocating it, then? You don't seem very intelligent.
Coming from the UKIP press officer I'm not sure how much credibility you have
The reasons you gave where simply scare tactics and given your background we can obviously see what friends you want to protect and argue for.
What this tax would do is stop or penalize micro second day trading, as you said in your article the margins on this are extremely small so this would eat this margin. How the bankers "make" the money is by doing it thousands of times a second so it all buids up and this would stop this.
It might actually stop this risky immoral behavior altogether and this is obviously welcome as THIS doesn't generate any money for our economy, nothing is created, no service is performed. The banks by doing this are taking the money out of our economy i.e. us and giving us nothing in return.
It's nothing more than a scam and in my opinion just a fancy way of stealing.
It's basically what Richard Pryor did in Superman 3.
Fair point but...
As mentioned in the article, it wasn't this that cause the crisis.
"How the bankers "make" the money is by doing it thousands of times a second so it all buids up and this would stop this." WHY do you want to stop this?!?!? OK the whole banking system is a big farce built on imaginary money, but this bit actually "works".
"The banks by doing this are taking the money out of our economy i.e. us and giving us nothing in return." - well no. The bank makes a profit - their staff get paid, their shareholders get a dividend, and the bank has money to invest in new business etc.
For now all *I'd* do (& IANAB) is fix the system so that the last crisis can't happen again (or can easily be mitigated) and then step back and think before doing anything else. Knee-jerk reactions/laws/regulations never really work. & Yeah i know it's how the current (UK) government operates but hey...
The bankers would behave more responsibly if each one had an armed commissar standing behind them at work. I'd suggest 18-year old unemployed Geordies for the role.
So - Banking is not a free market then?
Interesting article, Tim, but you seem to be saying that banking is not a free market, which is perhaps true.
You suggest that the Forex market can just double it's take (from 1bps to 2bps) when costs go up by only half that. In most other areas of commerce, you would struggle to put up prices by the amount of cost increase - certainly not by more. So I guess you are saying that Forex is not subject to normal market forces. Isn't this a bad thing?
For a free market to operate, you need barriers to entry to be as low as possible, and full disclosure (otherwise all trading is insider trading). Since the Forex market is NOT a free market, perhaps you could suggest how it could be made to be one? The 'bonus culture' is another indicator of a lack of actual market competition too (though usually the opposite claim is made).
Perhaps one way would be to split up the major banks, who would appear to operate a cartel, into smaller banks which would compete with each other. But I don't think you like that idea either.
A bank that is too big to fail is also too big to insure (hence AIG). So, how do YOU suggest we avoid another crisis?
Finally, the Tobin Tax (RHT) is not designed to avoid the next crisis, but to damp down (not eliminate) speculation. Are you saying it wouldn't do this?
Not a free market?
What are you talking about? Forex is about as free as you can get, with many companies offering trading accounts with tiny spreads on them.
That you are essentially betting on up/down movements, which very few people can predict accurately (including the well paid traders!) is another matter entirely. I wouldn't try but I know some people who do....
Putting tax on transactions is a bad idea. Increasing cost of sale decreases liquidity - why do 100 transactions a second when you can get away with 1 a minute? I guess this is why Tim thinks the spreads will widen, and I am inclined to agree but only to some extent. The main reason for spreads increasing was the lack of competition because many banks got scared and left the market, and the ones that were left saw a profit opportunity.
Liquidity is a good thing - it sets a fairer price for everything, making it harder for the "big boys" to price fix. Consider trying to sell your car - if there is only one person who is buying cars that month they can set whatever price they want, and you either have to take it or wait another month. With 1000 people buying cars (more liquidity) you are going to get a fairer price.
Anyway the main point that a tax on transactions will be stupidly bad for just about everyone, and not hurt the banks is completely valid.
Isn't the problem...
with all these schemes to tax the bankers that we, the normally people, end up paying it anyway?
If these intitutuis are forced to pay more tax then they put up their margins so we pay more, much like anything else in life really.
Anyway, the suns out so time for a pint.
Your logic is flawed
You're citing capitalist economic theory, and capitalist economic theory is a load of smoke and mirrors. It simply exists to make the rich richer. And no, I don't know an alternative, but there must be one.
"You're citing capitalist economic theory, and capitalist economic theory is a load of smoke and mirrors. It simply exists to make the rich richer. And no, I don't know an alternative, but there must be one."
There is, it worked really really well in the USSR, so much so that they were all able to retire.
Well explained... I couldn't believe it when even Radio4 started interviewing luvvies about complex macro economics.
PS. I had a sub prime mortgage, when I first got a house, I have therefore been part of the problem.
Its bankers --------- fuckem'
because they have fucked me so many times.
Anything that make a banker squeal has to be a good thing.
"Anything that make a banker squeal has to be a good thing."
Until it makes you squeal as well, then not so much, which is rather the point.
""Anything that make a banker squeal has to be a good thing."
Until it makes you squeal as well, then not so much, which is rather the point."
It's missing the point, quite totally.
A 0,5% more tax (on top of that 30 I already pay) won't interest me an iota.
But it hits a banker hard_ as they aren't paying any tax now_ so 0,5% is a lot. Also they are waving billions, 0,5% from that is a lot of money, well worth of collecting.
That money is just used to steal from the citizens of the country whose current you are betting against, it's not producing anything. Just a way of do a legal theft.
The problem with this article is that it is just dripping with little insults showing how clever the author is and how stupid anyone that disagrees is - that the message is lost somewhere.
"the adults have arrived"
"“bankers are icky " "eminently sensible even if it did emanate originally from the Obama adminstration."
"We've had the luvvies make their suggestion, the Robin Hood Tax, and now the adults,"
It comes from such a narrow political and economic viewpoint that I find it difficult to take seriously. Even if it had an eminently sensible and reasonble point to make, among the ad hominems and straw men; I simply can't be arsed to try and track it down.
But you don't
and the thing is, regardless of how patronising he may seem, he's actually right. Countries that have threatened a RHT have seen their bankers got to Switzerland, China, Abu Dhabi. Those banks that have clamped down on bonuses have seen staff walk (FT 20th Jan - 1/3rd of RBS's top money makers in Singapore quit as a result of their bonuses being cut and head en masse to a Swiss bank).
Allot of it seems quight needed
Because, as you can see from the comments here, there are to many crying little kiddys screaming about bankers, who clearly know nothing more than they have been told by newspapers, most of which was written by people who's last expirince with any type of maths beyond woking out the cost of two pints of larger and a bag of pork scratchings was 40 years ago when they did o-level maths.
Quight frankly I am getting very fed up with stupidity like that driving our polotics. Its much the same thing with things like some people wanting rid of human rights law and mixing up illigal imigration with job and assilum seekers.
"Because, as you can see from the comments here, there are to many crying little kiddys screaming about bankers"
So, in your opinion, the thief (the bankers) must not be stopped because some obscure reason you don't understand even yourself. Nor bother to explain.
Ok, thats very adult thing to do and now you can go and brag to your fellow bankers about it.
The rest of us see you as an idiot.
what a poor excuse!
Don't tax the rich because in the end the poor will pay..... mmmm I am not convinced.
Also there are certain flaws in the logic:
>>> Taxing FX is a limitation on such free movement and is thus illegal.
So a tax would be illegal because it is a limitation on free movement of capital, but the ridiculous fees that banks put on any transfer of money between the UK and the rest of Europe (including Euroland) is not illegal.... why???
The bank fees are fees... a charge. You may as well say "Car companys charge for cars, thats not fair" They charge a fee for moving the money. A tax is something totaly diffrent.
We Live in a Very Strange World
Andrew Penfold is right on the money - so to speak. I was absolutely flabbergasted to learn the truth about the "Fractional Reserve System" operated by the banks in collusion with governments worldwide.
If anyone doesn't know about this they owe it to themselves to find out. Once you know the truth you will be truly shocked at the ridiculous financial world we live in.
Somewhere on the net there's a rather good animated movie called "Money As Debt" which explains the whole thing in cartoon form.
It's tempting to become a banker myself! All I need do is
- put £1,000 in a drawer
- Create an account for a punter
- Lend him £10,000 (except I don't, I just scribble £10,000 into his account)
- Collect the interest on the whole lot
When the world is run along principles like that, it's a bleeding miracle that the banks managed to lose so much money.
Then again, what's money anyway, when it comes down to it? The government can squeal and moan about handing out a few quid to the likes of nurses, but when the fat cats in the city start puking they just conjure billions of pounds out of nothing. Amazing.
Fractional Reserve System
The Fractional Reserve System dose make sense. It is based on the idea that a bank will never have 10% bad debt, and that they will never be giving out more than that in cash. It is not worrying at all.
In all my reading thus far about RHT I've seen nothing that said it was proposed now as a 'solution' to the worst excesses of banking that got us into financial trouble the last few years. On checking the RHT site just now I also can't see them saying "This will rein in the banks and prevent a recurrence of what happened in 2008". It's all about "the banks make lots of profit on tiny transactions, how about we tax that and use the money to help the unfortunate ?".
So, got any quotes that show RHT campaigners are thinking that way, or are you simply setting up a strawman in this article so you can knock it down ?
Nearly but not quite
"But thanks to Gordy removing the reserve requirements, even high-street banks can create money out of nothing, lend it out and then have the cheek to demand interest on it."
No, not quite. The old UK regs were replaced by the Basel I and II regs. Different, yes, but the same effect on requiring reserve requirements.
"Yes, well, I'm sure that Tim and his buddies would argue that every super-tax would really be a tax on us the plebs, dontcha know."
Some taxes are, without a doubt. Some are not. The trick of "good" taxation is knowing the difference. The whole subject is called "tax incidence" and it's something the Robon Hood guys should have looked up before they made their proposals, not after.
You know, before people like me started acting like terriers biting their ankles.
"Some taxes are, without a doubt. Some are not. The trick of "good" taxation is knowing the difference. The whole subject is called "tax incidence" and it's something the Robon Hood guys should have looked up before they made their proposals, not after."
That's a convenient excuse though, isn't it? Why, you could claim that *any* tax on business was a bad thing, if that were really true.
By the way, you claimed that this wasn't something that the bankers weren't afraid of, because there hasn't been squawking about it yet? Well, we'll see what happens should the EU or the US adopt this. In the meantime, a quick Google gives back:
Goldman Sachs getting caught trying to fix an online poll on the Tobin Tax:
The FT covered it:
The Tories are against it:
The Adam Smith Institute Institute is against it:
(The above written by a "Tim Worstall" - perhaps someone you know?)
The Torygraph really, really doesn't like it:
Wall Street Journal:
US Chamber of Commerce:
Just a note
"Coming from the UKIP press officer I'm not sure how much credibility you have"
I used to be such. I have been such. I am not now such. I haven't been for nearly a year.
Adjust your credibility rating to suit.
"We had a bubble and a crunch because the stock exchanges made complicated deals where the amount of money risked was disproportionate to a small expected reward."
Do try to keep up. The crash was caused in the mortgage market. Mortgages are not traded upon stock markets. Thus complicated deals on stock markets were not the cause.
Not the mortgage market's fault
I don't care whether it was the Stock Exchange or the Corn Exchange that gave us the global squeeze. Mortgages come into it because financial devices were created for investors to put their own money into providing mortgages whether people could afford to maintain the mortgage or not. Without those stupid devices, there would have been no scope to sell mortgages to people who shouldn't have been sold mortgages. As it was, mortgage agents were being paid big bonuses for ruining their employer.
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