Robin Hood to the Rescue?
February 12, 2010
I don’t really know how I feel about this idea. On the face of it, “an average 0.05% tax across the full range of banks’ financial transactions, including all dealings in shares, derivatives and currencies” sounds appealing. £250 billion a year diverted from financial speculation to socially desirable investment is obviously a good thing.
But if such a tax is implemented, it should be possible to extract a larger amount from such transactions. 0.05 percent, while a large amount in total, is not a disincentive to speculate or innovate. And such innovation gave rise to the sub-prime crisis, which led to the ruinous bailouts that we now have to pay for. Clearly there would be democratic support for a larger levy, but this would meet resistance from the financial sector who would, no doubt, be happy to migrate to less rigorous tax regimes.
Moreover, hitching a sizable portion of the global aid budget to financial speculation is not necessarily wise. Is it such a gain for the world if speculation is allowed to increase again, even if some money flows to health budgets? Perhaps, but in any case this Robin Hood Tax does nothing to strike at the root of our problems.
We need to tackle the globalization of finance, which allows the migration of unscrupulous banks and bankers to more lax regimes (for which the City of London has long been renowned). A global treaty, via the G20 would help, but is vanishingly unlikely. The world’s richest nations, dominating finance capital and the banks which wield it, are not going to kill the goose that lays the golden egg. Indeed, a 0.05 percent levy on transactions could be seen as an innoculation for the goose – a mild administration of pathogens to prevent later infection. It is not a recipe for a fairer world economy.
Any G20 accord would have to do a lot more than levy a tax. It would need to create well staffed and funded structures to regulate international finance and to discipline markets which career out of control, as markets inevitably do. It would need to promote fair trade in commodities, and prevent speculation in vital goods such as food (and energy) – which is equally damaging to the poor.
This would need world leaders to represent their peoples and stand up to entrenched financial elites. That is, it would require them to discipline the world’s richest people – people who tend to fund and to an extent own those very politicians. The power of such people is being vividly demonstrated by the ongoing speculative attack on the Euro prompted by Greece’s economic problems. There has been no word of constructive criticism against such speculation from a major world leader.
0.05 percent is a woefully modest demand. We must go further and fast.
The Hidden Paw 
February 12, 2010 at 8:10 pm
China Dumps dollar denominated Risk Assets
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
February 12, 2010 at 8:11 pm
The world’s so-called “richest nations” are actually deep in debt doodoo — without exception — and would be more accurately referred to as the world’s most predatory nations.
February 12, 2010 at 8:15 pm
See also a very nice summary of just exactly what’s wrong with the global economy by Pam Martens: Wall Street’s Killer Instinct Spells Death Knell for Jobs
February 12, 2010 at 8:38 pm
Having worked (
as a computer guy not on the dark side) in investment banks I’m aware of the tiny profit margins on the deals. A Tax of 0.05% on turnover where the profit is 0.25% is not insignificant. Bank’s huge profits come from the vast amounts of money they move.
But the tax will not worry them. There’s no reason why a dealer at a desk in London cannot be trading on the Singapore, Hong Kong or Dubai markets.
All Brown & Obama’s foolish and vindictive action will achieve is the driving away of our only major wealth generating businesses.
I’m no fan of bankers but we have to keep a grip on reality here.
Robin Hood Tax
February 13, 2010 at 10:08 am
Interesting info on the profit margins, but I disagree that speculative currency transactions are “our only major wealth generating business.”
The business case is being made on a different basis. What the FT reports today is that “banks would pass on a global tax to their customers” while “It would be a stealth tax because no one would know who was actually worse off as a result of it.”
This is a potent criticism. The problem stems from the integration of retail banking and investment banking. In the U.S. this was due to the effective repeal of New Deal era regulations which separated the two functions. If we can disentangle the two very different forms of banking, then it is not possible for banks active in the currency sector to pass on their costs to you or I via bank charges.
That’s not to say that banks are sincere in making this case. They are no doubt concerned for profit margins as you point out. Hence the keenness of Goldman Sachs to rig a poll on the merits of the Robin Hood Tax which is all very embarrassing for the banking sector.
February 12, 2010 at 9:21 pm
The so-called Robin Hood Tax is a slimy confidence trick. Imposing a transaction tax on the banks will not take from the rich to give to the poor; it will just incentivise rich people to find a more cost-effective way of investing. There will be some redundancies in the banks of those people low in the food chain, who would normally process the transactions, which will reduce in number. The tax will produce a small fraction of what could be obtained through progressive income and asset taxation, but these are of course anathema to the owners of our politicians.