IMF Chief Urges Coordinated Finance Rules http://online.wsj.com/article/SB100...3142273304642.html?mod=WSJ_hpp_sections_world G-20 Seeks Role In Post-Crisis World. *This article scares me!!! http://online.wsj.com/article/SB100...3153584265106.html?mod=WSJ_hpp_sections_world
Another idiot that will save the middle class with a trans tax. ----------------------------------- U.S. Rep. Braley: My blueprint for recovery 1/28/2010 ..........Thatâs why I started the House Populist Caucus, which exists for the sole purpose of promoting policies and supporting legislation that will strengthen and expand the middle class, rather than prop up Wall Street trading houses that have become âtoo big to fail.â .... ....We need to stop excessive and risky speculation on Wall Street by passing the Let Wall Street Pay for the Restoration of Main Street Act (H.R. 4191).... ^iowapolitics.com/index.Iml?Article=183622 ------------------------------------------------- The Populist Caucus was formed almost exactly a year ago, on February 12, and has since grown from 23 members to 30 (the last of whom just joined in the past few days). With Populism obviously being the new White House theme, it seems more than likely that this group will grow in the coming year, as more and more Congressmen realize that Populism may be the overarching theme not just of one presidential speech, but also of this November's midterm elections. ^huffingtonpost.com/chris-weigant/before-and-after-obamas-s_b_439348.html -------------------------------------------------- Above article from Wednesday. No comment activity since and little of it. Doubtful if any Huffy readers would read our responses and might only encourage the author to write more about it.
A member of the academic community (judging by his 'ibidem') has recently contributed to the IMF a comprehensive list of arguments against transaction taxes (I do admit to one count of reciprocity manipulation - as in bribing + toadying - to entice one high-profile scholar to do it, so I hope it was actually you Ben. Anyway, this mini-treatise is so comprehensive and well-referenced (i.e. ready to use by source-checking journalists or report writers), that it is well worth saving it for our ongoing battle with the latent Tobin virus... FINANCIAL TRANSACTION TAX WOULD BE DISASTROUS (1 of 2) Tax rate of 0.005% is only "nominal" to those who are ignorant of how markets work and who do not understand the difference between profit and margin. The margins which allow marketmakers and market specialists (short term and long term speculators) to create liquidity, lower costs and increase access to capital, are razor-thin By way of example, the cost of trading EURUSD is typically 1 pip (0.001%) or 2 pips (0.002%). For many traders, the cost (ie the spread) is the difference between profitability and non-profitability, ie the difference between contributing to liquidity on the one hand by participating in the market, and economic inactivity on the other. A proposed FTT of 0.005% would impose between a 250% and 500% increase in costs!!! This would absolutely decimate affected markets; it would have a plurality of highly undesirable effects. As Otmar Gissing, former European Central Bank chief economist, stated on 26th October 2009, "[The FTT] is not well founded and would fail" 1. Liquidity The FTT would destroy volumes and greatly discourage hedging; "The Tobin tax would discourage hedging...[which] helps to spread risk more evenly" Helmut Reisein, OECD Development Centre, May 2002; "A transaction tax...I think would have very, very negative implications for volumes and for the cost of trading for retail investors" Duncan Niederauer, CEO NYSE Euronext, January 2010 2. Volatility (a) AFA 2003 Washington DC Meetings, EFA 2002 Berlin Meetings; Presented Paper - studies have repeatedly shown that transaction taxes INCREASE voltatility; they deter the continual realignment of price to market conditions and reduce the diversity of participants in the market; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=311700 (b) Lanne,Markku and Vesala,Timo (2006): "The Effect of a Transaction Tax on Exchange Rate Volatility,/"/ Bank of Finland Research Discussion Paper No. 11/2006 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1018363 "A Tobin tax will lower market liquidity and hence raise volatility. In other words, it can prove more damaging than the exchange rate stability it is aimed at curing" Ganesh Raj, Tax Partner, National Leader, Ernst & Young, India, Business Standard, 11th November 2009 3. Jobs Overnight, an 0.005% FTT would destroy or jeopardise hundreds of thousands of jobs and businesses, as well as indirect employment and significant tax receipts. For the intraday specialist who provides liquidity, smooths volatility, continually adjusts price to market conditions, pays taxes and provides jobs, an 0.005% FTT might typically be tantamount to a new 50% tax on profits in advance of and in addition to general taxation, as well as a 50% tax on losses "...the [FTT] thesis rests on an assumption that speculators - whether in forex or any other market place - are a bad breed. In fact they are an exceptionally useful lot, working day-in, day-out, risking their own wealth to supply a thing called liquidity" The Guardian, 30th August 2001 . What might one expect if governments began taxing general business income and capital losses at 50%?! Immediate retardation in economic activity would be inevitable; and the effect on the market would be no different. "The effect of a transaction tax can be extremely damaging...Essentially it's a tax on jobs" Xavier Rolet, Chief Executive of the London Stock Exchange 4. Total lack of efficacy "While the illiquid and low trading frequency credit markets (at the heart of the recent trouble) froze last year, the more liquid equity markets had fewer issues clearing and the highly liquid, rapidly trading Group of Seven government bond and forex markets cleared consistently. So the tax would hit the source of the problem the least and directly diminish the liquidity, therefore increasing the risk, in the markets that did continue to function because these markets have a higher average trading turnover" David Beddington, Letters Page, Financial Times, 15th December 2009 - intraday market specialists bore no responsibility for the credit crunch and received no government money. Had the credit derivatives which caused the credit crunch been subject to rigorous and continual pricing in the market, the credit crunch would not have happened. The guilty parties were a number of readily identifiable large institutions. An FTT would sanction the cure, not the problem! "The solution is clear, and it is not a tax on financial transactions; bring default risk back into the calculations of unsecured creditors and other counterparties of the financial sector. This would eliminate the capital subsidy to the industry. The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions" Willem Buiter, Financial Times, 2nd September 2009 5. Increased costs "The [FTT] would merely pass on that cost to the borrower" Henry Kaufman, Author of The Road to Financial Reformation, Bloomberg Radio & Television, 2nd September 2009 - the cost of the FTT would be passed on to the saver, the investor and the pensioner. The cost increase would be a double whammy - the tax itself plus in addition wider spreads caused by the destruction of liquidity; "Transaction taxes carry the risk that...it is the ordinary saver who ends up paying" Richard Saunders, CEO Investment Management Association 6. Systemic instability "In reality, the short-term capital movements that are blamed for market volatility often serve to keep markets functioning and stable. That's the historic role of the 'market specialist', whose socially critical function would be attacked by a Tobin-style tax on short term trades" The Tobin Tax: A Bad Idea Whose Time Has Passed, IRRP, A.R. Riggs and Tom Velk 7. (political)
FINANCIAL TRANSACTION TAX WOULD BE DISASTROUS (2 of 2) 8. Overestimation of Potential Revenue The revenue raised would be far less than its proponents claim. It is remarkable that they see no contradiction in using existing transaction volume as a basis for their calculations when their stated aim and the certain effect of such a tax would be to radically deflate economic activity. Intraday liquidity and hedging would be inhibited, tax avoidance would rise considerably and enforcement costs would spiral. "A Tobin Tax would probably reduce foreign trade and investment, increase the use of other mechanisms for transferring "value", be an administrative headache for private parties and governments alike, distort the structuring of transactions...and have other unforeseen consequences" Professor Ethan S. Burger, international scholar and lecturer (to the IMF and World Bank amongst others) "[An FTT] assumes two things - firstly, that everyone in the world applies it in the same way, and secondly that there's no financial innovation. In the first case business will simply flow to the countries that don't apply the tax and in the second case people will just develop new instruments to get around it". Angela Knight, CEO British Bankers Association, 8th November 2009 9. The Unsustainability of Consensus "Having lost most of our 'traditional' industries to the East it would be folly to push the one area where we are still dominant in the same direction" City of London Corporation, 27th September 2009 - Canadian, Russian and American finance ministers have already voiced their opposition to such a scheme. The east is in the process of liberalising rather than adding fiscal obstruction to its markets; India repealed its Securities Transactions Tax in August 2009. An FTT would retard the breaking down of barriers to global trade and any consensus would last only until any first mover, be it the UAE, Hong Kong or elsewhere, appreciated that it would be able to acquire the lion's share of global financial business merely upon ceasing fiscal obstruction of capital flows. The US and UK economies remain intensely vulnerable at this time and it is important that the IMF support them and not encourage policies that could exacerbate future imbalances between east and west. 10. Crucial Role of the IMF "Many of those who support such a tax neither know, nor care, what effects it might have on market efficiency" Charles Goodhart, EuroIntelligence, 26th November 2009 - in the 1930s, politicians under pressure from their electorates delivered ill-conceived populistic legislation which damaged the world economy and deepened the depression. Gordon Brown's damascene conversion to the FTT is the precise modern equivalent. It is imperative that the IMF, which is mandated to take a considered view and which is not subject to immediate pressures, stands up to fulfil the role of defending the global economy from ill-advised initiatives this time round. "People who look at the financial system and see the massive growth in trading volumes of capital market and risk market instruments and conclude that it is all just speculation run amok, just don't get it. They don't have a good understanding or intuition about how risk is dynamically managed in the economy. They want a Tobin tax to suppress speculation, not realising that they will damage the allocative efficiency of the financial system" Sam Wyllie, Core Economics, 11th November 2009 11. Inferior Weapon Against Poverty and Pollution "There may be other approaches: some have talked of tax incentives for companies investing in poverty reduction, or building special trust funds with new issues of special drawing rights (SDRs) by the International Monetary Fund" Helmut Reisen, OECD Development Center, May 2002 - the FTT is a truly flawed way to raise money for foreign aid or climate change purposes; the concomitant risk of damaging the global economic system is significant. Savers, investors, pensioners and liquidity providers no more cause pollution than anyone else. To remain credible, climate change taxation should be restricted to those sectors (aviation, shipping) which actively pollute and whose behaviour would be affected by targeted taxation. There are an array of far more intelligent proposals which would progress developing world initiatives more effectively and safely than by injecting an 0.005% (250-500% cost increase) Tobin blood clot into the financial system: "While emotionally the Tobin Tax is appealing, reducing trade barriers and increasing efforts to combat corruption (eg aggressive investigations and enforcement by regulatory/law enforcement authorities of their countries' obligations arising under the OECD Anti-Bribery Convention as well as the observance of commitments made under the UN Conventions Against Transnational Organized Crime, the UN Convention Against Corruption and other international instruments) are probably better mechanisms for promoting economic development than foreign aid. Professor Ethan S. Burger, ibid 12. Inferior, risky and irrelevant to shoring up the financial system The FTT is an irrelevant, flawed and dangerous distraction from the task of rebuilding the global economy. It would effectively penalise economic activity. Not all market participants would contribute equally. Different types of investors trade at different frequencies; equity market-makers trade more often than traders of collateralised debt obligations or mortgage derivatives. The latter contributed more to the crisis yet the FTT would tax the former more. More relevant and sensible proposals include: examining the separation of commercial and investment banking operations, requiring banks to hold more capital, and the requirement of an appropriate fee to be directly connected with the size of obligations the government is insuring. Transaction taxes, and bankers' bonuses for that matter, are a distraction from the serious business of identifying effective and cogent responses to the credit crisis.
excellent.. you might notice a few changes I've made to Wikipedia also...I think it looks more 'balanced' now, although I will keep whittiling away over the next few weeks when markets are quiet etc.. Would be good if a couple of you could also make some additional minor edits to 'put some sand' between my edits and those of Boyd Reimer..
...indeed, a scary thought, but a merger/subordination of the IMF to G20 would be a global equivalent of that good old communist idea of making Senators redundant. Or even a more precise analogy - merging your national central bank with the government's ministry of spending. They could try it, but it would not work for too long - it is a textbook fact that inflation is negatively related to most measures of central bank independence. The jury has to be independent from the police, or else you would get 100% conviction rates... and that Mervyn King should come up with such an idea... ironic really. Why does Mr King not start with handing over the control over the UK money supply to Brown's finance guy? Doesn't he see the analogy?
He's a co-sponsor so it's not surprising. Worth mentioning is that 15 of the 29 sponsors of 4191 are in the House Populist Caucus. My guess is that the other 13 Caucus members would also support it. This would bring the number of supporters to 54.
My edit to Wikipedia page:- Tobin tax ambitions for a global tax According to US Congressman Dr Ron Paul, "The United Nations remains determined to rob from wealthy countries and, after taking a big cut for itself, send whatâs left to the poor countries. Of course, most of this money will go to the very dictators whose reckless policies have impoverished their citizens. The UN global tax plan...resurrects the long-held dream of the 'Tobin Tax'. A dangerous precedent would be set, however: the idea that the UN possesses legitimate taxing authority to fund its operations." In his 2001 speech to the U.N. World Conference on Racism, Fidel Castro, the former President of the Republic of Cuba, advocated the Tobin Tax specifically in order to generate U.S. financial reparations to the rest of the world. Meanwhile, Europe's first President Herman Van Rompuy, advocates turning Europe into a super-state and is pushing for a first European tax, arguing for a European version of the Tobin-Tax. However, Van Rompuy's sister, Christine, a nurse who famously called her brother "a clown", disagrees saying "any new taxes would directly affect the poor". Boyd's reponse (<24 hours):- Well, the good news is he hasn't deleted the above. The bad news is the heading "Tobin Tax ambitions for a global tax" has gone; the content has been split up...the Ron Paul quote was next to the Fidel Castro quote for a reason! He's shifted the material down near the bottom where no-one will notice; put the Castro quote on its own as a one-liner so it loses its impact somewhat.
CNBC Special "Back to the Future" from Davos. Talking about proposed market regulation. NYSE & NASDAQ heads & Barney Frank from the USA. Worth seeing. It'll be re-run many times. Lots of talk about speculators.