the taxpayer should no longer foot the bill for banking crises and also suffer their fallout
Global financial markets must be brought into closer alignment with the values held by the mainstream majority
a tax on financial transactions, a contemporary version of the famous Tobin tax.
to be globally implemented and not to distort the operation of the financial markets.
a financial transactions tax is that everyone does
is the economic and moral relationship between Big Finance and taxpayers symmetrical and fair? The answer is obvious.
given US proposals for central exchanges for many forms of financial trading, a transactions tax would be simple and easy to administer.
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Gordon Brown backs radical plan to transform global banking system
http://www.guardian.co.uk/politics/2009/nov/08/gordon-brown-tobin-tax-plan
A long-time supporter of a financial transactions tax says the prime minister has finally realised that the taxpayer should no longer foot the bill for banking crises and also suffer their fallout
Campaigners for a global tax on financial transactions to reduce the size and volatility of Big Finance, and to encourage development in the world's poorer countries, are today blinking in disbelief. Over the years, they have been mocked for their impracticality, ridiculed for their intellectual inadequacy and attacked because they would damage the financial markets. And now they have woken up this morning to find that the radical proposal that could transform the global financial world is on the table – put there by Gordon Brown. His speech to the G20 finance ministers in St Andrews yesterday was a refreshing surprise, and potentially game-changing – though his bolder suggestions faced immediate flak.
His declaration that "it cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us" is what everyone outside the City of London and the British Bankers' Association now thinks.
It is a far cry from Brown's speeches only 18 months ago, extolling the virtues of innovative finance – but a credit crunch and the near-collapse of the British banking system have evidently concentrated the mind. He now sings from a completely different hymn sheet.
"Global financial markets must be brought into closer alignment with the values held by the mainstream majority," he continued. "Hard work, responsibility, integrity and fairness."
And then to the heart of his speech. "There must be a better economic and social contract between financial institutions and the public, based on trust and a just distribution of risks and rewards."
Amen to that. In plain English, Brown is saying that global banking cannot go back to business as usual, backed by global government guarantees that they will be rescued in the event of a crisis, and leaving taxpayers to pick up the bill. It is only fair that bankers must contribute in some way to reducing risk and building up a bailout fund.
There could be an insurance fee to reflect risk, he said. Or banks should pay into a resolution fund which would be used in case an institution does collapse. Or – most radical and surprising of all – there could be a tax on financial transactions, a contemporary version of the famous Tobin tax.
Part of the proceeds, presumably, could be diverted to a fund run by, say, the IMF to support bank bailouts in future. Part of the funds could be diverted to assist growth in developing countries. And part could be used by national governments to reduce their deficits. The IMF is to conduct a study on what could be done – respecting the need for any proposal to be globally implemented and not to distort the operation of the financial markets.
Brown is, of course, completely right – but it was only this August that the Treasury cordially rubbished Lord Turner, chair of the Financial Services Authority, for floating the very same idea. Taxation, he was frostily informed, was the preserve of the Treasury. Sources let it be known that the idea of a financial transactions tax was cuckoo – impractical and an improper assault on one of Britain's prime industries, the City of London. Turner should stick to regulating, they said.
After all, only months earlier the chancellor had co-chaired an inquiry with Win Bischoff, now chair of Lloyds, saying how important it would be to constrain any new regulations in response to the crisis that might damage the City's international competitiveness and how vital it was not to raise taxation.
This was one of the commonest criticisms of Turner in the summer; Boris Johnson, mayor of London, said that the regulator was "crackers" to talk of taxing the City, and instead should be promoting its competitiveness. But, as Turner and others have repeatedly stressed, the only condition for introducing a financial transactions tax is that everyone does it, so there would be no loss of competitiveness. This again was stressed by Brown; Britain would move only if the rest of the world moved too.
The competitiveness argument is the refuge of the refusenik. The big question is as Brown posed: is the economic and moral relationship between Big Finance and taxpayers symmetrical and fair? The answer is obvious.
The other attacks on proponents of the Tobin tax – and I have long been a supporter – is that it is impractical and will damage the financial system's liquidity. In fact, given US proposals for central exchanges for many forms of financial trading, a transactions tax would be simple and easy to administer.
The last objection is that it will reduce the volume of the financial system's transactions, and therefore make it inefficient.
This is the last redoubt of Big Finance, and again it is wrong. For a start, the volume of transactions is now more than 10 times world GDP, having increased more than tenfold in three decades.
The size of the financial system has exploded, populated by super-banks who can borrow trillions – and who, if they get hit by a loss of confidence, can bring the whole system down. It is efficient for individual bankers, who have the chance to make fortunes – but inefficient for the rest of us.
Many of the financial instruments allegedly used to avoid risk are merely forms of gambling. When it all goes wrong, the taxpayer picks up the bill, the bankers walk off with the bonuses, while ordinary people lose their jobs.
Turner took a lot of flak when he dared to say that a lot of banking was socially useless and the sector had got dangerously large. His intellectual bravery has proved a trigger moment. Now Brown is being similarly brave, and similarly radical. And, as with Turner, some of the first reactions to his plan have been very negative. But some Europeans will almost certainly support him, and probably the Japanese.
The swing country is the US. The response yesterday from the US treasury secretary and other key players at the G20 summit was not encouraging. But President Obama knows he needs to do something about the unfair bargain between Wall Street and the US taxpayer.
Could the world be about to adopt a Tobin tax – or its first cousin, a global financial insurance fee? It can't be ruled out. I never thought to live to see the day. I am blinking in disbelief, too.
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