WhistleblowerIRL revealed.

OT: Save the Internet

It is not acceptable that Britain is unwilling to place the noose around its own neck? Even if the tax worked better than the EU projects, (ie raises revenue overall), why do they expect the UK to pick up the bill?

However, if they want to bring in an utterly stupid form of taxation on their patch, particularly in such a way as to enrich us, then who are we to stand in their way?

This is significant not only because those are strong, fighting words, but because the EU plan to go ahead with the Robinhood tax anyway.

The EU can’t go ahead with an FTT if the UK veto it – which we will, not being led by economic illiterates. It’s the Eurozone that seems to be planning to steam at full speed into that iceberg, and much good may it do them.

Mind you, this is all posturing for national audiences.

http://www.youtube.com/watch?v=PYye0zZ3fH4

George Osborne speaking to finance ministers recently – can any one put a legitimate case together against what he says here? I am genuinely curious.

This sounds like good news for the UK – as high transaction based financial companies will simply move to London.

That’s companies creating jobs in the UK, paying wages in the UK and ultimately, paying taxes in the UK.

So the UK raises more money in taxation, and no need for a Tobin Tax to be introduced.

4. @IanVisits

It wouldn’t be such good news if the EU not only introduced the Tobin Tax but made it compliance a pre-requisite for countries dealing with the Eurozone.

Which would mean the UK either complied or was frozen out of Eurozone financial services. I suspect they will use this measure to bring the Swiss in line, as an associated country to the EU they will obviously have to take it or leave it.

It wouldn’t be such good news if the EU not only introduced the Tobin Tax but made it compliance a pre-requisite for countries dealing with the Eurozone.

The UK currently has a veto on any proposed EU-wide taxation – and one it intends to use in this case.

Ironic, considering how much the Euro was designed to German requirements.

Falco

It is not acceptable that Britain is unwilling to place the noose around its own neck?

So £1.2trn in bailouts and loan guarantees is not enough of a noose?

Bring on the Tobin Tax.

2. TimJ

So France and Germany, both with bigger economies than the UK are “led by economic illiterates”?

LoL!

http://www.youtube.com/watch?v=PYye0zZ3fH4

BenM please watch this video and state your sound case against Osbornes view of the tax – Thank you.

9 – They’re led by increasingly unpopular politicians with elections coming up. Fortunately, we are led by increasingly unpopular politicians without elections coming up.

But it’s a dead duck anyway. Find something else to hyperventilate over – I believe Richard Murphy has written a book jam packed full with similar nonsense. The FTT can’t be introduced without unanimity among the Member States. That’s not going to happen, ergo there won’tbe an EU-wide FTT.

There’s a good update from a legal perspective from Clifford Chance (presumably written at 3am, like all good CC work).
http://www.cliffordchance.com/publicationviews/publications/2011/10/financial_transactiontaxupdate.html

“which we will, not being led by economic illiterates”

Oh this old chestnut. James Tobin was nobel prize winner for economics and taught it for decades. I suspect he knows more about economics than you.

Similarly I’d wager that the german cabinet contains a greater proportion of postgrad economists than the UK one, and their civil service almost certainly does. You lot really need to get it through your thick heads that just because somebody disagrees with you doesn’t mean they don’t have an understanding of economics; indeed they often have a far greater understanding than the simplistic sub-undergraduate drivel churned out by the libertarian right.

Financial workers are against the tobin tax because it would harm your own pockets. No other reason.

“You lot really need to get it through your thick heads that just because somebody disagrees with you doesn’t mean they don’t have an understanding of economics”

Ranting does not cut it – a 3% reduction in GDP – the loss of hundreds of thousands of jobs – the majority of the business in question leaving Europe – collecting less tax revenue over all with this tax in place than without – Tobin suggested it for a different purpose, knowing full well that it would generate little revenue.

I disagree with you, show me how the points above make my view incorrect.

Oh this old chestnut. James Tobin was nobel prize winner for economics and taught it for decades. I suspect he knows more about economics than you.

The FTT isn’t a Tobin tax. In fact, it’s explicitly not a Tobin tax, which was envisaged as applying only to spot currency transactions, and was designed to restrict such transactions – ie a behavioural tax, and not a revenue raising one. Oh, and it was supposed to be globally effective, as if it isn’t, activity simply migrates to no-tax areas.

The FTT would specifically exclude currency transactions, and is (apparently, although the actual economic basis for the assumption is more than a little optimistic) designed chiefly as a revenue raiser. Indeed part of the assumptions behind the revenue that is to be raised is that it won’t affect behaviour very much. And, obviously, it is explicitly non-global, applying only to a limited geographical are.

But hey, they both have ‘tax’ in the title, so easy to get confused.

Now that we’re past the, what was it? Ah yes, sub-undergraduate drivel, nice phrase, it is in fact perfectly possible for Germany to be in favour of an EU FTT for reasons that are not entirely wrong-headed, while at the same time the UK would be mad even to contemplate joining in. A couple:

1. Stamp Duty. The UK already has a limited FTT, which brings in around £4bn p.a. This would be swept away and replaced by an FTT whose central estimate at EU-wide revenue is about EUR10bn. Look smart from a UK perspective?

2. Unlike Stamp Duty – which applies to UK shares regardless of where the buyer and seller are located, the FTT would only apply to people physically in the EU. It therefore gives a definite and appreciable incentive to traders to get out – either to Switzerland or to tax havens. Not much of an issue for France or even Germany, where most financial institutions are banks – hard things to move (although look at what’s happened to Frankfurt relative to London in the last 20 years). In London, where more than 80% of the EU’s hedge funds are located, it’s more of an issue.

Throw in the cascade effect that means the effective rate of the FTT is likely to be closer to 1% than 0.1% for many securities transaction, and I think the economic position of the UK Government looks pretty reasonable.

A lot of people died so arrogant Germans could not tell US what to do!

Fuck them and their European so called Union.

Any FTT which will succeed needs to punish non-members. And I’m sure the Eurozone will.

Plus, if the UK veto’s this, the ConDems are showing they’re no more than waldo puppets for banks, and should al be recalled on that basis.

@14 – Where’s the *peer-reviewed paper* showing those effects?

Ah yes, 16. Don’t worry kids, you have this kind of rabid neo-Fascist on your side. You’re in good company!

@tim – it is an extension of the principle of taxing financial transactions. Tobin may have restricted this to currency trading, but it is clear where the inspiration comes from. Hey – even that economically illiterate comic the financial times is using the terms fairly interchangeably: http://www.ft.com/cms/s/0/85ab605c-04a8-11e1-91d9-00144feabdc0.html#axzz1dsvei2MX

“Dr Williams’s most controversial call is for a “robust public discussion” on the way financial services are taxed, including the case for a financial transactions tax – sometimes called a Tobin tax or Robin Hood tax ”

We will never know whether james Tobin would have backed the FTT – but I’d wager he would have given the origins of the idea.

Now onto the point about whether it is a revenue generator. here I agree with you, the intention of tobin was that it would be a behavioural tax – more specifically to discourage speculation. In this sense the robin hood campaigners are wrong to claim massive amounts of revenue, and are probably doing so for PR reasons.

“it is in fact perfectly possible for Germany to be in favour of an EU FTT for reasons that are not entirely wrong-headed, while at the same time the UK would be mad even to contemplate joining in”

Right, so you effectively concede this is a question of what the national interest is? Not about the economics of the idea. Germany feels a FTT would benefit them economically, the UK doesn’t. Both are correct due to the different nature of each others economy.

But intrinsically bound up in all of this is the question of what the national interest actually is, which inevitably means an ethical and normative judgement of the kind of economy we wish to promote. If you want an economy based on speculative financial transactions, then the british way is the way to go. If you want to have an economy based on something more real….

Which means if you want to really have an effective case against the FTT, what are you really going to have to do is start to explain the benefits of financial speculation (and I’ll concede there are some). And you are going to have to confront the very real feeling that orientating the british economy around the financial industry in the south east created real and long standing socio-economic problems in those areas of the country made uncompetative by the dominance of the industry. Not simply throw around accusations of economic illiteracy (and hysterical predictions of economic armegeddon) when you know full well I could get at least 10 economics phds to support the FTT within the hour simply from an e-mail.

” a 3% reduction in GDP – the loss of hundreds of thousands of jobs – the majority of the business in question leaving Europe – collecting less tax revenue over all with this tax in place than without ”

We were told exactly the same kind of rubbish over the rise in higher rate income tax from 40 -50%. The story of the boy who cried wolf should really be required reading in the financial industry.

But see my point above, the motivation (at least in my case) behind supporting a FTT is largely around behaviour change and moving the UK economy away from the dominance of the financial industry. If we were back in a booming economy then I’d understand the reluctance to cause the short term pain that would result. But its looking increasingly like this is a decade of staganation, and the only way we’ll get out of it is precisely through the re-orientation of the economy away from speculative activities.

If the EU are to impose an FTT on the UK, and the revenue is to be spent either bailing out the Southern Eurozone states, or on foreign aid, why do the left support this? Is fiscal contraction OK when it is enforced by Berlin, but not by the Tories?

@Planeshift – “We were told exactly the same kind of rubbish over the rise in higher rate income tax from 40 -50%.”

Erm.. we don’t actually know this yet. There were some rather foolish reports earlier this year claiming that but they failed to notice that the tax year was under the previous regime. I suspect we’re going to see a reduction in revenue but either way we’re going to have to wait to find out.

“the re-orientation of the economy away from speculative activities.”

So no investment then? That is after all speculation.

@21 – Rather, why is the UK seeking to build another bank-fuelled bubble.

19 – The question of whether it is or isn’t a Tobin tax is actually central to the entire argument. Is it designed to throw wheels in the sand of finance – to reduce the number of financial transactions (share purchases, bond purchases, derivative contracts etc etc) or is it designed to raise revenue?

The EU (both institutionally via people like Barroso and through the Member States) have claimed that it is a revenue raiser, and not designed to stop these financial transactions. It’s not, therefore a Tobin tax. There are potential FTTs that are Tobin taxes (which is what the FT is saying, read it more closely) but the actual FTT in play in the EU is not a Tobin tax. Full stop.

We will never know whether james Tobin would have backed the FTT – but I’d wager he would have given the origins of the idea.

Tobin explicitly disowned the adoption of an FTT for revenue raising purposes.

Right, so you effectively concede this is a question of what the national interest is? Not about the economics of the idea.

They’re bound up with the same thing. Some 80% of the expected revenue of the FTT comes from the UK. The UK and Germany will therefore have differing interests, due to the economics of the idea.

Which means if you want to really have an effective case against the FTT, what are you really going to have to do is start to explain the benefits of financial speculation (and I’ll concede there are some).

You actually don’t, because it’s not supposed to be a behavioural tax. But even if you did, I’d note that it’s not a tax on speculation, it’s a tax on financial transactions.

We were told exactly the same kind of rubbish over the rise in higher rate income tax from 40 -50%. The story of the boy who cried wolf should really be required reading in the financial industry.

The 3% fall in GDP is the top-end estimate of the impact of the FTT by the EU itself. It’s not a financial sector figure. The central EU estimate is a 1.8% fall in GDP. Because now’s a really good time deliberately to reduce GDP right?

you know full well I could get at least 10 economics phds to support the FTT within the hour simply from an e-mail.

I’m sure you could – or at least gather together Prem Sikka, Richard Murphy and the rest. But even advocates of FTT’s in general tend to agree that a geographically limited FTT designed not to alter behaviour but to raise revenue is not exactly a shining example of the breed.

“you know full well I could get at least 10 economics phds to support the FTT within the hour simply from an e-mail.”

You could have got 10 with phds giving full support to the single currency 10 years ago- claiming those against it were speaking simplistic sub-undergraduate drivel,oddly enough those against giving there reason for being against as the exact situation, I mean crisis, we now face, and whats even odder is that in this instance unlike the introduction of the single currency, in this instance the EU them selves tell us of the damage it will inflict and you still want it, you are a specimen to be studied! Interesting to say the least.

“But its looking increasingly like this is a decade of staganation, and the only way we’ll get out of it is precisely through the re-orientation of the economy away from speculative activities”

Which takes growth in other areas, not the simplistic act of destroying the financial sector and boom! Instantly we have grown our selves out of trouble and now there are jobs for all! Even 10 for Leon!

You really do not have a clue what you are talking about…do you..even simple facts about Tobins personal views…

“So no investment then? That is after all speculation.”

You know full well I’m talking about short term speculation – trades based upon a bet about the future price of something where the future is defined as hours away. Investment as a long term thing isn’t going to have the same price sensitivity. Even if we assume the entire 0.05% charge is carried by the consumer, this will only have a small effect on – say -the decision of an SME to take out a long term loan. Probably something that could be mitigated by reducing employer NI contributions or something. The technicalities can no doubt be worked out.

“You actually don’t, because it’s not supposed to be a behavioural tax. ”

Well the reason I’m in favour of it is precisely because of the behavioural effects. I don’t really care what the EU are saying is the reason for it (and I suspect they wouldn’t publically claim it was a behavioural device anyway), And don’t all taxes effect behaviour? I thought that was one of the basic principles of economics

@24 – “Because now’s a really good time deliberately to reduce GDP right?”

Again, why are you trying to build another bubble?

@25 – Yes, you keep blaming the Eurozone crisis for the reason we have 500% faster rising unemployment than the EU. Diversion and misdirection from disastrous home politics which are costing us far more than a FTT, and harming millions rather than stopping bubbles.

There is no point going over the same FTT arguments that have been done to death and it will not be happening in the UK. Doubtful whether it will happen in Germany either. The Kauder speech was beyond parody. We have a European debt crisis in the first place because Germany pursued their own national interest. The EZ is imploding because Germany are still pursuing their own national interest. To accuse others of following policies for what they perceive to be in their national interest when you are the most guilty is breathtaking hypocrisy. http://uneasymoney.com/2011/11/09/the-economic-consequences-of-mrs-merkel/
How about the UK government suggesting imposing a tax on the production of German luxury cars? I suspect the German government would not be so keen on the UK government deciding their tax policy.

We are repeating all the mistakes of the 1930s, with Germany the new France. Possibly the world would be a better place if nations did not pursue their national interest. However, that is not the world that we live in. I thought over the last few decades that nations were moving to work more cooperatively. Yet when it came to the crunch all that went out the window and self-interest triumphed. Germany did not just repeat beggar thy neighbour, they are stripping the neighbours bare and getting them to work for them. To lecture others is to completely misunderstand who is to blame. Let them impose a FTT on themselves if they want. Everything settled in the UK will continue to be settled in compliance with UK policies. A win for the UK as they gain even more business as the Europeans shoot themselves in the foot. Lets hope this time in the rerun of the 1930s, it is only their own feet they shoot.

Interestingly, everyone including the left have taken their familiar positions. The left appear to have shifted to the Morning Star position.
http://www.youtube.com/watch?v=DGscoaUWW2M

“Yes, you keep blaming the Eurozone crisis for…”

I do not, but there’s no denying of the impact to come. My point was he can get his support for an FTT just as easily as he could have got support for the single currency in its current form, meaning it does not really amount to much.

Planeshift @ 19:

“But intrinsically bound up in all of this is the question of what the national interest actually is, which inevitably means an ethical and normative judgement of the kind of economy we wish to promote. If you want an economy based on speculative financial transactions, then the british way is the way to go. If you want to have an economy based on something more real….”

Everybody wants an economy “based on something more real”, as you put it, but I don’t see why tearing down the financial sector will help to achieve that. Yes, it might make manufacturing increase as a percentage of GDP, but that will be because other sectors are declining, not because manufacturing is doing well.

@28 – Exactly, though. We’re yet to see the vast majority of the Eurozone’s problems impact, and yet we’re already in a disastrous position because of domestic politics of austerity!

Yes Leon – Its bad – A credit rating downgrade and debt spiral would be a Hell of a lot worse, in these times some have to be flexible and generate income in other ways. Things are only going to get worse and the system is not going to change for you, no ones going to help…

@31 – Right, because you feel that the “system” is perfectly correct to ignore the law and to punish the poor for being poor rather than anything else. I get it, social darwinist. I get it, just fine.

You’re the sort of person society needs to be defended from.

“Right, because you feel that the “system” is perfectly correct to ignore”

I feel in certain situations this system, like any system has no choice but to prioritize. I don’t work with “right” and “wrong” I work with what is and aim to make the most of it, between austerity and a credit down grade – followed by the huge implications of that, austerity has been chosen. All you have to do in these times is innovate instead of solely relying on the government for support and oh the outrage….

No one is punishing the poor for being poor, you have multiple choices to earn money, all of which you turn your nose at, if you refuse to be flexible even though you are an adult and are surrounded by opportunity’s, tough shit.

“You’re the sort of person society needs to be defended from”

You come across as the kind of person who took out a restraining order on the tooth fairy as a teen….

@34 – “I don’t work with “right” and “wrong””

Of course, that would require morals.

“All you have to do in these times is innovate instead of solely relying on the government for support and oh the outrage….”

You’re advocating people become professional gamblers, destroying value in the economy. Then you wonder why people think you’re nuts. Moreover, you’re advocating writing off unpaid work without trying the legal options.

“No one is punishing the poor for being poor”

Except, of course, you are directly advocating this by saying that the state should abandon it’s responsibilities to all it’s citizens. There are dozens of applicants for every job, and we can’t all be the kind of professional leech you aspire to be.

Austerity is not a “choice” to avoid credit downgrades and GDP shrink, it causes the second as we can clearly see, and will hence be followed by the first.

“You come across as the kind of person who took out a restraining order on the tooth fairy as a teen….”

You come across like the email scammers promising jobs for nothing. And if the Tooth Fairy used a brick to knock my teeth out, the direct equivalent, then darn straight I’d apply for a restraining order. And if you were the tooth fairy you’d go ahead with the brick anyway.

There’s a reason the Nordic Model has weathered this storm well, while we’re already in deep shit and falling rapidly.

“Of course, that would require morals”

No that would require slamming my head against a brick wall when in your position my objective would be to fund the heating and better my situation.Be a man, take the situation as it is.

“You’re advocating people become professional gamblers”

Gamble, trade, ebay, multi-market, advertise, websites, anything to show a bit a self determination and better your situation.

“There are dozens of applicants for every job, and we can’t all be the kind of professional leech you aspire to be.”

Indeed there are thats why as many as possible need to be flexible and look at other forms of income, while the options available arent able to provide for every ones needs they most certainly are able to provide for yours,yet you are terrified as an individual to take a step on your own.

“Austerity is not a “choice” to avoid credit downgrades and GDP shrink, it causes the second as we can clearly see, and will hence be followed by the first.”

Odd that in this very post you advocate a measure that would shrink GDP just because it works for your class warfare… what are your solutions,coherent solutions to avoid a downgrade,fund everything the government desires and take us to an economic recovery?

Please tell us…

“You come across like the email scammers promising jobs for nothing.”

And you come across as a little boy in a mans body, terrified of personal responsibility,completely lacking the will,determination and desire to succeed as an individual in any situation. You would rather live in poverty, sit doing nothing but moan on the internet and hope a social movement changes the entire world for you..

In a speech to members of the German chancellor’s CDU party, Volker Kauder, its parliamentary leader, criticised Britain for opposing a European tax on financial transactions. To applause, he said it was not acceptable that the UK was “only defending its own interests” rather than that of the wider EU.

Says a member of the government that is destroying the economies of Europe’s south because of their refusal to consider lower interest rates or lower inflation.

Ms Merkel has said that the eurozone should push ahead with the so-called Tobin tax if Britain continued to block the measure – raising funds from the financial sector to help cash-strapped governments – even if that put Frankfurt at a disadvantage to London.

Good. Although it won’t raise a single ecu in revenue and will cause the economies of any country stupid enough to impose it to shrink.

This is significant not only because those are strong, fighting words, but because the EU plan to go ahead with the Robinhood tax anyway

Good. More business for Britain.

@36 – “Be a man, take the situation as it is.”

In your world, that means lie, cheat and backstab. Strangely enough, I have morals.

“Gamble, trade, ebay, multi-market, advertise, websites, anything to show a bit a self determination and better your situation.”

Anything but honesty and adding value to the economy!

“yet you are terrified as an individual to take a step on your own.”

Again, absolute bullshit. My problems BEGAN when I struck out as a freelancer. You don’t know my situation, and are making a fool of yourself.

“Odd that in this very post you advocate a measure that would shrink GDP just because it works for your class warfare”

The class warfare is yours against the poor. I’m interested in not having another bubble which benefits the rich and harms the poor, you of course are fully in favour.

“And you come across as a little boy in a mans body, terrified of personal responsibility”

Oh, is THAT what you call having morals, and not falling for your “everyone can earn X from home” scam! And it IS a scam, of course. You’re actively destructive to the economy, and that’s something which society will need to deal with, sooner or later.

@37 – Gotta inflate the bubble again so you can punish the poor more, yup yup.

@26 planeshift

This is where your argument falls over. Let’s take the esample you give of an SME taking out a loan, for say 5 years.

You say he will pay 0.05% more for it because of an FTT.

I can tell you he won’t. The bank itself has to borrow money from the money markets to make the loan to the SME. There are very few long term uncollateralised loans because of the credit risk so money markets trade in the 3 month tenor or shorter primarily.

So, to fund this loan the bank ends up paying the FTT 12 times, at least. Inevutably this will get passed on to the borrower. Not to mention that money markets would almost certainly become less liquid and more expensive thanks to an FTT.

Basically, an FTT would massively increase the cost of capital for all businesses. Surely you can see that’s a bad thing for growth and rebalancing an economy?

@ leon wolfson

Ah the old nordic example.

These would be the same countries busy liberalising their economies and cutting the size of their governments and welfare states, right?

15 TimJ

The FTT isn’t a Tobin tax. In fact, it’s explicitly not a Tobin tax, which was envisaged as applying only to spot currency transactions

Sigh. The last refuge of a rightwing argument – resort to semantics and fussy nit-picking.

Are you Tim Worstall in disguise?

40 – Well, you don’t get to say things like ‘James Tobin got a Nobel in economics and he invented this tax’ if the tax you’re talking about isn’t a Tobin tax. For the reasons stated above, this is more than mere semantics.

A Tobin tax is designed to prevent the activity it taxes – spot currency transactions. The FTT is designed to raise revenue off an activity it doesn’t entirely want to prevent – financial transactions. They are different taxes, trying to do different things. If you want to judge the likely success of a policy, it’s as well at least to understand what it’s trying to achieve.

41. Fine. Let’s have them both.

“That orange fruit is an apple, not an orange.”

“Um no, it is an orange.”

“Nitpicker. Pedant. Troll.”

43 – it’s actually more like

“Oranges cure cancer. Therefore let us eat this curvy yellow orange”.

“Um, that’s not an orange, and anyway oranges don’t cure cancer”

“Fascist!”

“In your world, that means lie, cheat and backstab. Strangely enough, I have morals.”

No, that means stop moaning like a little bitch and finding a way to be productive in the economy as opposed to a dead weight…

“Anything but honesty and adding value to the economy!”

All of the above add value create jobs and fund the government via tax in one way or another.

“Again, absolute bullshit. My problems BEGAN when I struck out as a freelancer. You don’t know my situation, and are making a fool of yourself.”

Ah! Your problems started when you failed as a freelancer and now the entire world must change, we must do away with money and form a system based on peace and love, just to provide for leons wants, anything else is foolish.

“The class warfare is yours against the poor. I’m interested in not having another bubble which benefits the rich and harms the poor, you of course are fully in favour.”

Ah yes, you starting an ebay store is the next bubblebubble boom!

“Oh, is THAT what you call having morals, and not falling for your “everyone can earn X from home” scam! And it IS a scam, of course. You’re actively destructive to the economy, and that’s something which society will need to deal with, sooner or later.”

How about a window cleaner, leon? Door to door fruit and veg? You have some kind of phobia when it comes to making money from home so there’s plenty you can do out and about that’s self directed.

Its been interesting exploring how you think, you reinforce the observation that being rich or poor has nothing to do with a bank balance, its attitude and frame of mind. You can drop some people in this world in a country they have never been to before with nothing but the clothes on there backs and within 6 months they will be established and wealthy.

And then there’s others who live through entire booms and excesses, and they come out penniless,best of times worse of times, you view it all in the same way, you could win the lottery tomorrow and your toxic inflexible corrosive attitude would keep you unhappy.

If this is something you have created or are actually the victim of I do not know but the results are the same either way, results that you have to live through every day for the rest of your life..good luck.

I rather think you’ll find that everyone in The City is desperately hoping that the eurozone does bring in its own FTT.

Every single financial transaction on the Continent will be taking place in London about three hours later. The biggest beneficiaries will be high end estate agents in London.

Hell, it would actually be worth The City bribing the EU Commission to bring it about.

As to the EU FTT idea: the EU Commission itself said that a) there wouldn’t be an increase in tax revenue, there would be a fall b) that the EU economy would shrink as a result of the tax and c) it would be illegal to apply it to spot FX.

There’s really not all that much to recommend it really.

Especially when you think about what did cause the Crash and the current troubles: housing finance and sovereign debt. Neither of which would really be affected by hte FTT: the FTT would really affect options and futures, neither of which actually caused any of the past or present problems.

“So, to fund this loan the bank ends up paying the FTT 12 times, at least. Inevutably this will get passed on to the borrower. Not to mention that money markets would almost certainly become less liquid and more expensive thanks to an FTT”

Not necessarily. The loan made to the SME gets bundled up with numeorous other loans before it gets sold on the money markets. So the cost of the FTT for each re-financing gets spread accross many loans.

“So the cost of the FTT for each re-financing gets spread accross many loans.”

Err, the FTT is a percentage of the total value……..

@ planeshift

Nope. The money markets are used by banks to fund their assets (for example, loans to SMEs). Money markets are cheap but short term. Loans tend to be long term.

Bundling the loans up is immaterial – the extra cost of the FTT is a % cost, and would get passed on to the borrower. This pushes up the cost of capital markedly.

Banks could issue bonds to fund themselves over a longer term, but this is much more expensive than money market funding, so again the cost of capital would be higher and again the cost would be passed down to the end user.

That is before you consider other effects an FTT would have on the cost of capital. The opportuntiy cost of holding assets would be higher, so yields would have to be higher, pushing effective interest rates higher. At the same time it would massively reduce pensions – you would end up getting taxed on the way in when you invest, and also when your pension fund has to sell assets to pay you when you start drawing a pension….as well as the compounding effects.

Where I work we made a simple model to check how a 5bp FTT would affect what we do. We reckon over 5 years the effect could be as much as 100bp – 1%

Tyler

> We reckon over 5 years the effect could be as much as 100bp – 1%

So that was your ‘worst’ case – 0.2% pa.

What was your ‘typical’ ?

Did you know that in Germany, most house mortgages are on fixed % deals for the full term – not ‘variable rate’ like the UK model.

So it’s not hard to do long term loans.

How about this argument: if FTT came in, then more insitutions would be willing to make longer terms to each other – so your statement that a 5-year load would be financed by many 3-month deals – would change and become fewer 6-month deals or etc:

means the cost of FTT drops to the end user.

But the loser is the city companies that don’t make their commission on the lower volume of transactions !!

“How about this argument: if FTT came in, then more insitutions would be willing to make longer terms to each other – so your statement that a 5-year load would be financed by many 3-month deals – would change and become fewer 6-month deals or etc:”

Err, no. What the banking system does is maturity transformation. Our short term, demand, deposits get turned into 30 year mortgages.

That’s what banks do, borrow short and lend long. Maturity transformation.

All you’re saying here is that if banks lent to each other longer term is that they would have to do more maturity transformation: become riskier.

Hmm, sounds like a great idea really.

@46 – They want to be frozen out of transactions with the EU? Neat-o.

Did you finish your knitting today, deary?

@39 – The countries where the basic principles remain, they’re making MINOR adjustments.

@ 50 just visitng

We were doing our analysis on hedging floating rate loans with interest rate swaps. 1% was the middle of the range for our best case scenario. The worst case scenario was truly horrific.

Money markets only really trade out to about 3 months tenor as it is unsecured lending, and thus longer dates become way too credit risk intensive – and thus too expensive. Most MM business is done out to 1 week duration.

Borrowing longer duration doesn’t help either, in terms of bank funding. Firstly, the extra risk makes it much more expensive than MM funding, so you are back to square one, and it isn’t liquid and flexible enough to cover the difference in a banks’ cash balance on a daily basis.

The fact that you can get 5y fixed loans is immaterial. The extra cost is not on the loan itself but the funding for that loan – assuming the bank funds it in 3m MM instruments (already more expensive than overnight funding) then you have 20 MM transactions at least to fund the one loan…plus other hedges and a compounding loss. So easily past the 1% mark already.

If the bank collected lots of 5y loans together and issued a bond against them, to fund them for 5y in one go, you get the same problem as 5y swaps trade well above the base rate (or LIBOR) and the bond would be higher in yield still because of the banks credit risk. So you end up paying almost no FTT but the cost to the end user is much the same – over 1% higher.

They want to be frozen out of transactions with the EU? Neat-o.

They wouldn’t be. The EU can’t introduce this tax without UK approval, and the Eurozone don’t have the power to insist that non-EZ states introduce taxation to allow trade – that would be contrary to EU law. I think you’re getting confused between the 27 and the 12 deary.