naked capitalism

We’ve said that a Tobin tax, meaning a tax on transactions, could help both as a financial reform measure and as a tax generator. The logic is that trading, particularly OTC trading, involves costs (periodic taxpayer-funded bailouts) that are not borne by the buyers and seller (ie, they should be paying for rescue insurance as part of their cost of being engaged in a type of business that periodically blows up and forces uninvolved parties to pony up; the transaction tax would be a way to go about doing that). Any such tax would need to be though through carefully (as in plain vanilla, socially productive transactions like foreign exchange would not be taxed heavily, while high margin products with little to no redeeming value like credit default swaps would be taxed heavily.

But of course, who is opposed to such a sensible idea? The US, natch, with its pols bought and paid for by the financiers.

From the Independent:

Proposals for a global transaction tax on banks are “gaining traction”, Gordon Brown claimed yesterday, as Britain sought to push its reform agenda with other G7 economies ahead of rival American plans for regulatory overhaul.

The US is the main obstacle to a so-called “Tobin tax”, which remains popular across Europe as a way of building up a fund to ensure that banks no longer have to call on taxpayers’ cash if they run into problems.

Treasury officials believe President Barack Obama’s suggestion of a “risk-based” levy on US banks to recoup federal aid already spent means that the Americans could be persuaded of the merits of a transaction levy to deal with future crises.

Yves here. The proposed US “TARP fee” is paltry, yet the banks are already clamoring for it to be cut back, so it appears to be yet another Potemkin reform that will be diluted down to nothing. So I don’t think observers can make overmuch of it. Back to the story:

One Treasury official said: “[Mr Obama's plans] address specific problems in the US, where there are large investment banks. They would not be appropriate here. And you have to remember that it was narrow banks such as Lehman Brothers or Dunfirmline Building Society that failed.” This point has been pushed by “universal” banks such as Barclays, which has a substantial investment banking division but did not need to ask the state for financial support. The British Bankers’ Association has also been lobbying on this point. As Lord Myners opened the talks at 11 Downing Street, he said the costs of failures should be “distributed more fairly”, with financial institutions and investors shouldering more of the burden. “There is clearly a strong rationale to charge for the externality caused by the financial sector and financial institutions should shoulder the responsibilities for losses they may face,” he added.