Taxcast: Staggering Expense of Finance Sectors, Brexit

Originally published at the Tax Justice Network

In our March 2017 Taxcast: the high price we’re paying for our finance sectors – we look at staggering statistics showing how the US finance sector is a net drag on their economy.

Also, as the British government initiates Brexit divorce negotiations to leave the EU, we discuss something they ought to know, but obviously don’t – they’re actually in a very weak position. Could it mean the beginning of the end of the finance curse gripping the UK economy?

Featuring: John Christensen and Alex Cobham of the Tax Justice Network, and Professor of Economics Gerald Epstein of the University of Masachusetts Amhurst, author of Overcharged: The High Cost of High Finance. Produced and presented by Naomi Fowler for the Tax Justice Network.

Professor Gerald Epstein:

If you look at particular finance centres, say London and New York, the problem is that the net cost of this system is quite significant, it imposes a cost not only on people who use finance but for the whole economy. So, what we need to think about is what are the more productive activities that ought to be substituted for these excessive aspects of finance?

John Christensen, Tax Justice Network on Britain’s weak position in Brexit negotiations:

We might be seeing the start of the end of Britain’s grip by the Finance Curse

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  1. skippy

    Drag = Rentier = bottle neck economics which in the end becomes a death spiral due to lack of demand and jobs quality….

  2. Si

    It is a cleverly worked out system for wealth transfer. Complex laws, political backing and protection even if you break the law.

    At least in the old days when you got robbed you had the signal of having a pistol pointed at you. The modern version, with all the insider media psyops, leaves those who are preyed upon feeling that they are the ones to blame.

    The business model is straight out of the Cosa Nostra playbook – except there is media, political and legal backing.


    1. Hayek's Heelbiter

      As an Italian friend of mine (who rarely goes north of 14th Street) once remarked, “The difference between the Mafia and bankers is that the Mafia always leaves a few crumbs on the table.”

    2. GS

      “Pretty Boy Floyd” — Woody Guthrie

      “Yes, as through this world I’ve wandered
      I’ve seen lots of funny men;
      Some will rob you with a six-gun,
      And some with a fountain pen.

      And as through your life you travel,
      Yes, as through your life you roam,
      You won’t never see an outlaw
      Drive a family from their home.”

      That’s “funny” odd, definitely not “ha ha.”

  3. Watt4Bob

    “Wouldn’t you rather give me my money, that you have in your pocket, rather than force me to take the pistol out of my pocket, and point it at you, and rob you, and become a criminal?”

    As you can clearly see, the logic is flawless, we are all much better off acquiescing to the reasonable demands of the FIRE sector, the only alternative being an admission that we’re in the clutches of a deeply organized criminal element.

  4. susan the other

    thanks for this Taxcast, very to the point. Did I hear that right – the private finance sector will have cost us (in the US) 23Tr$ by 2020. And from 1990 to 2005 big finance cost us (already) 14Tr in fees, pay, fraud, misallocation and lost productivity. Yet we continue to deregulate even though all governments know how destructive deregulated finance is. And we know that the US is the biggest and most secret tax haven of them all… The first part of Taxcast speculated that Brexit will actually free the UK from the stranglehold of big finance and the country will be able to move on to more productive economic activity. So let us hope the US comes to its senses – just as the EU has finally isolated the rot of UK finance, maybe the rest of the world will isolate us. Regulation seems to be hand-in-glove with national sovereignty. Whereas globalized finance might have escaped national regulation bec. there was always a safe haven for banksters, now with a backlash of indignant people all over the world there will be re-regulation at national levels. Since there is no global authority that can do that yet. Anyway, now that economies are trashed, there is way too much hot money to find good investments. It has already become absurd.

    1. Colonel Smithers

      Thank you, Susan.

      I would not be so hasty thinking that the EU(27) has finally isolated the rot of UK finance. Much of that finance was not UK, but using the UK. The EU(27) is no less corrupt than the UK and as susceptible to big finance’s charms.

      I worked as a lobbyist in Brussels (and Basel and DC) for years.

      1. susan the other

        yes, the EU does seem to be hungry to grab up all that finance for itself… I keep thinking about Schaeuble coming to NYC c2012 and holding an impromptu news conference wherein he said it was fine with him if some banks went down because “we are overbanked.” But we do have to admit that “overbanked” is an understatement since there are no productive investments and it’s just self-defeating. I mean, how long can this go on?

      2. Paul Greenwood

        It is true Deutsche passports into London using a German banking licence and will need to decide. The problem for the UK is that it really has no choice.

        The situation is unsustainable. The trade deficit cannot be sustained. The budget deficits cannot be sustained. The tax loss carry forwards for banks cannot be sustained. The complete economic collapse of Northern England, Midlands, Coastal Towns just cannot be sustained.

        There is no mechanism inside the EU to correct this because the EU has facilitated it in Italy, Spain, France, and areas of Germany where empty dilapidated factories are evident. 32% European white goods now come from Poland irrespective of brand. Only public sector jobs or welfare keep up Consumption in these areas.

        Trucking mushrooms from Poland to UK supermarkets is bizarre ! They take Scottish salmon to Poland and Lithuania for packing. UK is an island and ferry costs are high but they import low value mushrooms and eggs and milk. The economic model is absurd.

        They favour trading Debt Instruments but give no encouragement to Doing and Making. Germany grows its own apples – UK imports apples.

        It is time to face reality. This system is unsustainable and it is time to deal with a pre-Revolutionary situation. European banks have $1 Trillion in Bad Loans with Italy awash in them. The house of cards cannot stay up

  5. Gman

    Great piece. Thank you.

    I’m not sure I get the ‘rules on financial services are different than other goods and services’ line being peddled here though. Maybe in theory, but it’s pretty much a moot point.

    It pays to remember that prior to 2008, hot (sovereign state backed) money flowed unimpeded like water across all EU borders, regardless of regulation, in search of quick handsome and easy returns, and much of it from subsequently bailed out by the ECB backdoor major lenders in France and Germany lending recklessly to poorer EZ members.

    The lasting results of this and its hasty, damaging retreat and the inequitable socialisation of the debt across the EZ are, of course, still being felt today.

    One of the major causes of the financial crisis was lax global regulation period. So let’s not kid ourselves that by removing the UK from the European Union equation it is suddenly going to render it a bastion of sound prudential banking practice, particularly given various members recent comments that they intend to do anything in their power to tempt a post Brexit UK’s financial services at the earliest opportunity.

    I do suscribe to the belief that the UK financial services sector has been and still is toxic to its economy and long-term future, and without a doubt this informed the Brexit vote, albeit in some cases on a subconscious level.

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