EU concludes proposed financial transaction tax illegal

Scofflaw

The EU's lawyers have issued a legal opinion on the proposed 'financial transaction tax' suggesting that the tax as proposed is illegal by virtue both of infringing the sovereignty of the member states, and in breach of the Treaties.

While this isn't a binding outcome but rather an opinion, it could well spell the end of the FTT proposal in anything like its current form:

A plan to tax financial transactions in 11 European Union member states from 2014 is illegal, the bloc's lawyers have concluded, dealing what could be a final blow to the measure as proposed.

The findings are not binding but will make it harder to introduce a measure backed by Germany and others to make banks pay governments about 35 billion euros a year after receiving taxpayer aid during the 2007-09 financial crisis.


The 14-page legal opinion will be put to EU finance ministers who must decide whether to scrap the idea or chose a simpler levy such as the stamp duty Britain imposes on shares.

Britain, the EU's biggest financial center, and several other states, have opposed the transaction tax proposal. They refused to sign up to the plan, raising questions about how it would work with only some members participating.

Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia were planning to adopt the tax on stocks, bonds, derivatives, repurchase agreements and securities lending.

But the legal services for EU member states said in their opinion dated September 6 and obtained by Reuters that the transaction tax plan "exceeds member states' jurisdiction for taxation under the norms of international customary law".

The plan is also not compatible with the EU treaty "as it infringes upon the taxing competences of non participating member states", the document said.

A transaction tax only in some member states would also be "discriminatory and likely to lead to distortion of competition to the detriment of non participating member states".

The tax would also be an "obstacle" to the free movement of capital and services within the single market, breaching two tenets of the EU's founding treaty.

http://www.reuters.com/article/2013/09/10/us-eu-transactiontax-idUSBRE9890F620130910

A pity, since the tax was aimed both at slowing down ultra-fast trading (which has nothing much to do with market knowledge, and is really better considered a form of rapid arbitrage between positions), and at recouping some of the costs of the bailouts.

No doubt both the UK (visibly) and our own government (very quietly) will breathe a sigh of relief.

cordially,
Scofflaw

Rightwing

Scofflaw wrote: »

The EU's lawyers have issued a legal opinion on the proposed 'financial transaction tax' suggesting that the tax as proposed is illegal by virtue both of infringing the sovereignty of the member states, and in breach of the Treaties.

While this isn't a binding outcome but rather an opinion, it could well spell the end of the FTT proposal in anything like its current form:



http://www.reuters.com/article/2013/09/10/us-eu-transactiontax-idUSBRE9890F620130910

A pity, since the tax was aimed both at slowing down ultra-fast trading (which has nothing much to do with market knowledge, and is really better considered a form of rapid arbitrage between positions), and at recouping some of the costs of the bailouts.

No doubt both the UK (visibly) and our own government (very quietly) will breathe a sigh of relief.

cordially,
Scofflaw

No, it's not a pity, it's welcome news.

Scofflaw

Rightwing wrote: »

No, it's not a pity, it's welcome news.

Clearly it's something I consider a pity, and something you consider good news. Alas, I'm unlikely to be persuaded that I should change my view by the mere statement of yours.

cordially,
Scofflaw

lmimmfn

Scofflaw wrote: »

Clearly it's something I consider a pity, and something you consider good news. Alas, I'm unlikely to be persuaded that I should change my view by the mere statement of yours.

cordially,
Scofflaw

Im surprised you dont state your views, moreso because im interested, i honestly cant see how it would be good.
Ive read it in the past but had to refresh my memory on the subject, but according to wikipedia its to have an insurance slush fund against bank bailouts, however well intentioned, no matter how the ECB tries to hide itself from its obligations, the ECB should let banks fail as and when it happens, in fact the ECB should not let banks fail( contradictory, but i mean in terms of ECB power ), it should be the overseer of all banks in europe, much like the federal bank in the US. Without such a coordinated system the Euro is destined to fail, financial tax or not.

Im sure you'll disagree, but good to hear your thoughts on the subject?

Rightwing

lmimmfn wrote: »

Im surprised you dont state your views, moreso because im interested, i honestly cant see how it would be good.
Ive read it in the past but had to refresh my memory on the subject, but according to wikipedia its to have an insurance slush fund against bank bailouts, however well intentioned, no matter how the ECB tries to hide itself from its obligations, the ECB should let banks fail as and when it happens, in fact the ECB should not let banks fail( contradictory, but i mean in terms of ECB power ), it should be the overseer of all banks in europe, much like the federal bank in the US. Without such a coordinated system the Euro is destined to fail, financial tax or not.

Im sure you'll disagree, but good to hear your thoughts on the subject?

It was a brainless idea trumpeted by Sarkozy.

If it was a global tax, then certainly one could make some excuse for it.

Farmer Pudsey

Rightwing wrote: »

It was a brainless idea trumpeted by Sarkozy.

If it was a global tax, then certainly one could make some excuse for it.

Taxes like this have to start somewhere. Some one hast to jump first. It usually has to be a large trading block or nation. In this case that means the EU/US/G11.

I do not think it is a brainless idea. We have too many short term financial tranactions. At some stage in the future some interanational agreements on some taxes will have to be agreed. It is too easy to have a company in one country and operate it from another. The multi national tax rate is shrinking too much.

Look at gambling tax most country's are afraid to impose a tax on a industry that has little or no benifit to a country.This allows these companies to increase sales which may have a determintal effect on the the social fabric of a country. Some telephone product charge line are the same again they have little to add to the national product of a country and give little added value. Again they can be determintal to the social fabric.

A finiancial tax again might prevent some short term gambling and also encourage more long term investment. There seems to be too much short term tranaction with in the finiancial area which creates no tangible wealth except to finiancial sector. It effects those who invest for pensions etc in creating an unstable market and could well in the longterm discourage this investment.

Scofflaw

lmimmfn wrote: »

Im surprised you dont state your views, moreso because im interested, i honestly cant see how it would be good.
Ive read it in the past but had to refresh my memory on the subject, but according to wikipedia its to have an insurance slush fund against bank bailouts, however well intentioned, no matter how the ECB tries to hide itself from its obligations, the ECB should let banks fail as and when it happens, in fact the ECB should not let banks fail( contradictory, but i mean in terms of ECB power ), it should be the overseer of all banks in europe, much like the federal bank in the US. Without such a coordinated system the Euro is destined to fail, financial tax or not.

Im sure you'll disagree, but good to hear your thoughts on the subject?

You mean that creating a bailout fund for the banks creates moral hazard, in that the banks know they'll be bailed out by the fund if they screw up?

Hmm. Currently, they're bailed out by the taxpayer, and the other option, allowing bank failures, is simply not going to happen for large banks.

I've said this before, but people are mistaken if they think banks are "just private companies". They are utilities, as necessary to a modern economy as electricity or water, and once they're over a certain size, they can no more be allowed to fail than a major electricity or water supplier.

If you look at Anglo, you'll see it's being treated exactly like a failed utility. Bits of its 'network' are being isolated, cut off, and handed over to other banks who will take them over, and the whole thing gently unwound and pared down slowly.

So I don't see that there's any extra moral hazard created by creating a bailout fund for banks, because they are going to be bailed out - it's only a question of where the money comes from.

cordially,
Scofflaw

Rightwing

Farmer Pudsey wrote: »

Taxes like this have to start somewhere. Some one hast to jump first. It usually has to be a large trading block or nation. In this case that means the EU/US/G11.

I do not think it is a brainless idea. We have too many short term financial tranactions. At some stage in the future some interanational agreements on some taxes will have to be agreed. It is too easy to have a company in one country and operate it from another. The multi national tax rate is shrinking too much.

Look at gambling tax most country's are afraid to impose a tax on a industry that has little or no benifit to a country.This allows these companies to increase sales which may have a determintal effect on the the social fabric of a country. Some telephone product charge line are the same again they have little to add to the national product of a country and give little added value. Again they can be determintal to the social fabric.

A finiancial tax again might prevent some short term gambling and also encourage more long term investment. There seems to be too much short term tranaction with in the finiancial area which creates no tangible wealth except to finiancial sector. It effects those who invest for pensions etc in creating an unstable market and could well in the longterm discourage this investment.

Scofflaw wrote: »

You mean that creating a bailout fund for the banks creates moral hazard, in that the banks know they'll be bailed out by the fund if they screw up?

Hmm. Currently, they're bailed out by the taxpayer, and the other option, allowing bank failures, is simply not going to happen for large banks.

I've said this before, but people are mistaken if they think banks are "just private companies". They are utilities, as necessary to a modern economy as electricity or water, and once they're over a certain size, they can no more be allowed to fail than a major electricity or water supplier.

If you look at Anglo, you'll see it's being treated exactly like a failed utility. Bits of its 'network' are being isolated, cut off, and handed over to other banks who will take them over, and the whole thing gently unwound and pared down slowly.

So I don't see that there's any extra moral hazard created by creating a bailout fund for banks, because they are going to be bailed out - it's only a question of where the money comes from.

cordially,
Scofflaw

Gambling creates a lot of jobs, Paddy Power alone must employ a few thousand in this country.
I don't understand this moral hazard line that's thrown about. Shareholders are the owners of the company (bank). The bank goes under they lose everything. No more an incentive there to mess up as anywhere else as far as I can see.

I can`t find anywhere that says this is restricted to bank shares etc?
How would decreasing liquidity in the general stock market going to help anyone?

Farmer Pudsey

Deleted User wrote: »

I can`t find anywhere that says this is restricted to bank shares etc?
How would decreasing liquidity in the general stock market going to help anyone?

A financial tax is not just on share trading it is mainly a tax on deritivies and there trading. These do not provide funds in general to the nmarket. This is usually money that is used for short term speculation another form of gambling. Just because it is linked to share instead of horses or dogs will not change its colour.

All this will do is transfer some of the wealth accumlated in this financial trading into government coffers. Nothing wrong with that. We have a tax on deposits, a tax when you buy shares why should we not tax fiancial speculation.

Gambling is not taxed either this is one of the reasons that these companies make huge profits. If I buy any product I pay VAT, I pay excise on fuel and drink there is no reason why if I gamble I should not have to pay a tax of 5% at least.

Because of the web some new forms of tax will have to be implemented accross international boundries to prevent the leakage of taxation and to allow adequate government funding.

Farmer Pudsey

Farmer Pudsey wrote: »

A financial tax is not just on share trading it is mainly a tax on deritivies and there trading. These do not provide funds in general to the nmarket. This is usually money that is used for short term speculation another form of gambling. Just because it is linked to share instead of horses or dogs will not change its colour.

All this will do is transfer some of the wealth accumlated in this financial trading into government coffers. Nothing wrong with that. We have a tax on deposits, a tax when you buy shares why should we not tax fiancial speculation.

Gambling is not taxed either this is one of the reasons that these companies make huge profits. If I buy any product I pay VAT, I pay excise on fuel and drink there is no reason why if I gamble I should not have to pay a tax of 5% at least.

Because of the web some new forms of tax will have to be implemented accross international boundries to prevent the leakage of taxation and to allow adequate government funding.

Basically you ruin liquidity, hindering people who otherwise be able to react to good or bad news regarding an investment. Speculation you label it. Not true. There is already a tax on capital gains.

antoobrien

Deleted User wrote: »

Basically you ruin liquidity, hindering people who otherwise be able to react to good or bad news regarding an investment. Speculation you label it. Not true. There is already a tax on capital gains.

No that won't happen, what it will do is prevent things like "naked short selling" and certain "margin calls" where money but not ownership of a financial document changes hands (f**ked up isn't it).

Farmer Pudsey

Deleted User wrote: »

Basically you ruin liquidity, hindering people who otherwise be able to react to good or bad news regarding an investment. Speculation you label it. Not true. There is already a tax on capital gains.

There is a CGT tax in Ireland yes however most od these tranactions take place accross finiancial services and can operate from anywhere in the world. For instance Denis O'Brien avoided (not evaded) CGT in Ireland on the Esat sale. these transactions are often un taxed due to juriistriction issues.

We tax loads of other products that are more benificial to the ecobomy with VAT. There is no reason why a financial transaction tax will cause the sky to fall in . Just like a gambling tax will not either.

The biggest issue is that we need these taxes to be applied accross large economic blocks to be effective and to stop these so call genius going from one tax haven to the next.

Scofflaw

Rightwing wrote: »

Gambling creates a lot of jobs, Paddy Power alone must employ a few thousand in this country.
I don't understand this moral hazard line that's thrown about. Shareholders are the owners of the company (bank). The bank goes under they lose everything. No more an incentive there to mess up as anywhere else as far as I can see.

That's a fair point, but assumes, wrongly, I think, that shareholders are actually in charge of a bank, which for publicly traded companies is not always particularly the case. However, it would certainly be fair to say that shareholders do suffer in bank collapses, and should do more to ensure they don't happen.

Unfortunately, from the perspective of those working in the bank, the moral hazard argument holds in general, and on a day to day basis, particularly in respect of companies likely to be involved in complex financial transactions, or networks of transactions both opaque and quickly changing, that's likely to be somewhat more important.

cordially,
Scofflaw

Rightwing

Scofflaw wrote: »

That's a fair point, but assumes, wrongly, I think, that shareholders are actually in charge of a bank, which for publicly traded companies is not always particularly the case. However, it would certainly be fair to say that shareholders do suffer in bank collapses, and should do more to ensure they don't happen.

Unfortunately, from the perspective of those working in the bank, the moral hazard argument holds in general, and on a day to day basis, particularly in respect of companies likely to be involved in complex financial transactions, or networks of transactions both opaque and quickly changing, that's likely to be somewhat more important.

cordially,
Scofflaw

It is interesting topic. It's accurate to say shareholders should demand more and be more proactive. And yes, there is a big difference between 'ownership' and 'control'. Certain aspects of banking is risky, but aspects of all business is risky.

They take this risk, regardless of having a fallback or not (moral hazard). I've seen countless examples of companies making reckless decisions and there was no fallback but they still went ahead. For banking as you said in a previous point, it's a bit like a utility company, and is vital to the economy so in all probability it or parts of it will be bailed out, but I don't think that features in their reasoning when making the decision.

Scofflaw

Rightwing wrote: »

It is interesting topic. It's accurate to say shareholders should demand more and be more proactive. And yes, there is a big difference between 'ownership' and 'control'. Certain aspects of banking is risky, but aspects of all business is risky.

They take this risk, regardless of having a fallback or not (moral hazard). I've seen countless examples of companies making reckless decisions and there was no fallback but they still went ahead. For banking as you said in a previous point, it's a bit like a utility company, and is vital to the economy so in all probability it or parts of it will be bailed out, but I don't think that features in their reasoning when making the decision.

Yes, I think that's true. Finance, particularly "high finance", tends to attract risk-takers, and reward them, up until the moment when everything goes horribly wrong.

I don't really see the moral hazard argument as applying to the banks in any very meaningful way outside an actual crisis - all the evidence points in the direction of them taking risks without any real thought of a safety cushion provided by the bailout option.

Where I actually see the moral hazard argument applying, oddly enough, is to the general public. That may seem bizarre given the anger apparently generated by bank bailouts, but I would argue that it's a pain blunted by being very widely shared. A bit extra in everyone's tax bill, a bit less in services may outrage certain sections enough to protest, but it doesn't make the general public react as sharply as I suspect the more brutal and focused pain of bank collapses would - and as such, unfortunately, it dulls the public's appetite for proper regulation.

Coming back to the utility analogy, when a section of the grid goes out, people know all about it, and if it were the result of regulatory incompetence, the calls for regulatory reform would be sharp, with the affected people determined that it shouldn't happen again. But if instead of the section going out, what happened was that the rest of the grid took up the strain, resulting in transient brownouts for everyone, the result is more likely to be an unfocused mumble of slight discontent.

cordially,
Scofflaw

Rightwing

Scofflaw wrote: »

Yes, I think that's true. Finance, particularly "high finance", tends to attract risk-takers, and reward them, up until the moment when everything goes horribly wrong.

I don't really see the moral hazard argument as applying to the banks in any very meaningful way outside an actual crisis - all the evidence points in the direction of them taking risks without any real thought of a safety cushion provided by the bailout option.

Where I actually see the moral hazard argument applying, oddly enough, is to the general public. That may seem bizarre given the anger apparently generated by bank bailouts, but I would argue that it's a pain blunted by being very widely shared. A bit extra in everyone's tax bill, a bit less in services may outrage certain sections enough to protest, but it doesn't make the general public react as sharply as I suspect the more brutal and focused pain of bank collapses would - and as such, unfortunately, it dulls the public's appetite for proper regulation.



cordially,
Scofflaw

I appreciate where you are coming from, but that wouldn't be the definition of moral hazard strictly from an economics point of view.

caligg

Also it must be pointed out that while this tax may have its benefits, it would serve to make the EU less attractive to the financial services firms and investors in the long term. This is something that should be avoided at all costs.

professore

caligg wrote: »

Also it must be pointed out that while this tax may have its benefits, it would serve to make the EU less attractive to the financial services firms and investors in the long term. This is something that should be avoided at all costs.

It would be interesting to see a cost benefit analysis of this, i.e. How many jobs and revenue does financial services that would come under this tax actually create, versus the risk of further exorbitant bailout costs by hosting these businesses in your country?

dlouth15

professore wrote: »

versus the risk of further exorbitant bailout costs by hosting these businesses in your country?

Why do we feel the need to bail out every business in this country that can't run itself properly? So what if they are taking advantage of low taxes or some easing of regulation, there seems to be some obsession in Ireland that anything setting up here can't be allowed to fail.

Scofflaw

dlouth15 wrote: »

Why do we feel the need to bail out every business in this country that can't run itself properly? So what if they are taking advantage of low taxes or some easing of regulation, there seems to be some obsession in Ireland that anything setting up here can't be allowed to fail.

There's elements of that - at least for businesses over a certain size - but banks genuinely do have a structurally important role in the economy. No country likes letting large banks fail - the only reason Iceland did so was because they knew there was no possibility at all of preventing it.

Even for non-banks, preventing failure can be far more cost-effective than allowing it. If you have a company in a town employing a hundred people, and it's a choice between injecting a few million which you might get back, or paying the costs of unemployment, the former may well be the more cost-effective option.

cordially,
Scofflaw

Farmer Pudsey

Scofflaw wrote: »

There's elements of that - at least for businesses over a certain size - but banks genuinely do have a structurally important role in the economy. No country likes letting large banks fail - the only reason Iceland did so was because they knew there was no possibility at all of preventing it.

Even for non-banks, preventing failure can be far more cost-effective than allowing it. If you have a company in a town employing a hundred people, and it's a choice between injecting a few million which you might get back, or paying the costs of unemployment, the former may well be the more cost-effective option.

cordially,
Scofflaw

Our only problem is that we saved Anglo and IN. Well no it is not we also had a budget over spend of about 30 billion at the start that is an Anglo and IN ever 2 years not to mind talking about AIB and IP.

maninasia

Scofflaw wrote: »

You mean that creating a bailout fund for the banks creates moral hazard, in that the banks know they'll be bailed out by the fund if they screw up?

Hmm. Currently, they're bailed out by the taxpayer, and the other option, allowing bank failures, is simply not going to happen for large banks.

I've said this before, but people are mistaken if they think banks are "just private companies". They are utilities, as necessary to a modern economy as electricity or water, and once they're over a certain size, they can no more be allowed to fail than a major electricity or water supplier.

If you look at Anglo, you'll see it's being treated exactly like a failed utility. Bits of its 'network' are being isolated, cut off, and handed over to other banks who will take them over, and the whole thing gently unwound and pared down slowly.

So I don't see that there's any extra moral hazard created by creating a bailout fund for banks, because they are going to be bailed out - it's only a question of where the money comes from.

cordially,
Scofflaw

Agreed, but the problem in Ireland's banks was one of 'too big too fail' rather than a 'bank cannot be let fail'.

If banks were kept to a certain size they could certainly be let fail, and let the deposit interest rates and loan rates decide each individuals willingness to utilise or invest in said bank.

Rightwing

maninasia wrote: »

Agreed, but the problem in Ireland's banks was one of 'too big too fail' rather than a 'bank cannot be let fail'.

If banks were kept to a certain size they could certainly be let fail, and let the deposit interest rates and loan rates decide each individuals willingness to utilise or invest in said bank.

That's about it summed up. You can let a bank fail, you can't let them all fail. Banks provide the liquidity for the overall economy to function.

As for other companies, they should all be allowed fail, regardless of size. I know the Obama government bailed out Ford & GM and it has it's economic benefits and reasons and in hindisght looks a wise move. But this is what encourages moral hazard. So much for capitalism, 'socialise your losses' type of reasoning.

Scofflaw

I'd be very happy to see a landscape of small banks, any of which could individually be let fail. I'm not sure we gain anything by having large banks - I suspect a good deal of the 'thinking' behind encouraging it is the old "national champion" philosophy. The idea of having just two large "pillar banks" seems insane to me - we're building in from the start that neither can be allowed to fail at any future time regardless of national circumstances. That's explicit even in the name.

cordially,
Scofflaw

dlouth15

The problem isn't so much the tax itself but rather its implementation under enhanced cooperation rules. Although I think the arguments that it will stabilise the financial system are somewhat overblown, it may still in a country's interest to proceed with it for revenu. The problem was that under the proposed rules Britain, for example, would have to tax transactions between British firms and German (or other countries in the pact) firms operating in Britain. They would not benefit from this tax but would have to pass it on to Germany. You can see why Britain objected and with some justification.

The ruling is not binding being and the advanced cooperation can still go ahead but if the countries concerned don't make changes they are open to legal action. It will be interesting to see if they modify the rules and implement the tax strictly among themselves. I suspect not.

SupaNova2

Scofflaw wrote: »

I'd be very happy to see a landscape of small banks, any of which could individually be let fail. I'm not sure we gain anything by having large banks - I suspect a good deal of the 'thinking' behind encouraging it is the old "national champion" philosophy. The idea of having just two large "pillar banks" seems insane to me - we're building in from the start that neither can be allowed to fail at any future time regardless of national circumstances. That's explicit even in the name.

cordially,
Scofflaw

It does seem insane but the banking system is a strange animal, the US had thousands and thousands of small banks before the great depression and all through the 19th century. They all quickly become interconnected. Isolating failure to a small number of banks sounds nice but doesn't happen, in the Great Depression when bailouts didn't or couldn't happen in 1931, 2294 banks failed, in 1933 over 4000 failed, almost half of the US banks had gone under in a few years. I don't know the answer but limiting the size of banks is not it.

Scofflaw

SupaNova2 wrote: »

It does seem insane but the banking system is a strange animal, the US had thousands and thousands of small banks before the great depression and all through the 19th century. They all quickly become interconnected. Isolating failure to a small number of banks sounds nice but doesn't happen, in the Great Depression when bailouts didn't or couldn't happen in 1931, 2294 banks failed, in 1933 over 4000 failed, almost half of the US banks had gone under in a few years. I don't know the answer but limiting the size of banks is not it.

Good point - again, this makes me think of banks like power grids. Big grids are obviously too big to fail simply because of the number of people they serve, but yes, if the small grids are interconnected to the extent that each one failing is likely to blow others and so on, then small grids are not the answer either.

And building in sufficient disconnects to prevent chain reactions is obviously inefficient. The question is - inefficient but worthwhile, or inefficient and not worthwhile? Assuming the idea even has merit, a cost-benefit analysis of a deliberately impaired and stabilised banking network against an unimpaired and unstable one would be interesting.

cordially,
Scofflaw

Rightwing

Scofflaw wrote: »

Good point - again, this makes me think of banks like power grids. Big grids are obviously too big to fail simply because of the number of people they serve, but yes, if the small grids are interconnected to the extent that each one failing is likely to blow others and so on, then small grids are not the answer either.

And building in sufficient disconnects to prevent chain reactions is obviously inefficient. The question is - inefficient but worthwhile, or inefficient and not worthwhile? Assuming the idea even has merit, a cost-benefit analysis of a deliberately impaired and stabilised banking network against an unimpaired and unstable one would be interesting.

cordially,
Scofflaw

It's not the size of the banks that's the problem. It's what they do. Take JP Morgan, losing $7bln on a deriviative bet. That would have floored most banks. Yet it had little to do with banking. Investment banking and retail banking and hedge fund activities should be treated as seperate companies.

Scofflaw

Rightwing wrote: »

It's not the size of the banks that's the problem. It's what they do. Take JP Morgan, losing $7bln on a deriviative bet. That would have floored most banks. Yet it had little to do with banking. Investment banking and retail banking and hedge fund activities should be treated as seperate companies.

You won't get any argument from me on that one. It's like saying that the post office shouldn't be Ladbrokes.

cordially,
Scofflaw

Farmer Pudsey

Rightwing wrote: »

It's not the size of the banks that's the problem. It's what they do. Take JP Morgan, losing $7bln on a deriviative bet. That would have floored most banks. Yet it had little to do with banking. Investment banking and retail banking and hedge fund activities should be treated as seperate companies.

This is what a financial transaction tax is for. It is in reality a type of bond to fund when these type of deriviative tradings go wrong and cause the collapse of a bank.The reality is that most banks have an investment section and hedge section now and yes you need them seperated but you also need for high risk investment/gambling to fund the damage it causes, like smoking and alachol taxes fund as well

Rightwing

Farmer Pudsey wrote: »

This is what a financial transaction tax is for. It is in reality a type of bond to fund when these type of deriviative tradings go wrong and cause the collapse of a bank.The reality is that most banks have an investment section and hedge section now and yes you need them seperated but you also need for high risk investment/gambling to fund the damage it causes, like smoking and alachol taxes fund as well

No, it's simply a tax to raise badly needed revenue. Keep a few quangos going to they can publish more reports.


I've no problem with the tax, but the tax needs to be brought in on a world scale. Operations would just move out of the EU to switzerland, Singapore etc.

SupaNova2

Rightwing wrote: »

It's not the size of the banks that's the problem. It's what they do. Take JP Morgan, losing $7bln on a deriviative bet. That would have floored most banks. Yet it had little to do with banking. Investment banking and retail banking and hedge fund activities should be treated as seperate companies.

Yet JP Morgan have done ok. Most of the banks that got into trouble in the US have been commercial banks only or investment banks only. Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac, none of these institutions mixed retail banking activities with investment banking.

steve_wonder

its already very expensive to buy stocks in on the iseq , 1% stamp duty , highest in the EU

Scofflaw

SupaNova2 wrote: »

Yet JP Morgan have done ok. Most of the banks that got into trouble in the US have been commercial banks only or investment banks only. Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac, none of these institutions mixed retail banking activities with investment banking.

You don't consider involvement in the mortgage market as engagement with retail banking activities?

cordially,
Scofflaw

Rightwing

SupaNova2 wrote: »

Yet JP Morgan have done ok. Most of the banks that got into trouble in the US have been commercial banks only or investment banks only. Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac, none of these institutions mixed retail banking activities with investment banking.

Didn't the US govt have to bail out BAC and Citi.

SupaNova2

Scofflaw wrote: »

You don't consider involvement in the mortgage market as engagement with retail banking activities?

cordially,
Scofflaw

Tell me who you are referring to and what you mean by involvement.

SupaNova2

Rightwing wrote: »

Didn't the US govt have to bail out BAC and Citi.

Yes but I did say most not all of the banks that got into trouble were one or the other. Citi have been in trouble countless times even before glass-steagell was partially repealed.

Glass steagall or not, big banks or not, you still get boom bust if you have a wild expansion of cheap credit.

Rightwing

SupaNova2 wrote: »

Yes but I did say most not all of the banks that got into trouble were one or the other. Citi have been in trouble countless times even before glass-steagell was partially repealed.

Glass steagall or not, big banks or not, you still get boom bust if you have a wild expansion of cheap credit.

No question about that, but there are also other important factors at play. A key one being regulation, Canadian bank system for instance came out of that crisis largely in tact, as did places like Singapore, HK, Aus, NZ despite there being an abundance of credit available.

Federal reserve has a lot to answer for imo.

SupaNova2

Rightwing wrote: »

No question about that, but there are also other important factors at play. A key one being regulation, Canadian bank system for instance came out of that crisis largely in tact, as did places like Singapore, HK, Aus, NZ despite there being an abundance of credit available.

Can you point me to something showing that the regulatory environment in the mentioned countries was far superior?

I would say some are simply in a different part of their business cycle like NZ, some were saved by a resource boom like Canada and Australia. And it's easy to argue that some of those will go through a housing bust in the very near future, where as the US and ourselves have had ours.

Federal reserve has a lot to answer for imo.

I agree.

Rightwing

SupaNova2 wrote: »

Can you point me to something showing that the regulatory environment in the mentioned countries was far superior?

I would say some are simply in a different part of their business cycle like NZ, some were saved by a resource boom like Canada and Australia. And it's easy to argue that some of those will go through a housing bust in the very near future, where as the US and ourselves have had ours.



I agree.

An article from the Economist. http://www.economist.com/node/16060113



Strict financial regulation and a new commodity boom have turned “boring” Canada into an economic star.
THEIR economy is so intertwined with their neighbour's that when the United States plunged into recession, Canadians assumed they would be dragged along for the ride. Newspapers took to illustrating their economic stories with pictures of Depression-era bread lines. Yet whereas the United States has still not officially declared its recession over, Canada is nine months into recovery from its mildest and shortest downturn in recent history. Unemployment has been falling since last August, and proportionately fewer jobs were lost than south of the border.
Jim Flaherty, the finance minister, attributes Canada's strong performance to its “boring” financial system. Prodded by tight regulation, the banks were much more conservative in their lending than their American counterparts. Those that did dabble in subprime loans were able to withdraw quickly. This prudence kept a lid on house prices while those in America were soaring, but it paid off when the bust hit. The volume and value of home sales in Canada are now at record highs. In some areas the market looks downright frothy: a modest house in Ottawa listed at C$439,000 ($435,000) recently sold for $600,000. “A lot of homes are selling in one day, and often for over the asking price,” says David Cullwick, a local estate agent. Rising prices have bolstered the construction industry and sellers of furniture and building materials.
True to form, the authorities are moving to halt the party. During the recession the Bank of Canada cut its benchmark interest rate (to 0.25%), injected extra liquidity and bought up mortgage-backed securities. At its April policy meeting the bank withdrew its pledge not to raise rates. Analysts expect an increase in June. The government has ended tax credits for first-time house buyers and for renovations, which were granted in 2008 to stimulate demand.
The government of Stephen Harper, the Conservative prime minister, might have expected to receive more praise for the economy's robust performance. If it has not, that may be partly because it insisted that the recession was imported from the outside world. Much of the country's resilience stems from policies—such as bank regulation and sound public finances—which predate Mr Harper. The Bank of Canada can share some of the credit too.

SupaNova2

A lot of that fits with them just being in a different part of their cycle, the only policy change mentioned is an end to to tax credits, not a banking regulation. There is no regulation mentioned that forces lending standards on banks or forces them to be tighter. Without that it looks like Canadian banks were tighter by their own volition not superior regulation.

Rightwing

SupaNova2 wrote: »

A lot of that fits with them just being in a different part of their cycle, the only policy change mentioned is an end to to tax credits, not a banking regulation. There is no regulation mentioned that forces lending standards on banks or forces them to be tighter. Without that it looks like Canadian banks were tighter by their own volition not superior regulation.

No, Canada has never had a systemic banking crisis, America has had numerous.

SupaNova2

Rightwing wrote: »

No, Canada has never had a systemic banking crisis, America has had numerous.

They have had smaller housing booms and busts in the past, but never on a scale to cause a crisis like the US has today, though they might get a taste soon. Again, what banking regulation sets Canada apart?

eire4

Rightwing wrote: »

Didn't the US govt have to bail out BAC and Citi.

The US government did bail out Bank Of America, Citi, Chase etc. The idea was that the banks would use the money to increase new lending especially to smaller business which were having a very difficult time.
The scandal was the government did not put rules in place on how the taxpayers money would be used to ensure it was used in the manner it was intended and the result the banks didn't play ball and won't disclose what they used the money for. What is clear is the money has not been used to stimulate the small business credit market place to any great extent.

eire4

SupaNova2 wrote: »

Yes but I did say most not all of the banks that got into trouble were one or the other. Citi have been in trouble countless times even before glass-steagell was partially repealed.

Glass steagall or not, big banks or not, you still get boom bust if you have a wild expansion of cheap credit.

With Glass Steagall in place there were very few bank failures from 1933-1999 when it was repealed and certainly there were no panics to compare to the 2008 crisis.
That is not to say that Glass Steagall's repeal was the sole cause it was just one of a number of causes albeit an important one as it allowed the creation of these mega banks as retail and investment banks were merged. In 2004 the SEC relaxed the Net Capital Rule which allowed banks to substantially increase the levels of debt they were taking on. The US congress allowed the self regulation (what a joke) of the derivatives market in 2000.
Plus we have the corruption that has resulted from SEC overlap with the financial firms they are supposed to regulate. As we see SEC regulators seemingly more interested in what position they will be getting at what bank when they leave the SEC. Or the fact that currently over 70 former congressmen are now lobbying for financial firms.

View

steve_wonder wrote: »

its already very expensive to buy stocks in on the iseq , 1% stamp duty , highest in the EU

Is there any reason why we couldn't re-brand it as a FTT?

SupaNova2

eire4 wrote: »

With Glass Steagall in place there were very few bank failures from 1933-1999 when it was repealed and certainly there were no panics to compare to the 2008 crisis.
That is not to say that Glass Steagall's repeal was the sole cause it was just one of a number of causes albeit an important one as it allowed the creation of these mega banks as retail and investment banks were merged.

Canada has never had such regulation and has had few bank failures. It has always had a small number of "mega" banks that are involved in personal banking, corporate banking, investment banking, the lot. People have concluded causality on the basis of a correlation ignoring counter examples. Glass Steagall is a complete red herring.

SupaNova2

eire4 wrote: »

In 2004 the SEC relaxed the Net Capital Rule which allowed banks to substantially increase the levels of debt they were taking on. The US congress allowed the self regulation (what a joke) of the derivatives market in 2000.

Most of the damage was done before 2004. Derivatives were bad because they were derived from bad loans(the prime cause). But yes I agree that these played a role.

eire4

SupaNova2 wrote: »

Canada has never had such regulation and has had few bank failures. It has always had a small number of "mega" banks that are involved in personal banking, corporate banking, investment banking, the lot. People have concluded causality on the basis of a correlation ignoring counter examples. Glass Steagall is a complete red herring.

Well we will just have to agree to disagree on Glass Steagall which in my opinion was a factor albeit only one of a number of factors which caused the 2008 crisis in the US. There were no major panics like 2008 while Glass Steagall was in place in the US.

SupaNova2

eire4 wrote: »

Well we will just have to agree to disagree on Glass Steagall which in my opinion was a factor albeit only one of a number of factors which caused the 2008 crisis in the US. There were no major panics like 2008 while Glass Steagall was in place in the US.

I guess so but I wouldn't base my belief on the instance of one correlation. If I go through a morning rain dance to keep drought away and the biggest drought in history arrives the year I stop my rain dance I would be wrong in concluding that it was due to the ceasing of my rain dance.

Here is a Canadian view of their regulatory system.

UNDER CANADA’S BANK ACT, Schedule I and Schedule II, banks are both investment banks and deposit-taking institutions. They therefore have a steady, secure stream of capital. On the contrary, under the Glass Steagall Act, U.S. institutions were prohibited from engaging in investment banking as well as commercial banking. Arguably, the U.S. investment banks that failed were holdovers from Glass Steagall (despite the fact that the U.S. legal regime changed in 1999). They did not have this retail base of capital. Indeed, there are no more stand-alone investment banks in the U.S., as even Goldman Sachs and Morgan Stanley were forced to become bank holding companies in order to survive the turmoil in the capital markets that Lehman’s bankruptcy set in motion.

Better regulation, fine, but glass steagall is not going to change anything.