European parliament loves the Tobin tax

Sometimes it seems the Gods themselves are trying to screw us over. At other times it is our own politicians who attempt to to fubar the world all on their lonesome. This seems to be the case with the European Parliament's recent decision to try and impose the Tobin Tax upon us all. The logic behind the decision seems …

[Anonymous Coward]

More than 50% of "UK Laws"...

.... are as a result of EU directives.

The EU Parliament is a farce as the *appointed* commisioners have pretty much all the power.

Perhaps its time we (voters) had a say? Novel and daring idea I know :P

http://www.peoplespledge.org/

I was pro-EU until the Lisbon Treaty - in the 3 countries that allowed voters to have a say, the voters said "No". The EU told the countries concerned to basically do it again until they got the "right" result.

After that I looked a lot harder at the EU structures and didn't much like what I saw. Now we're bailing out Euro countries to shore up the Euro while our own country goes down the toilet. Worse WILL follow on bailouts - much worse.

On the subject of Tobin tax - if it fucks up London then it'll be welcomed in Paris and Frankfurt.

Party political over ;)

[Anonymous Coward]

Not the only one...

The afront to democracy that is the EU's approach to referanda turned me from being very pro-eu to being far more sceptical. I'm not entirely anti-EU yet but I don't trust them so much anymore.

Public Function PassNewTreaty as Boolean

'the following section is for the appearance of democracy only and has no bearing on the result.

Do

DoVoting

Loop While Result="No"

PassNewTreaty=TRUE

En Sub

[Anonymous Coward]

EU not entirely to blame

First, it is often the case that a British law is prompted by an EU directive, but the absurd bureaucratic gold-plating is added by our very own civil servants and politicians. Note that other EU countries seem to have less trouble with the directives than we do (and not just because they break the law).

Second, politicians use Europe as a convenient scapegoat, even when a directive came into being only through extensive lobbying from the British government.

Third, does anyone really want Europe to be a proper democracy at the moment? The current system of government horse-trading and vetoes at least saves us from legislation we'd truly find unacceptable.

Fourth, the EU gives us some protection from the worst fascist excesses of our own government.

It's a desperate kludge, but on balance the EU isn't so bad.

[Anonymous Coward]

They have less problems because they have a different law system

The entire idea of a directive and its implementation in law is centered around Napoleonic law. Not unexpected - it is invented by French and Germans which use it.

The moment this idea hits the realities of the arcane British legal system it all goes crazy because in order to implement the directive fully the law has to compensate for the lack of stuff inherently present in Napoleonic law systems. As a result you get the gold-plating.

Britain should have never ever tried to join the EU without reforming its legal system.

[Kevin Johnston]

Well said(ish)

How refreshing, a well argued, logical and evidenced discussion on why a face-value action will achieve the reverse of it's intentions.

My only complaint is the final section which implies that as the people talking about it have no power it will 'Atlantis' on us. May I draw the writers attention to that recent 'totally impractical and illogical' idea that gender should not be used to discriminate against people in risk calculations. Everyone knew that was a non-starter too......

[Anonymous Coward]

I beg to differ

The problem is that the article is mixing a number of concepts:

The article is referring to the financial market as a tool to raise capital. It was supposed to be and it is not. 99.9% of the transactions are purely speculative. So you either want it to be a tool to raise capital for other parts of the economy or you want it to be a speculative market trading on vapor. You cannot have both because their ROI profiles differ too much in this day and age. Vapor shuffling takes micro if not nanoseconds, investment takes years.

So the governments need to decide what they want:

1. A system where non-financial companies and individuals can raise capital and financial companies can make money on the process.

2. Getting some of the purely speculative money doing the rounds.

Surprisingly enough there is a tool which is perfectly suited to this. It is gasp - the abandoned Swedish style tax on financial transactions. Just make the tax gradually decrease to 0 based on the amount of time the financial institution holds the shares of a company. From there on the behavior of the market and the amount of money the EU can skin from it becomes a simple optimal control problem with the shape and duration of the decline TBA for max revenue

Our best beloved computer assisted gambling parasites do not go away. The environment is still such that you can extract significant revenues from machine assisted trading and someone needs to compute the strategies vs the new trading landscape.

The market overall however will skew towards longer term investment and prudence without the government needing most of the micromanagerial regulatory oversight it is gunning for now. In fact half of it including most of SOX and the post-slump oversight can be disposed off straight away.

All in all - we should all win.

[Anonymous Coward]

@AC 13:30

I'm sorry AC, but you are wrong. The speculative part of the markets (in proper terms the secondary markets) are a wholly necessary part of raising capital. Without them, anyone wanting to invest in a company must do so in the full and complete knowledge that they won't get any money out until the company pays off. Whilst that might seem reasonable, think about something like mining. A small prospecting company raises capital to go hunting for ore by floating penny shares on the stock market, maybe raising 1/2 million or so in the process. The hunting for ore, getting rights to the finds, and exploiting the find might take 10 or 20 years. In that time, if no-one can get any money out, very few people will be willing to invest. The secondary market allows you to invest in that risk, in the full knowledge that you can get some or all of the money out before the big payout. Each time the prospecting company gets a little further down the trail they might make a little money, and each time the shareholders can either stay in or get out. The secondary market is key to that.

Now holding periods are also key. If everyone was in it for the long haul, then the amount of trading would be minimal. And when anyone needs to trade out of their position, the liquidity wouldn't be there for them to do so. They would get seriously hurt in paying other long term players to take positions they don't necessarily want, just because you don't like short term players. In reality in the current markets, the short term players provide liquidity for the longer term players. Short term players still have issues that stop them just runaway exploiting things. Bid/ask spreads are one of those things for example.

If we look at a concrete example. Index tracking mutual funds. These generally have very stable portfolios. But when a stock falls out of the index, or is added into the index, they have huge positions to trade to re-match the index. These huge trades cost money (a transaction cost). If you look at the transaction costs for index tracking mutual funds over the last 5-10 years they have gone down. They have gone down because of the increase in liquidity from shorter term players.

Now finally, a point Tim Worstall made, but you are happily ignoring, is that the short term players have had nothing to do with this crisis. The CMOs that caused the financial crisis were very long term bets generally. They weren't exchange traded so they lacked the liquidity from short term players, and as such when they started going wrong, no-one could sell them on the way down, and they were therefore very difficult to value. The bank failures occured when the positions were untradeable and considered worthless. You do realise that a lot of these CMOs did actually have a latent value, and now the value of some of them has come back - just at lower than they were originally. It was a liquidity issue, not a short term trader issue.

Finally, your glib comment that much of the new regulation wouldn't be needed if your ill-thought out idea were attempted is plain wrong. Most of things like SOX and post-slump oversight is dealing with good governance (SOX) and management of off-exchange traded derivatives, that were long term by their very construction. All this would still be required.

I'm going to leave you with a simple problem to solve. Take oil futures. These exist because oil producers and oil users need to control expenditure through oil price fluctuations. Essentially a big oil producer sets their production amounts by the current oil price, but they know that the oil they extract from the ground takes a certain amount of time to be sold into the delivery channels (it spends time in carriers and refineries etc.). They can sell oil futures at the time it is ready for delivery. Many users of fuel use the fuel they buy straight away and don't need futures, but some do need futures. But take an airline. It is selling many airline tickets long in advance. As it sells those tickets it buys fuel futures to ensure that the ticket price covers the cost of the fuel, even though it won't actually make the flight for say 6 months. This allows someone like BA to sell tickets 6 months in advance, but still cope with large oil price fluctuations without losing vast amounts of money. Unfortunately, the timescales that the oil companies need to operate over don't match the timescales that other companies operate over. As such the oil companies can't just directly sell to the airlines for example. Speculators provide a nice facility to close this gap. If an airline wants to buy fuel 3 months in advance with no risk, and an oil company wants to sell fuel 6 months in advance with no risk, a speculator can agree to bridge that gap in return for a small fee. That is what speculative markets do. And this is what people like Tim Worstall clearly understand, but many others don't.

[Luther Blissett]

Begging to differ also, but not rent-seeking

The EU is only trying to pull the fast one that it has watched the Fed and Wall St investment banks, albeit not the Mafia, getting away with for a long time. A generalized Tobin tax would be parasitical in skimming off other people's labour - a rather champagne socialst notion.

It is worth observing, as a counter to both Tobin's and anti-Tobin arguments, what happened in the PRC after the Big Liquidity Freeze. The value of derivatives sold fell about 90% - yet there was no Tobin tax. The PRC simply asked the Wall St missionaries flogging them to insert a line to the effect that the boys back home on Wall St would guarantee them.

A free market implies a free flow of information. Easy enough to hear what the bloke two stalls away is selling his bananas for. But OTC derivatives are more accurately back-alley after-closing-time deals. Have the regulatory authorities considered publishing details of all these?

One might as well ask what are bears going to do when the trees are all cut down? But the answer is easy (if not calculated to fill bears with glee) - use the bulls' field.

[copsewood]

All in favour of it

Sad that John Maynard-Keynes was so far ahead of the envelope that so many people who claim to be able to interpret the dismal science for the rest of us have not yet caught up with his better ideas. If you want to understand his long view, his short and accessible “Economic Possibilities for Our Grandchildren,” http://www.econ.yale.edu/smith/econ116a/keynes1.pdf gives useful clues as to our current or near future need for an economy in which human scale values begin to outweigh the need for growth at all costs including by rewarding excessive greed wherever this is found. And then we have Schumacher's "Small is beautiful", a guide to economics based on the radical idea that human scale values actually matter.

Suffice to say that Tobin's tax ideas would lead to a world much more in keeping with Keynes and Shumacher's visions. Yes its a tax Virginia, and taxes are inherently unpopular, but once we can rid ourselves of knee jerk reactions of the Daily Mail tabloid kind and accept that taxes are needed for us to have services we need such as health and education, then taxes have to be collected somehow, and every civilised society will spend a proportion of its collective income on things which are financed through taxation.

Having the foreign exchange dealer having to spend a higher proportion of what he earns on taxes and the woman who cleans his office floor having to spend a lower proportion of what she earns on taxes would be the outcome, so in many ways, professor Tobin's tax proposal makes very good sense.

[Anonymous Coward]

Forex dealer vs cleaner

It's a nice notion, but I would expect that Forex guy will demand more wages to offset any tax, and the company he works for will just skim off more from their parasitic activities to compensate any increased cost the decreases the reward they feel they deserve, and onwards through the chain of financial services until it hits the people who actually have to work for a living and who have been made dependent on these services.

Ultimately, the cleaner (and us) pay for this extra skimming through increased interest on any debt held. Whilst I hold no debt at all, it does make it rather tricky to acquire anything large (i.e. a house) as the savings rate is pitiful - though, I'm sure they can lower it 0.1% further to help prop up their bonuses, if compelled to. In the meantime, I may have to pay increased rent to someone who is at the mercy of these rate increasing scumbags, meaning that it is actually rather difficult to escape a role as one of their debt slaves.

Although an atheist, I'm beginning to really appreciate the forbidding of usury in the Judeo-Christian traditions. Quite what would permit a profit on risk taking, yet forbid entrenched debt slavery of our entire society, I'm not sure. But I suspect a maximum income based on a multiple of the per capita GDP may be something to do with it.

[Ben 50]

Right wing rag

I'm going off the Reg more and more with every passing day.

This article is moronic and blinkered on so many levels it exhausts, but does not surprise me.

Try living for a few years in Europe (for a full culture shock, try starting in German) and not just in some pathetic ex-pat enclave. Learn the language, study the politics, watch how the economic systems work... you'll be in for the shock of your life.

You might not like what you'll see, but you'll realise that so many of the assumptions you take forgranted are just that. Assumptions.

[DavCrav]

What are you saying?

"You might not like what you'll see, but you'll realise that so many of the assumptions you take forgranted are just that. Assumptions."

So you're saying that the FTT wouldn't be a problem on the continent, and would just completely screw the UK over? Ah, now I see why the EU parliament voted for it...

[Anonymous Coward]

But I don't live in Germany!

And have no wish to do so. Nor France, Italy, Spain or the Netherlands. I like the UK and like to visit 'Foreign' places for the mind broadening effect and the cultural diversity they represent. I like some aspects of ethnic Britain and welcome the contribution many 'ethnic minorities' bring - both economic and otherwise.

There is only one group of people who can possibly pay tax. Those who earn the money and create the wealth. The only place our 'EU Masters' can apply a 'Tobin Tax' is to the workers. Some good will either by accident or design be done if this is followed through.

They will waste, as they have done so evidently in the past, much of any money they raise from us or it will go into corruption. The bigger the pot the less corrupt flows will be noticed but the bigger they will be. The EU and EMP 'representatives' - my arse - have proved themselves incapable of managing the 'pocket money' they have taken from our purse/wallet in the past and, if they were your children, you would reduce it not increase it.

While, in principle, the Tax seems like a good idea I suspect that in practice despite the best efforts and intentions of the competent the corrupt and venal will just screw us further with our own, not their, wealth.

[Anonymous Coward]

Germany has an economic system

Germany has industry and has a governance system where it is nigh impossible to get rid of it (trade union representation in company boards).

That is different.

You should not expect someone from a country which got rid of its industry wholesale to understand you.

[Timjl]

What does living in another country

have to do with the efficacy of a tax on financial transactions?

[John Lilburne]

Let us be honest ...

... when ever you talk to the financial sector in whatever capacity, you get shoved a bit of paper that says "things may go up or they may go down". If they were being truthful the paper would say "Give us your money, you may get some of it back, but you probably won't, your choice in teh matter is to either give us your money or someone just like us your money, but whatever you do you have to give us your money. So just give us your FUCKING MONEY alright!"

[Tim Worstal]

For Ben 50

The author of this piece lives in Portugal. You know, Europe?

[Tron]

Here's something El Reg readers can do...

You don't like bankers, gutting the economy and still getting their bonuses, or the consequences? Well, for starters, switch banks to the Co-Op.[1]

OK their CEO still earns what I'd consider to be too much, but it's a damn sight less than the £1m pay/£2.33m bonus + a possible £4.3m in incentives subject to share prices[2] handed out to the head of Lloyds. Yes, Lloyds. The Epic Fail of British banking, that had to be bailed out by tax payers.

So, that's a start to building a better Britain. If the concept of ethical commerce has always passed you by previously, you might want to start thinking about it, not as a one off, but as a way of life. There are ethical alternatives to most of the things we do. If you don't choose them, your money goes to less ethical places and less ethical people. Making less ethical and outright unethical companies bigger and more powerful will ensure that in due course, they will screw us. It benefits us to go with the good guys. Sometimes it takes a bit more effort and may cost a bit more, but in the long run, we all benefit.

As for senior financial folk threatening to leave Britain and take their snouts with them if their troughs are taken away. We should be chasing them out with claw hammers for what the fraudsters did to our economy, and got away with, scot free.

[1] http://www.guardian.co.uk/commentisfree/2010/jan/19/what-done-banker-bonuses

[2] http://www.newstatesman.com/banking-and-insurance/2010/11/horta-osorio-salary-osborne

[Anonymous Coward]

One fat downside.

The Co-Op is associated with, and gives money to, the Labour Party. So if doling out cash to those .... individuals ... is your idea of a good time, then go for it.

[Sarah Bee]

Re: One fat downside.

Nurse! He's out of bed again.

[TeeCee]

@Tron

The Graun and the Staggers as references?

Why not go the whole hog and quote Das Kapital while we all sit around and hum the Internationale?

[bell]

If not Tobin, then what?

If we look past wanting to hurt the bankers - as satisfying as it may be it's not really constructive - there are some other goals which are also worth pursuing.

Even as a raving capitalist I'm not comfortable about the way that the financial economy dwarfs the real economy. The real economy needs the financial economy for for liquidity and risk finance. The extent to which the financial economy has become disconnected from the real is alarming though - particularly when disasters in the financial economy can have a serious impact in the real economy.

Tobin taxes may not end up collecting very much - the Swedish experience demonstrates that they will put a serious crimp on the ballooning of the financial economy though. Instead of slating them outright let's hear some proposals on how to tailor them to bring finance and the real world back into a reasonable relationship.

[señor]

Rubbish

Another pile of rubbish dressed as journalistic piece. This article is non-sense. The tobin tax aims to set a very small tax on speculative transactions. In small transactions will amount to very little but in large movements will amount to something. The writer seems another lackey of the finacial groups that brought us this crisis. Always preaching the same, whatever you do don't touch our money. Well, have a look at the GDP growth for the last 20 years, where has it gone? Not to peoples income but to the pockets of a few. Inequality just keeps rising, and middle-class income steady going down while we're being brainwashed not to think about it. Seems some sort of taboo you can't speak of.

[Robert Hill]

Twaddle

Sorry, but this piece is complete twaddle economically. At it's heart, it takes the plight of small to medium businesses, i.e., people actually using PAYE, and then tried to extrapolate their price-sensitivity to those of a corporation, i.e., the banks. The problem is that this comparison is SIMPLY NOT TRUE...the banks are corporations and they have a massive cushion against price rises (which is basically what tax increases are). Their cushion is simply their corporate profitability, as reflected in either share prices or dividends or both.

In general the SME business market lacks that cushion (being much more hand to mouth, and often under capitalized), and rises in the cost of doing business or other input prices are directly related to their output prices - meaning that tax increases DO lead to increased costs for consumers. But large corporations, in a competitive market, can and DO adapt to supply price increases without a price rise. They decrease their share price increases (driven by a decline in profitability) or reduced dividends or other costs (i.e., salary and bonuses). They have that luxury, the SME market does not - and all banks are large corporations, not SMEs.

So the only real question is - will inter-bank competition limit the passing of this tax onto consumers? If the answer is no, then we need to address THAT non-competitive aspect of the EU banking market, NOT simply declare that this tax is "bad for consumers"...because with a properly functioning banking market, this should be good for most of us non-banking tax payers.

Of course, if we can't have a competitive banking market, then this tax will be a price increase for consumers. But worse than that, we would be basically admitting that the political influence of the banker's money has corrupted the political process so that it cannot be fixed...and then we just have to admit that us non-banking taxpayers are increasingly screwed. So maybe we should tax the hell out of them just out of spite...

[kissingthecarpet]

No

It'd be OK if there were free markets, but there aren't . It's all a rigged game, so bollocks to the lot of 'em. The banks are just the Mafia gone legit. Larry Ellison etc. == the Gambinos without the direct murder.

Also, people, stop thinking you're middle class - you aren't, you're proles 'cos you work for a wage. Its got nothing to do with how you speak. My dad could buy a house, & get a mortgage in 1960 on a storeman's wage. We've all been mugged off. How long before everyone has to work 12 hour days, just to be allowed a bed in a barracks & food, because that's the direction of travel in this shithole. We're not getting better off, we're getting shafted.

[clean_state]

less financial bubles: good

Can the author explain in plain terms what is wrong with a 0.003% tax on financial transactions, or, to put it in a different way, why is it so disastrous to earn 0.003 points of profit less on a transaction. Everyone who makes a real investment is expecting 1%-20% out of it (sometimes X00% for high-tech startups). So now it becomes 0.997%-19.997%. I do not see much change here.

The volume of transactions will go down dramatically, but the author fails to explain why that is a bad thing. The piece about the Swedish experiment is pathetically self-referencing. It says that hte tax has reduced financial activity and was therefore wrong. But where is the link between financial activity and societally positive effects ? I am not saying there is none. I am just pointing out that the author does not explain it.

His stance is the classic arrogant finace-boy attitude: "If X is bad for my artifical market world, then let us scare the hell out of everone to protect my income".

Shallow arguments, scaremongering - smell like a tea party doesn't it ?

So dear mr author, you seem to be an intelligent person so give us the real answers please:

- what is the real effect of a reduction of financial activity on the businesses and industries that need financing? I tend to think that approximately 1% of financial transactions are involved in financing real activities. The rest are zero-sum games played between finance boys that have no useful purpose for society, but that have real risks involved (financial bubles that can crash the real economy). Disprove this if you can.

- why does a 0.003% tax reduce financial transactions so dramamtically ? Isn't it an indication that the transactions displaced by the tax were extremely low profit and were therefore unlikely to be related to the financing of real activities.

- where do the enourmous profits of the banking sector come from? Why can banks afford to pay so many finance boys to play zero-sum games ? Is it not because thay take the money to do so from the worker's wallets ? Did you think about the positive effect of the Tobin tax on the worker's wallets because of this ?

Thank you in advance for your answers.

[ratfox]

Careful

The author does explain why financial activity is desirable. It is important for business to be able to diminish their risks by trading in options and futures.

You should also not state an assumption that 1% of financial transactions are involved in financing real activities, then ask "Disprove if you can". If you have an opinion, it is your business to defend it. Otherwise you just invite answers of the type: "I believe you have no idea what you are talking about. Disprove if you can".

There is no reason to believe that a transaction that is extremely low profit is unrelated to the financing of real activities. A small business is in constant need of small sums to be repaid next week. Whenever you order something, the business you buy it from has to build it first, give it to you, then ask for your money. Where do you think they get the money for the materials? They make a small loan, for a couple of weeks. Of course, the transactions are low-profit, because the bank does not charge much interest for such a small period. One of the largest impact of the recent crisis on small businesses is that they were unable to secure these small loans from banks, because banks were too scared to lend.

[Anonymous Coward]

I just do not understand ...

why a senior banker or financier or factory manager or other such should need a "bonus" for doing his or her job when they are all ready handsomely paid. If a person will not do his or her job properly, to the best of his abiltiy, every minute of his waking life (and on standby when asleep) for, say, £500,000 a year, what difference will some vast bonus make? If you tell me that without such over-payment this character will move away, I say, Good. If that person has got no loyalty except to his bonus and will not do a first class job for twenty times the salary of most, individual workers, we do not need him. In fact, we would be better off without him and getting someone with a long-term view in place

It is not as if paying these amounts of money has resulted in a safe, trouble free banking finance sector or a flourishing British manufacturing sector, is it?

A bonus tax should be just that and if it drives some to, e.g. the USA, excellent. They can join their confederates who made such a good job of that economy and kept the USA out of debt, war ....

The bonus of the head of the firm where I work would fund two or three of the big, urgent projects for the future of the business and maintenance of current systems; but this major, international bank is cutting our budgets as it is short of money, it says. For that matter, his annual salary would go a long way too.

This, I hear, is standard fnancial rewards management.

[Anonymous Coward]

Easy...

You get a bonus for performing your job above the level at which you are expected to operate, it's called performance based pay. It means that there is an incentive to work much harder, rather than just coast along in your job. It's just a different way of paying people and is actually very common, that is has been misused by some institutions is obvious, but that doesn't mean that it's not an acceptable system.

For instance: My friend works in a lab testing oils, she gets X salary for testing the volume of products she is supposed to test, but if she tests an agreed amount more (within a certain error rate) she gets a bonus.

There are areas where it wouldn't be acceptable to have performance based pay, such as Policing where the incentive would be to arrest more or fit people up.

[Anonymous Coward]

Do you believe in fairies too?

If someone is earning half a million pounds and is just coasting along, cut his salary or sack him. People on far less are sacked or at least penalised for that. Bonuses, I fear, are rarely related to performance, or those awarded in the finance sector recently would have been negative. So stop believing the propaganda and think for yourself.

My point is, with such generous salaries, a bonus for doing your job must be wrong. In most jobs, one is expected to work to the best of one's ability, regardless of salary and with or without bonus, meaning do more than the minimum. Note that the vast majority of workers in most occupations do not get bonuses, ever, no matter how hard or long they work, no matter how productive or innovative they are. In these times, often they do not even get pay rises; but they do get pay freezes, redundancies, bankrupt employers and outright sackings.

As I wrote, if a bonus is needed to motivate an all ready highly paid individual, find someone better and more interested in his job and less on getting more for himself out of an over-generous employer, often at the expense of the firm as a whole.

I should like to see real evidence rather than self puffery that the finance industry does any real good. It may be considered that, until the last 150 years or fewer, the finance industry was much more limited in scope than today and yet, somehow, the world went on and Britain acquired a trading empire around the world and America grew from nothing and humanity advance a little. Great crashes seem to be associated mainly with what finance industry there was, whether the South Sea Bubble, debasement of the coinage or many other affairs.

I rather like the idea of limiting top rewards to some multiple of the lowest paid employee's salary, including perks. In recent years the disparity between pay levels has become obscene and damaging to society as a whole.

By the way, I am well paid and was fortunate enough to get a (modest) bonus and a (modest) pay increase.

[Mark 65]

@AC: Bonuses - it really is simple

"why a senior banker or financier or factory manager or other such should need a "bonus" for doing his or her job when they are all ready handsomely paid"

The theory is that it is a variable component of salary so rather than pay someone $200k you'd pay them $100k + up to $100k bonus. Then, *if* properly applied, when things don't go so well you don't pay the bonus and when they do you hand it over. It is much better for a company to pay in this way than to hand over a flat $200k come what may.

You will have witnessed that the effects of the bonus tax were for Barclays to up the fixed salary component of their investment banking workers so by trying to make bonuses smaller you have in fact ensured that these people get a larger fixed pay packet and they no doubt thank you for it. For those that believe they then get hit by the 50% tax band you should look into how highly paid finance workers actually get paid. EBT schemes would be a starting point.

[A J Stiles]

We always get this from the Right

Nobody needs more than £100 000 a year to live on. Nobody.

If the billionaires left the country, we would not miss them. Most of them are not doing anything useful for us; and of the ones that are, even by their own logic, other people could do a better job for less money.

Also, people doing a job purely for the money don't do it as well as people doing it for the love of the job. So if you want to use money as a motivating factor, you're probably motivating the wrong people anyway.

[jcw]

Did you not RTFA?

You're right. And you've totally missed the point. Yes, nobody needs more than £100kpa, but that doesn't mean they wouldn't like it, or would be willing to work hard to get it. There are some jobs you can do for the love of it, but there are also plenty of necessary ones that aren't so satisfying, or have downsides, for which you need increased rewards (more money, or the potential for more money) as an incentive.

[jcw]

p.s.

I should probably add that I don't agree with the article. Yes, you'd get vastly fewer transactions so not as much tax revenue gained as some people would like to think, and what was raised would eventually come from the productive part of the economy (as it all has to). However the more important intention is to reduce the fast amounts going round the financial economy so that when it goes off of the rails it doesn't screw up as much outside itself, and therefore we don't have to panic so much when it does all go pear-shaped.

The problem is, can you get this done universally? If it's not (e.g.just in one country) then the system doesn't change, it simply redistributes, and you get no social benefit. If you can solve that one then sign me up.

[Lars]

A rotten, but accepted egg.

We cannot prevent a tsunami or a earthquake but looking at all the perils that has hit us it seems to me that the banking sector has been a bigger problem and more rotten than any other part of the economy or nature.

So perhaps we should do something about it, at least try to. And do not expect local governments to have any strength with that maffia.

A company producing shit will die (not writing about Microsoft, mind you) and the shareholders will probably loose money, people will be fired, also (sometimes) at the top, but for some reason, this does not apply to the banking sector.

[Anonymous Coward]

Ok...

How many maffias do you know that accept regulation in how they work? The government has much strength, it's just that the New Labour government ballsed it up.

As for a company producing shit, etc etc, you seem to have not noticed that there is pretty much noone in a senior position at a UK bank, who was there before the crisis kicked off. The only person I can think of is the CEO of Lloyds banking group. You'll also notice that the current government aren't doing anything to stop the banks making people redundant left right and centre, often moving their jobs to India.

(Oh, yes, when I say "The Banks" I'm using it how you appear to be using it, ie: Missing out responsible banks like the coop.)

[Anonymous Coward]

He fails to see a fault with his example...

In the Swedish example I can understand why transactions would suddenly stop, because they'd have to pay a little more money.

However the Swedish tax was well, Swedish. It didn't stretch out anywhere near as far as the Tobin tax is planning on doing so. If the Tobin tax does in deed get through and affect all countries in the EU then it becomes financially difficult to stop ALL transactions with ALL the EU countries. It's like limiting how much of a mince pie your going to eat down to 2/3rds of the mince pie.

On top of this, as more countries join the EU and accept the Tobin tax that percentage of the pie you restrict yourself to becomes smaller and smaller...

If you hadn't guessed, I'm for the Tobin tax, however I would like to see some more strings attached to the tax which would restrict the financial sector to paying the tax with it's profits and thus not handing the tax onto it's customers.

[Mark 65]

Pan Euro tax

All that happens, for those who haven't worked in finance, is that trades then take place between the offshore (tax haven) arms-length entities of each party via a "trading suggestion". If Governments really want to be arseholes with this tax then they are playing in a league well above their level - finance wrote the book on it.

[Zolko]

ah yes, the tax heavens

If the bankster go trading in tax heavens, good for us, it's the purpose of the Tobin tax, to get rid of the speculators.

Because when they later try to bring back their profits, BANG!, zebigtax.

Yes, the Tobin tax is supposed to be low to not impact on investment trading, but still impact on high-speed speculation. But it could also be high for trades coming from specific areas, this is the part that actually the banksters don't like

[Andrew King]

The Worzel Gummidge Award

...for straw man of the day goes to:

"Think how much good we could do if we simply took Bill Gates' and Larry Ellison's money to put to those same good uses? Only two people would get hurt and millions would benefit, no? Well, again, no, not quite...We let them keep it so as to encourage the next few tens of thousands of geeks/megalomaniacs with bright ideas about how to change the world to give it a go."

I can see how onfiscatory taxes on the proceeds of innovative geeks' brilliant ideas could backfire. But this is a proposed tax on banking transactions. Last time I checked, neither Bill Gates or Larry Ellison were big players in the European banking sector.

Given the mess created by bankers with bright ideas about how to change the world, I'm not convinced that discouraging bankers would be an entirely bad idea. Do we really want to let bankers keep their loot so as to encourage the next few tens of thousand Fred Goodwins? I rather think not.

I'm not saying that a Tobin tax is workable, or that the law of unitended consequences wouldn't bite its supporters on the bum, just that this is a spectacularly bad analogy.

[John 62]

taxes and results

tax windows and you get people filling in their windows.

tax the people who set the prices and they just set their prices higher.

[Phillip.]

Oh Noes

It seems to me that by the author's logic, the coffee shop opposite the bank shouldn't be allowed to increase the price of their Frappaccino Latte as this price rise will get passed on to the consumer and the cleaner will end up paying more for Mr Banker's coffee.

I also have to agree with clean_slate. After putting on my spam filter I get only a fraction of the email I used to, but I end up more rather than less productive. There is also the contradiction that if the volume drops so much then there is little of the 'heavy tax burden' spoken of by the author.

Phillip.

[CN Hill]

Goodonya, Tim

Whatr exactly is the point of the European parliament?

[Anonymous Coward]

I can pretty much guess the only ones who will be up for this are bankers.

My guess is not only will they pass the cost on to each of us.

I'm pretty much guessing they will add a sur-charge each and every time they do it, so in effect making a pile money from it - and hey not their fault if its law they need to cover their 'operating costs'.

The problem doesnt just lay with the bankers (though they arent helpping any!) but the whole entire monetary system as well as our own attitudes to bussiness and life!

Money is produced into our system with debt (called 'interest') and adding this debt when its produced is stupid. Because the only way you can pay back the debt is to produce more money, which as soon as it is produced has debt attached to it - Is it any wonder that national debts are running out of control?!

So the only way to stop running away debt econnomys is to stop producing debt at the creation level. (and no this should be left in the hands of the bankers)

Also each and every company is obsessed with make more and more profit each and every year. So end up eatting more and more reasources, producing more and more polution because they seem to be under the impression that we live on a planet with infinite resources, which we dont!

And we're just as bad, drawn to every new shiney thing put in front of our faces, made from the new 'liquidmetal' or other highly toxic material made by some 5 year old in some sweatshop in the 3rd world, just so you can be charged 500% more than it cost to make. Just so you can show your friends some retarded video on youtube for that one instance that you can go "yeah! that was well worth ruining the lives of some brown people living in some dirt hole!"

..\* What officer!, yeah okay I'll get off my soap box now and come quietly!

[Matthew 26]

Your Thesis is 6 Pounds of Manure in a 5 Pound Bag

There are 2 reasons for a Tobin tax:

* Generation of revenue.

* Discouraging casino type speculation.

Of the two, the SECOND is the more important reason, and has always been cast as such.

If revenue is less than expected because speculation is reduced, then you have a, to quote xkcd, a "mission %$#@ing accomplished!" situation.

Investors, even those who who trade regularly, are not impacted greatly, but speculators, who trade constantly, such as the automated program traders, are, and this has the effect of reducing volatility and fraud in the market, because small margins on repeated trades become less attractive.

[Anonymous Coward]

re: Casino speculation

In a casino you always loose money over time (you may have occasional wins).

In an investment bank you always make money over time (you many have occasional losses).

[Irony Deficient]

this and that

John Naismith, you seem to have forgotten that Spain and Luxembourg voted by referendum _for_ the EU constitution. Spain voted before France and the Netherlands; Luxembourg voted after them.

Anonymous Coward at 15:39 GMT, would you give an example of the “stuff” that is an inherent part of civil law that is missing from common law? Given the hybrid nature of Scots law, does it already have some of that “stuff”? If so, does that mean that the implementation of EU directives in Scotland would require only, er, silver-plating?

Anonymous Coward at 13:30 GMT, Islam also forbids usury. In the case of medieval western Christianity, the “contractum trinius” was effectively usury by another name.

A J Stiles, there are plenty of people on the left side of the Atlantic (if not elsewhere worldwide) who could use £100,000 per year (or more) to be able to modestly support themselves and their dependents, and simultaneously pay their medical expenses.

[Anonymous Coward]

Load of bankers

The OP, presumably intentionally, is conflating entrepreneurs with bankers.

Entrepreneurs create and grow businesses that compete with others to provide goods and/or services; provided there are sanctions to curb the natural tendency to create monopolies this is generally a good thing.

Bankers create debt; at their peak they've created 20x as much debt as they receive in deposits. They then charge us for this debt either directly, in terms of mortgages & other loans, or indirectly by using it to lend to the government. Even better, because debt comes with interest charges we have to raise ever more money to pay off the charges plus capital, which means buying more debt off the banks. This is why our economy has to grow, and is also why house prices always trend upwards - i.e. because the banks can create the debt they loan out for free its all profit, so they provide as much debt as the market will bear. High house prices (& rents) mean that people need high wages, which makes it impossible for us to compete against countries with lower costs. All of which means that the private banks have far more influence over the economy than the Bank Of England, hence the monthly inaction of the MPC.

This is also why the financial results for banks are masterpieces of obfuscation drawn up under their own special accounting rules rather than those used for all other companies.

The credit crunch came about because the bankers forgot they were getting a free ride and convinced themselves and each other that they actually understood business and commerce and money, whereas in fact they had jettisoned all that expertise years before.

[Richard IV]

Would someone please tell me...?

...what market volumes have to do with anything?

Market volumes cannot determine whether it's one thing changing hands a million times (who cares? - that would be those bastard bankers getting their cut 2 million times over along with an increase of instability) or a million things changing hands once (in which case it's probably a bad thing that volumes are down).

As ever, it's going to be somewhere in between, but that's the eternal problem with taxation - there are lots of areas where things we want to promote and things we want to cut down on are nigh on inseparably mixed. Conveniently enough, Tim cites the other in the article without mentioning the dark side:- high earning entrepreneurs (good, at least from the encouragement rather that necessarily moral side) and high earning twats who will get a golden goodbye no matter how badly they do are seriously difficult to distinguish in law.

Another thing not mentioned in the wikipedia article quoted is what happened in the period when the tax was halved. Did the volumes change at all? It would be interesting to know whether it was a question of the tax being perceived as too high or a general affront, don't you think?

If Tim's theories are anything to go on, we should be getting that trickle-down from the Reagan/Thatcher era any time soon. I for one can hardly wait.

[Anonymous Coward]

Financial services...

As someone who has worked in financial services IT for the last fourteen years, it surprises me how everyone has become a financial expert in the last two years and everyone knows exactly what the banks should have done. This is despite no-one appearing to have been interested in anything to do with the subject before the failure of Northern Rock.

It's just a shame that none of these wise financial sages bothered to mention their wisdom before the banking crisis.

[Demetrius]

You forget...

Before the failure of Northern Rock, although it may have been known there was significant corruption within the banking business, the vast majority of people didn't truly understand the sheer scale at which the corruption was happening at. Therefore it was assumed that the people in the banking business did their best to stop such catastrophes from occurring and know proper banking etiquette.

Turns out that the corruption had pretty much spread into the education of how to be a banker, and stemmed up from that. "How to screw a country over, well turn to page 2..."

It was because of this misunderstanding between the public and the banks that meant there were very few "wise financial sages". How do you put it again, supply and demand?

[P. Lee]

What's the problem?

1. Democracy doesn't scale.

Democracy is about self-determination. When a democracy gets too large, smaller groups are outvoted by larger groups and self-determination disappears. The UK has it's own functioning democracy, there is really no reason to include the Germans, French and Italians. If you start imposing tax at an EU level, you take the purse-strings from the individual countries, which I'm sure the EU (the EU institutions and possibly the more populous countries) is in favour of, but it isn't good for self-determination, which is the aim of democracy.

Hence, the EU should not be used to push legislation. It should be there as a facilitator to coordinate between sovereign states, who agree on things, not to override existing democracies.

2. Insurance.

I suggest that those companies who buy risk (sell insurance) shouldn't be allowed to resell it. That way they have an incentive to not insure things which shouldn't be insured, like risky mortgages. Companies should be made to stand behind their insurance products. It helps limit any damage of bad management to a single company, and focuses management's mind as they can't ditch the responsibility for their errors onto someone else. The problem is the lack of a link between risk and responsibility.

[Charles 9]

To challenge #2...

...what about NECESSARY risks, like oil or mining ventures or drug research, just to name a few? For all intents and purposes, pursuing a new oil well, ore vein, or miracle drug is a crapshoot. It takes bookoo bucks just to get started on the whole venture, and the chances of a payoff aren't generally regarded as very high, despite all the research you can bring to bear. Without at least SOME mitigation of risk (insurance, IOW), no one would be interested in making the attempt, which means we start getting a crimp on our resources (and BTW, renewable ventures also falls under this problem) and continue to suffer from conditions for which realistic treatment still doesn't exist.

So the question becomes: who takes the necessary risks?

[Anonymous Coward]

some mitigation is fine

passing the buck definitely is not, like what happened with the CDOs.

I don't see any downside in limiting the ability or rewards of bankers doing speculative transactions just because they are potentially juicy. Especially now that they know the rewards are theirs and the risks are the taxpayers'.

And no, the trickle-down theory will not be swallowed so easily now. Rich people have been getting richer, poor people poorer, and big CEO incomes will NOT make the plebs better off. Bring out the guillotine!

[Anonymous Coward]

Do not confuse banking with capitalism

Clearly the bankers f***ed up. Which is why the markets punished them. They were bailed out by the government, not by the markets because the markets said, "you've failed, you are insolvent, so we won't lend to you anymore, your stock price should be lower!". And when stock prices fall, we get hurt (if you have any savings that is, I don't!)

All of these failed bankers would have been wiped out if the government had not bailed out the banking sector. And they are still doing so via the Bank of England's policy quantitative easing, allowing banks to borrow at 0.50% and lend to ordinary folk and small business at 10%+, pocketing a risk free return at taxpayers expense. Not an ideal situation!

However, a financial transaction tax would harm savers, pensioners and small businesses such as farmers and airlines that require liquid and competitive commodity and financial markets to hedge against sudden price movements in wheat, cotton or oil, etc or indeed the future financing of their business. We need more competition in finance, not an industry concentrated in fewer and fewer hands (=large banks) with close ties to government. Just think of the rip off rates you pay when you exchange currency to go on holiday, or even the charges levied on you by your local bank. A financial transaction tax would reduce competition, so the banks would probably benefit overall, if you look at the big picture.

Even if you applied a financial transaction tax within all of Europe, other nations such as Singapore, Hong Kong and China are looking to grow and would not follow, they would laugh at us. And why should they follow, why should we be allowed to decided another sovereign nation's tax policy?! We don't have an empire any more folks!! Financial markets are electronic and global, so the result for the UK economy would mirror the Swedish experience, financial business would move elsewhere...

So really when you support a financial transaction tax you are basically saying you want to destroy the UK financial services industry and that falling tax revenues is a price worth paying. The problem is that the tax revenues from all industries are needed to pay for our welfare state, and if you reduce the tax revenues that are received by the UK government by killing a particular industry, like in Sweden, you then become more dependent on international financial markets for funding the government's spending on schools, hospitals, education...

Do we really want to be in a position where the UK is begging the financial markets of other economies, or the IMF even, for a loan on their terms? NO!

We should spend more time trying to develop new industries via preferential tax rates or subsidies, whether in IT/internet, bullet trains, electric cars, new forms of renewable energy, maybe even smaller regional banks...not wasting our time trying to kill industries. People will move from banking into other industries are exciting and growing, the problem is we don't encourage new industries to grow in the UK. We have all become socialists