Feeds

European parliament loves the Tobin tax

But if it becomes law, it's us plebs who'll be paying

The Essential Guide to IT Transformation

Believe it or not?

So, whether you believe it or not, is the same not true of banking and finance? There most certainly were things that went wrong and there most certainly should be changes. But it would be useful to make changes which deal with the problems, rather than changes which wipe out those bits of the banking/financial system which we'd rather like to keep...

Here again, we have some real world evidence. The Swedish brought in a financial transaction tax (FTT), much like the Robin Hood Tax. The result was:

During the first week of the tax, the volume of bond trading fell by 85 per cent, even though the tax rate on five-year bonds was only 0.003 per cent. The volume of futures trading fell by 98 per cent and the options trading market disappeared. On 15 April 1990, the tax on fixed-income securities was abolished. In January 1991, the rates on the remaining taxes were cut in half and by the end of the year they were abolished completely. Once the taxes were eliminated, trading volumes returned and grew substantially in the 1990s.

Now there are those out there who think that this is exactly what should happen, that the financial markets must shrink in size and thus the tax would be a good idea just because it would shrink the financial markets. This is, as you will note, somewhat in conflict with those who want to raise money: you cannot abolish an options market and still tax said options market. Just not going to work, is it? But more importantly, we want to have options markets. And futures markets, for they both enable something we devoutly desire: the management and transference of risk.

Spreading the risk

It's also true that such a tax wouldn't actually shrink the areas of the financial markets which led us to our current problems. You recall those CDOs, those collaterialised debt obligations, which bundled up American mortgages and spread them around the world? These things weren't in fact traded all that much. They were created, sold, then they sat on balance sheets until everyone went bust. So a transactions tax isn't going to shrink that market – as there aren't all that many transactions to be taxed.

So we do seem to have something of a problem with this FTT, this Tobin or Robin Hood tax. We're told that it will be the bankers, not us plebs that pay it. But it won't be – as the IMF points out. It'll be precisely us plebs who do. And it won't be trivial amounts of money, it'll be well above our SMU. We have direct evidence from an extant FTT that this is so, that we will have to carry the burden.

It will also close down the financial markets that we'd rather like to stay open while not affecting in the slightest those that brought us to this pretty pass. We've also direct empirical evidence of this.

And finally, it absolutely won't raise as much money as is said, precisely because some of those markets will indeed close down.

So is this the end? Are we entirely screwed? No, fortunately not. For while the European Parliament did vote for this by a very wide margin, no one has been stupid enough to give the elected politicians any power over this sort of thing. Only the European Commission can propose new laws: there is nothing like a backbench bill in the system. So, this being an attempt at a sort of backbench bill, this isn't law and won't become so. It's a piece of grandstanding no more. ®

Gartner critical capabilities for enterprise endpoint backup

More from The Register

next story
Amazon says Hachette should lower ebook prices, pay authors more
Oh yeah ... and a 30% cut for Amazon to seal the deal
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
Nintend-OH NO! Sorry, Mario – your profits are in another castle
Red-hatted mascot, red-colored logo, red-stained finance books
Sonos AXES support for Apple's iOS4 and 5
Want to use your iThing? You can't - it's too old
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
Chips are down at Broadcom: Thousands of workers laid off
Cellphone baseband device biz shuttered
Feel free to BONK on the TUBE, says Transport for London
Plus: Almost NOBODY uses pay-by-bonk on buses - Visa
Twitch rich as Google flicks $1bn hitch switch, claims snitch
Gameplay streaming biz and search king refuse to deny fresh gobble rumors
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
prev story

Whitepapers

7 Elements of Radically Simple OS Migration
Avoid the typical headaches of OS migration during your next project by learning about 7 elements of radically simple OS migration.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Solving today's distributed Big Data backup challenges
Enable IT efficiency and allow a firm to access and reuse corporate information for competitive advantage, ultimately changing business outcomes.
A new approach to endpoint data protection
What is the best way to ensure comprehensive visibility, management, and control of information on both company-owned and employee-owned devices?