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Thread: Brown proposes a Tobin Tax as insurance against future bubble bursts

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    Politics.ie Member cyberianpan's Avatar
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    Default Brown proposes a Tobin Tax as insurance against future bubble bursts

    Gordon Brown is a noted intellectual pygmy, and he has resurrected the idea of a Tobin tax, out of context , to act as an insurance fund against future bubbles:

    Telegraph
    The Prime Minister told ministers from the group of rich and developing countries it was time to consider a global financial levy or an insurance fee to be implement by all the world's financial centres.
    Addressing the meeting in St Andrews, he said there must be a ''just distribution of risks and rewards''.
    ...
    ''And it cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us."
    His comments follow earlier calls from former German Finance Minister Peer Steinbruck for a global tax on all cross-border financial transactions.


    And the problem is that the suckers will get suckered by his plan. He is of course correct that
    1) Capitalism is prone to bubbles
    2) The bubble bursts are so awful/systemic that everyone has to muck into fix them
    3) We should target the cause, as everyone fixing them is not fair

    The issue is that he is proposing that everyone pay for them upfront. That is what his plan of a flat tax would do. Same difference but actually worse (due to liquidity dampening as well as cost of administration)

    What is in fact needed is

    1) Get rid of institutions that are "too big to fail"
    or
    2) Something very like a Tobin tax, except targeted at risky transactions, this would take regulatory brainpower & ongoing courage:

    In Ireland we were well aware we had a property bubble... the Central Bank said it... yet nothing was done. No it simply wouldn't have been fair to put an insurance tax on all bank activity when we know the bubble risk was in property. What the Central Bank & Financial Regulator should have done was said
    "Oi, you lot in the banks, you've to set aside 5% capital for any development further property loans as a rainy day fund"

    That is what they did in Spain.

    Targeting everyone... when you can see where the likely risk is: is simply unfair.

    Brown has taken a dated concept, and applied it out of context, as a blunt instrument.

    cYp
    "Yawn , am I alive yet ?"

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    Politics.ie Member cyberianpan's Avatar
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    Gordon Brown is still peddling this nonsense
    Global support for a tax on banks is growing, says Gordon Brown | Politics | guardian.co.uk

    Even the Guardian letters page recognises it is ill thought out:
    Letters: No easy ride for Robin Hood tax | Business | The Guardian

    A "flat" Tobin tax or insurance levy... just means everyone pays irrespective of risk taking - see post above for more details.

    Brown is going to keep pushing this silly idea, instead of proper reform:

    http://www.ft.com/cms/s/0/07141834-1...44feab49a.html
    Mr Brown’s supporters now include the banks. A cynic would say that they have calculated that if they must concede something, insurance is the least-worst option. Mr Brown’s idea is interesting, but it must not become a substitute for real structural reform.

    cYp
    Last edited by cyberianpan; 12th February 2010 at 04:45 AM.
    "Yawn , am I alive yet ?"

  3. #3

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    Its not just Gordon Brown who thinks that banks should pay for their bailouts instead of sending the bill to the taxpayer:

    Germany and France have also thrown their weight behind a transaction tax, one effect of which could be to dampen damaging speculation.
    Goldman Sachs, Goldman Sachs, clicking in the votes? | Business | The Guardian

    But since Barack Obama announced plans for a $90bn levy on Wall Street over the next decade, to help meet the costs of the banking bailouts, Downing Street has shifted towards the idea of taxing banks directly instead of slapping a charge on City transactions.

    Tim Geithner, the US treasury secretary, indicated to the chancellor, Alistair Darling, at last week's G7 summit in Canada that America could support the idea of an international bank tax, and the prime minister has since said he hopes the principles of a worldwide levy can be agreed by the summer.

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    The Telegraph article, in particular, is a wonderful reading exercise. See if you can actually find the part where Brown proposes a Tobin tax.

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by stringjack View Post
    The Telegraph article, in particular, is a wonderful reading exercise. See if you can actually find the part where Brown proposes a Tobin tax.
    ?

    Mr Brown said the move could be achieved through an insurance fee to reflect systemic risk, a special "resolution fund", contingent capital arrangements, or a global levy on financial transactions a so-called "Tobin tax".
    Tobin tax - Wikipedia, the free encyclopedia

    cYp
    "Yawn , am I alive yet ?"

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    And so, do we conclude that Brown doesn't know what a Tobin tax is, or that the Telegraph doesn't (not that these are mutually exclusive options)?

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by stringjack View Post
    And so, do we conclude that Brown doesn't know what a Tobin tax is, or that the Telegraph doesn't (not that these are mutually exclusive options)?
    The both know what it is- the Tobin tax has generalised beyond a specific currency tax - with a more general form being a flat tax on financial transactions. And that same Telegraph article linked to another one :
    Joseph Stiglitz calls for Tobin tax on all financial trading transactions - Telegraph... however as I said Brown resurrected it out of context. The original idea was sharply defined ... the generalization less so.... and without Brown giving more context... his proposal is silly.

    And Stiglitz does know what he means (even if he is wrong). And of course Dominique Strauss-Kahn is correct that a simple Tobin tax is administratively impossible due to the complexities of financial transactions (for example distinguishing between "real" and fiduciary or netting ones is a nigh on intractable challenge)

    However the greatest argument against a flat levy is that if everyone pays irregardless of risk: This just institutionalizes moral hazard. Brown is wally.


    cYp
    "Yawn , am I alive yet ?"

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    Quote Originally Posted by cyberianpan View Post
    The both know what it is- the Tobin tax has generalised beyond a specific currency tax - with a more general form being a flat tax on financial transactions.
    First, no it hasn't. Second, even if it had, it wouldn't follow from the fact that one proposes a tax on transactions that one would be proposing a Tobin tax. Third, there always remains the possibility that they both know what a Tobin tax is and that they're lying about it.

    Quote Originally Posted by cyberianpan View Post
    And that same Telegraph article linked to another one :
    Joseph Stiglitz calls for Tobin tax on all financial trading transactions - Telegraph...
    ...which itself doesn't manage to quote Stiglitz in a manner that supports the claims made in the article. In fact, it does exactly what the first article does; it carefully juxtaposes quotes and claims, in such a manner as it appears that the quotes support the claims, without them actually being so generous as to do so. Please stop reading the Telegraph.

  9. #9

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    Quote Originally Posted by cyberianpan View Post
    However the greatest argument against a flat levy is that if everyone pays irregardless of risk...
    Oh, and that's what mandatory third-party driving insurance does.

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    Politics.ie Member cyberianpan's Avatar
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    Quote Originally Posted by stringjack View Post
    First, no it hasn't. Second, even if it had, it wouldn't follow from the fact that one proposes a tax on transactions that one would be proposing a Tobin tax. Third, there always remains the possibility that they both know what a Tobin tax is and that they're lying about it.
    Any "flat tax" on transactions, to deal with volatility, is taken to be a Tobin tax. My point is a dynamic tax is called for if it is undue risk we are seeking to address.... indeed I'm suspicious that it is see:

    Quote Originally Posted by stringjack View Post
    ...which itself doesn't manage to quote Stiglitz in a manner that supports the claims made in the article. In fact, it does exactly what the first article does; it carefully juxtaposes quotes and claims, in such a manner as it appears that the quotes support the claims, without them actually being so generous as to do so. Please stop reading the Telegraph.
    Stiglitz has done fundamental econometric research on the "generalized" Tobin Tax. E.g.
    Stiglitz, J., 1989. Using tax policy to curb speculative short-term trading, Journal of Financial Services Research 3, 101–115.
    And in 2002 he was peddling it say here for say "re distributive" reasons:
    Making a Workable Tobin Tax:
    Stiglitz: ...addressing poverty in developing countries. The development issue alone is estimated to meet the minimum millennium goals. The goal is 50 billions dollars more. So we need more revenue to finance these really important global needs that all of us, I think, feel would benefit from. ... The Tobin Tax is one way of raising that revenue.

    I think the Tobin Tax has enormous symbolic value.
    My point of view on it is, that unlike taxing good things, even if it does not succeed in greatly stabilizing financial markets, it is taxing something that is not going to do any harm. You know if you discourage some of this speculative activities the world is not going to be a worse place.

    Global efficiency would not be adversely affected.
    And here in 2010 claiming it a) can be implemented and b) will work to address volatility/bubbles
    Richard Curtis and Bill Nighy team up in new film urging Tobin tax on bankers | Business | The Guardian
    Joseph Stiglitz, professor of economics at Columbia University: "A tax structure that does not reward short-term, very speculative gains would be good. If you were investing for a year or five years or 10 years it would be a small tax but if you were holding it for just one minute it becomes a very high tax. The important question is implementability. It's designed to tackle high frequency activity for which it is hard to find any societal benefit. The only question is, can it be effectively implemented? Will it be circumvented? There's a growing consensus it can be implemented, if not perfectly, effectively enough to make a difference."
    The Telegraph did get Stiglitz right - he's being very twisty on this issue... mixing normative political views with what he admits is dubious/unproven econometrics.

    In general The Telegraph is an excellent economics & finance news source... oddly it beats the FT (which trounces the Telegraph for economics opinion ... and perhaps shades it on finance opinion )

    cYp
    Last edited by cyberianpan; 12th February 2010 at 05:53 AM.
    "Yawn , am I alive yet ?"

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