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September 15, 2009

Gerhard Schwartz

The idea of introducing a global tax on all financial transactions has it's merits but is not very likely to succeed. If not completely rejected, the result might at best be a rather weak compromise that is not very efficient towards the intended goal.

The reason is that some G20 members - in particular, the UK - have neglected traditional industries and are now very much depending on their financial services industry. FSI being a highly virtualized industry, related processes (like trading) can be relocated very quickly to some more exotic countries, which would have it's impact ...

Another approach that might work but hasn't been discussed so far is to split currencies into "real" money (used in the tangible economy, and held in those traditional banking accounts such as current accounts and those for savings, securities and mortgages etc.) and "finance" money invested in those more exotic/toxic products that brought us the current financial crisis.

A real Dollar or Euro would no longer necessarily be equivalent to a "FinDollar" or "FinEuro", and it could be left to the banking industry themselves how they would see the exchange rate between those "real" and "financial" currencies. In effect, the financial crisis could be decoupled from the tangible economy, and losses would end up where they belong - without forcing governments to inflate public debt just to save the "real" economy.

Gerhard Schwartz

September 15, 2009

Donald Stadler, Self-employed, Diamond Contributor (1052)

The idea is probably a good one, but I suspect it will come to grief on the shoals of national self-interest.

London remembers the event which created the "Eurodollar" market and relaunched it as a dominant hub of global finance, which was the enactment of a transaction tax on these fund transfers in the US. The currency markets moved to London virtually overnight.

This is a much smaller tax, and on the face of it the proposal is neutral. But it's the kind of neutrality which might well destroy the status quo to the relative detriment of the UK finance industry & a lot of British jobs, which will see to it that Britain does not go along. If by some form of chance the G20 were actually to pass and enact this, I would expect for the markets to move to a stable country outside the G20, possibly the likes of Austria, Taiwan, or Singapore.

September 15, 2009

Lyle Brecht

It really does not matter if the proposal succeeds at this G-20 summit or not. What is important is that Germany proceed and introduce it at this meeting. And keep reintroducing it at every meeting of the G-20 until it is adopted! Or some reasonable version of this idea is acceded to by all.

My own further thoughts on a Counter-Doomsday Machine Accord is located at: http://www.scribd.com/doc/19772476/

September 15, 2009

John Hadjisky, Blogger, Platinum Contributor (324)

First, a comment to whoever wrote this post. The sentence "The tax should be between 0,01 and 0,05% per cent of transaction volume" needs to be clarified.

First of all, this suggests the tax will be between 1-5 basis points (1 basis point = 1 BP = 1/100 of 1%). But the actual proposal, which has only been stated informally (and anonymously!) to the Financial Times, is a tax of 1/2 of 1 basis point.

Second, the phrase "of transaction volume" is impossibly vague. Surly the tax will be based on transaction amount, and not just the transaction volume?

It would have been far better to simply quote the anonymous official,

"One person close to Mr Steinbrück said under the proposal, a 0.005 per cent tax would be paid on all financial transactions by banks, insurance companies and investment funds.

Source: http://www.ft.com/cms/s/0/4038e1fe-9f09-11de-8013-00144feabdc0.html

---------

As to the substance of the proposal: The global financial system is HUGE. The exact size depends on definitions. The CIA's entry for "the world" (see https://www.cia.gov/library/publications/the-world-factbook/geos/xx...) gives various measures expressed in 2007 or 2008 US dollar amounts:

- Gross World Product, $61.07 trillion
- Investment (gross fixed): 21.8% of each country's GDP
- Stock of money: $12.35 trillion
- Stock of quasi money: $27.31 trillion
- Stock of domestic credit $69.9 trillion
- Market value of publicly traded shares: $66.82 trillion (31 December 2007 est.)

Granted, there might be some of these categories that aren't taxed, still, a reasonable estimate of the value of the securities that might be taxed is at least $100 trillion. Now keep in mind that these securities turn over. This means they are bought and sold several times a year, sometimes even several times a day. So the value of transactions to be taxed is probably closer to $1000 trillion or possibly even $10,000 trillion. Of course, once they are taxed, the turn-over rate would decrease somewhat. So we'll take the lower figure.

One half basis point of the lower figure, $1000 trillion, gives us the estimated global yearly revenue from this tax: about $5 trillion dollars. That's every. single. year.

This proposal amounts to a wealth grab of simply staggering proportions.

No technocratic (or other non-democratic) institution can be trusted with that much concentrated revenue. Certainly, I would not trust the sort of corrupt, bureaucratic, sclerotic institution one might expect, based on our current experience with the UN, IMF, World Bank, etc.

And a side note: I mentioned that the tax would cause the turn-over or "churn" of securities to decrease worldwide. Proponents consider this to be a good thing, since, in general, they don't subscribe to the efficient market hypothesis. However, markets (efficient or otherwise; black, grey, or otherwise) will still exist under this proposal. The tax will therefore create a massive, global industry devoted to avoiding this tax. They will use a combination of legal loopholes and underground transactions. This global industry will be a wonderful growth opportunity for various global mafias. Whatever the moral failings of the current, formal global financial system, it is hard to imagine how pushing transactions into the informal economy will solve them.

September 16, 2009

John Hadjisky, Blogger, Platinum Contributor (324)

I should add that the list I copied from the CIA is my very rough and incomplete attempt to calculate the value of global financial instruments. The list does not appear to include the value of global real estate, for example. Is there $1000 trillion worth of real estate on planet earth? $10,000 trillion? In modern economies (those with the most valuable real estate), most real estate is securitized in one way or another. For example, real estate is turned into mortgages, collateral obligations, etc. These securities are in turn packaged into other, derivative securities. These real-estate based securities have turn-over.

The activity potentially subjected to this hyper-Tobin tax is immense. $5 trillion in revenue is probably a very, very conservative estimate.

September 16, 2009

Member deleted

First and foremost, the idea of a global tax on all financial transactions sounds like a very good one for many reasons. It ensures a certain regularity as well as putting the global market and its ancilliaries on a watch. Secondly, yes the tax turnovers would be a good source of revenue. Third, the concern - where would this additional revenue go and what would be the degree of transparency of its administration? Fourth, in the levying of this global tax, would the bulk of global transactions move elsewhere - to out-of-EU locations that a financial free-market force would help create?
However, the idea of a global tax on all financial transactions does create the first-impression of good rationality: of having an account of all financial transactions as well as earning a revenue that is not insubstantial in the cumulative effect. A new source of revenue that may be diverted towards offsetting the social welfare costs to the already developed EU members for the lesser-developed members within the EU.

September 16, 2009

Andreas Kern, Georgetown Public Policy Institute, Silver Contributor (47)

In fact, I agree with one of my former commentators in questioning, whether it does really matter that the German idea of a global tax gains support in the upcoming G-20 summit. Given the very economic nature of the current global financial crisis, which has its roots in real exchange rate misalignments, reflected in large reserve hoardings in emerging markets and lending boom bust cycles in high income economies, a pass-through of the German idea would signal the world community that it is unable to tackle the real sources of global imbalances and thus the current financial crises. From this perspective introducing taxes on international financial transactions to limit greed in financial markets is expected to be completely ineffective, and even counterproductive. However, seeking a global solution for the current financial crisis is the right way to prevent other crises to come. In this regard, the idea should be appreciated, but comes, given the tremendous amount of liquidity pumped into global financial markets directly after the crisis, far too late. Therefore, even if implemented, the stages for the next financial turmoil are already set by those governments, which will have to decide on this populist move. Instead of practising populism, a G-20 summit would rather require setting a new regulatory agenda for domestic and international financial transactions, which targets risk taking in financial markets, instead of punishing all transactions. Therefore an overall serious attempt would entail macro-prudential elements of regulatory reform in combination with international coordination on a more market friendly basis. In this regard, pioneering ideas concerning global environmental policy in form of trading emission certificates would be already on the table.

September 16, 2009

Nicolae Iordan-Constantinescu

There are many reasons to oppose the German intiative:

First, If someone should be punished for the recent financial crisis (and for those that were before and for those that will come), why to punish then the investors, exactly those persons, physical and moral, that brought the money on the capital markets and helped the governements, local administrations and companies to find the resources they needed to finance their projects when other sources are not otherwise available for them?

The capital markets emerged as a necessity and they progressed tremendously when more and more public administrations, local and central and also companies realized that they could go on such a way find financial resources which the traditional banks could never get for them!

Secondly, The same markets created also the instruments necessary to manage the risks related to such operations, and they are numerous, related to the rate of exchange or interest, credit and debt, market and customers etc, and they were called derivatives, to call your attention that they are deriving from an underlying instrument - stocks or bonds! The fact that the instruments related to the capital markets were misused and the accumulation of such defaulty behaviour led to a point where the crisis became inevitable and it spread itself all over the planet due to the globalisation of the financial flows has several causes. And I think that the main cause shoiuld be found there in the relaxation which intervened in the supervision and control of the markets, in the absence of measure to reinforce the regulations governing these markets and operations. Banks, supervising authorities, control authorities, auditing and rating agencies, closed the eyes and let the things embark on a very dangerous way, that finally ended into a general crisis!

Thirdly, a tax should not be levied, under the specific circumstances of the capital markets, on the transactions themselves, but on the final benefit. Each day an investor could make no transactions or could perform several transactions, at the end of which he could win something or lose everything. Such a situation depends on many factors and first of all on his own ability to "read" correctly the signs of the markets and to take always the right decisions. Shall we levy a tax from a loser? After having lost his money, will he also be obliged to become a debtor to the financial administration? After lending his money to a goverment or a local mayorship or a big company by buying their stocks or obligations, should we put him also to pay his gesture by imposing on him a tax instead of paying to him a bigger dividend or a bigger rate of exchange? This is "a friend in need is a friend indeed"?

If someone should be blamed for the crisis and have to pay a price, those must be the institutions that have not fulfilled their mission: to ensure that the rules are applied and those who are infringing the rules to be punished, irrespective if it the case of a central or local institution, a bank, a broker, a rating agency, an auditing firm or any other actor implied in the good functioning of the market.

And if we are here, I would propose to think about the possibility that at the end of any annual financial exercise, the final benefit to be split not only among the people from the banl itself, but also a part to be distribuyed to those who risked their money by putting them into personal accounts or deposits with the banks and are receiving only a miserable 1.5-2% as rate of interest! Let think of this also! The win of the banks to be distributed not only to the managers, but also to those who provided the money necessary to make a bank exist and function!

September 16, 2009

September 16, 2009

Eyal Brin

I think no. Because the world has see that the case “OPEL”
was not an economical decision.
It was simple a political decision, not realistic for the future.
So it is not any risen to help a country like Germany.

September 16, 2009

Unregistered User

What a disastrous idea from people with little understanding of the economy and its values, but unlimited trust in Government to know best what to do with the money they take away from imposing a tariff on financial trade. Well intentioned insanity.

September 17, 2009

Joerg Wolf, Atlantic Community, Editor

French Foreign Minister Bernard Kouchner is suggesting a tax on financial transactions to help the world’s poor
http://www.ft.com/cms/s/0/ef5e05be-a2f7-11de-ba74-00144feabdc0.html

He says that this tax should be voluntary. Isn't a "voluntary tax" a contradiction in terms?

Another FT article points out:

"The head of Britain’s top banking watchdog supports the idea of new global taxes on financial transactions, warning that a “swollen” financial sector paying excessive salaries has grown too big for society."
http://www.ft.com/cms/s/0/08943b5a-926a-11de-b63b-00144feabdc0.html

Germany, France, Britain... Is there some momentum now?

September 17, 2009

Donald Stadler, Self-employed, Diamond Contributor (1052)

"He says that this tax should be voluntary. Isn't a "voluntary tax" a contradiction in terms?"

It is indeed. But as John Hadjisky pointed out, such a tax could prove to be a major drag on certain parts of the global economy, things like foreign exchange for example.

To give an example, when I change £'s to dollars or £'s to Euros that is a financial exchange, presumably subject to the tax. In my case I probably wouldn't miss the exchanges I do (mostly tourism) much. But overnight lending, or the buying and selling, arbitrage, etc - even a tax of this magnitude would end up being a significant drag on these valuable market-clearing activities. You may say that the banks got us into this mess, so it is fair they should pay for it. But the banks would not pay - companies and individuals who had nothing to do with causing the crash would pay. It would have little or no impact upon banker's bonuses.

Minister Kouchner mentions a figure of $30 billion a year, which doesn't seem too bad. But John Hadjisky quotes a possible $5 trillion, over what timeframe I don't know.

Even $30 billion is nothing to sneeze at. My main skepticism is over the idea that it's 'for the poor', because that is not the way things like this works. I wouldn't mind if my 5 cents euro went directly to help fund iodized salt for children in Darfur, or drilling a deep well for a village in Bangladesh.

But actually it would go to one or more intermediaries, who would decide how much of it to pass on down the chain. Remember the UNESCO case of the 80's. Half or more of the UNESCO budget went on patronage jobs & fancy expense accounts in Paris, at least until it was reformed. And this is far from the worst case.

Let's say we give some of it to UNESCO. The reformed UNESCO may use 20% on honest (aka audited) overhead, so it passes 80% on to the government of Zimbabwe for drilling good wells in poor areas. How much of that 80% actually goes to the poor of Zimbabwe, other than cronies of Mugabe who are 'poor', I mean? And how much of it ends up in Switzerland, or villas, cars, etc for those who aren't poor, except in their minds?

If we exclude kleptocracies like like Myanamar or Zimbabwe we run the risk of excluding the poorest of the poor. If we give money to the kleptocracies or to Hamas, don't we run the certainty that it will go instead to enriching the kleptocrats or being diverted into missiles to be shot at Israeli civilians?

I ahve a real question about the UN's ability to control this kind of money.

Now let's think about $5 trillion. I doubt that figure would be per-year, but it's a lot of money, the kind of money which gives big power to those who control it. Give it to the UN? Which agency? Who is running it? That kind of power corrupts, do we really need to further corrupt the UN?

September 18, 2009

Christian Hubertus Fahrholz, Friedrich-Schiller-University Jena, (9)

The ultimate taxpayer

As I noticed that the French Foreign Minister Bernard Kouchner and his German counterparts are suggesting a tax on financial transactions to help the world’s poor, I have been wondering whether this could be meant serious. From an economic perspective the clear-cut answer is ‘no’. The reason for this is that one has obviously simply overlooked the very nature of taxes, when thinking about how to mitigate financial boom bust cycles.

In general, given relative low levels of capital endowment in emerging market economies, initiating a sustained growth process will require substantial investment, which as a matter of fact does not fall like manna from heaven, but has to be imported. This capital shortage in combination with the need for financing investment externally leads to an extremely inelastic demand for capital goods. Therefore introducing a tax on international financial transactions, no matter how small, will impede the financing of catching-up process in such non-mature economies.

Moreover the introduction of such an international transaction tax will lead to a revaluation of portfolios and financial assets away from risky developing economies investment towards rather ‘low risk’ assets in mature economies. In addition, non-mature economies (such as China) which hoard sizable stocks of claims on future production in mature economies (represented, for instance, in mounting current account deficits of the US) will get expropriated.

Instead of looking back in anger on financial markets, one may consider who would be the ultimate taxpayer of an international tax on financial transactions. To put it bluntly, Mr. Kouchner and his European fellow travellers are rather suggesting that the poor are financing the costs of current financial crises for the rich. Apparently, the road to poverty is paved with good intentions...

September 19, 2009

Member deleted

Transaction
First I would ask for a definition of transaction. Back when everyone in the USA wrote checks for many things they bought, the Federal Reserve Bank said that a normal day moved ½ the money in the USA through the Federal Reserve Bank check processing facilities each day. My point is: If you are cashing in on every transaction every day down to any level, now or through a modification in the future, this would be better than the invention of compound interest (which Einstein called the greatest invention of the century).

Benefit
Give and Take. What do we really get in return for giving all this money? When an average person fails in their job and causes the company to potentially close, guess what? That person loses their job. Are you going to pay bonuses to Banking and Finance Executives for cooking the books and having their over inflated interest scams ruin the housing market?
When France raises its taxes, it says we need to improve our roads and schools so we have to raise the taxes for 3 years. Then the roads and schools are improved. What projects will the G20 create to improve our situation?
What measures will the G20 put in place to make sure the roads or schools or whatever projects are actually improved?

G20 Action Plan
The supervisor college is probably the best part of the plan. It is predicted that every 10 years we will double our ability to evolve forward faster. How can you have due diligence if you are not up with the latest and greatest understanding in addition to the past danger signs that indicate trouble?
Command authority must be given to the supervisors to intervene and stop potentially catastrophic activity for immediate review by the Financial Action Task Force before it happens. Compare this to Airline pilots who had absolute authority over the crew and despite warnings from the crew during new and odd situations pushed the lever to full throttle and proceeded to a full speed collision. After many of these incidents aircraft crews were given equal authority with the captain. This new equilibrium of awareness, communication and authority has since prevented many ground and air collisions.

September 22, 2009

George A. Pieler

Mr. Tobin made rational arguments for a market-calming levy on financial transactions, in the belief it would constrain wild speculative swings. That case is unproven, but it is the only case Tobin made--he never envisioned a broad-scale revenue mechanism that could turn into a sort of 'global slush fund.' In different ways, depending on national policy, gains from financial transaction are taxed just about everywhere. A transaction tax would (and is designed to) put more friction into the system of financial exchange.

Before any such proposal can even be seriously considered, we need to know 1. who controls the money, 2. what accountability measures would be put in place to protect the political rights of citizens of the G20 nations who may, or may not, feel they should have a right to vote directly on the imposition of such a tax, and for or against the politicians imposing it, and 3. why a regulatory approach--assuming there is a problem--would not be more appropriate (if speculation is bad, why tax it rather than ban it?). These questions have not begun to be answered adequately by Tobin tax proponents.

Finally, politicians who propound a tax-assault on 'greed' should be carefully scrutinized for their own propensities in that direction: greed for more 'public' money, and greed for power a
as such.

September 22, 2009

John Hadjisky, Blogger, Platinum Contributor (324)

Donald Stadler wrote, "Minister Kouchner mentions a figure of $30 billion a year, which doesn't seem too bad. But John Hadjisky quotes a possible $5 trillion, over what timeframe I don't know."

My figure of $5 trillion was a yearly figure, sorry if that wasn't clear. It assumes that ALL financial transactions will be taxed. It is almost certainly an incorrect figure, but I believe it is a reasonable guess at the minimum order of magnitude (how many zeros after the number) of the revenue that would result from a 1/2 BP (basis point) tax on ALL financial transactions.

If Kouchner is anticipating revenues of about $30 billion a year, then he cannot possibly mean a 1/2 BP tax on ALL financial transactions. This is really an entirely different proposal than what was originally suggested: it is a tax on a few, selected financial instruments/securities, rather than a tax on all of them.

So, when does M. Kouchner intend to enlighten us mere mortals on which financial instruments/industries will be the winners, and which will be the losers?

Meanwhile, most of the alleged Tobin-tax virtues of the proposed tax no longer apply, since it is now a selective tax, and possibly, a voluntary tax as well...

Joerg Wolf wrote: "Germany, France, Britain... Is there some momentum now?"

Perhaps, but only in the fantasy world of diplomacy does this qualify as momentum. In fact what we've learned is that there is no consensus on critical issues: voluntary or mandatory? universal or selective? Revenue in the billions or the trillions? These proposals (too strong a word, they are merely statements or rumors at this point) are so divergent, it seems more realistic to suggest that Germany, France, and Britain are signaling polite disagreement.

About the only thing they agree upon is the need to generate headlines for G20!

September 23, 2009

David Berridge

Such a global tax idea in a 2.0 format is just as unrealistic as the orignal global taxation on foreign exchange transactions. This measure would serve only to divide the world into protectionist tax-free financial jurisdictions, and harm any growth potential out of the current crisis. How this new 2.0 tax would collected, accounted for, and distributed on a global basis would have to be universally agreed to through a complete consenus, which as yet, does not even exist on reforms for banker's bonus rates and payments. The EU is a continental model of such a system requiring decades of evolution and political refinement to achieve a subsidized market model. Such a 2.0 Tobin tax could never survive such an extended time frame. This form of global taxation would not only affect the wealthier countries, but especially the poorer ones, whose trade and financial growth prospects would be severely curtailed. Micro-credit growth and loan repayments in developing countries would stifle small business growth in the developing world and in turn, create a larger econmic gap between the wealthy and poor. Over all the newly proposed 2.0 tax is rapidly conceived of well short of the pragmatic realities of the contemporary economic world.

September 23, 2009

Jon Frost, Ludwig-Maximilians-Universität, Bronze Contributor (12)

I disagree with the notion that a global transaction tax (Tobin tax) would necessarily wreak havoc in markets, force financial transactions abroad or affect the poorest countries (more) negatively. The tax, like all taxes, obviously would have some distortionary effects. Nonetheless, depending on the tax's exact level, these should be quite minor, spread broadly across the financial system, and only truly problematic in n certain (high-transaction volume) sectors, like parts of the hedge fund industry. The tax's scale is much smaller than claimed in posts above. I think that, if it were politically possible, such a tax could be a sensible means of financing development aid, the funding for which has stagnated in recent years.

I have so far heard proposals (from Kouchner) for a tax of 0.001 to 0.005% of the value of all financial transactions. This corresponds to 1/10 to 1/5 of a basis point (1c to 5c per €1000 traded). I would assume that this applies to all foreign currency, equity, and fixed income trades, to loans securitized products, and perhaps to any cash transactions resulting from derivative contracts. (A fee based on the notional value of derivatives would indeed be astronomical, but would also make little sense given that these are only an underlying value, not the value of an actual cash transaction). For private individuals making financial trades (buying stocks, bonds, or foreign currency when traveling) the effect of the tax would not be noticeable - even for relatively large trades (e.g. a €100,000 stock puchase) the tax would be €5.00, i.e. much less than the transaction fee currently paid to banks and brokers. For a bank with a traditional retail model (i.e. primarily deposits from customers and businesses and loans to those same groups), the cost of the fee could be passed on fully to customers, for whom it would still be negligible. Profit margins of the bank would probably not be impacted, and these institutions would be very unlikely to change their business model (much less geographic location) because of the tax.

For commercial banks with large trading activities, and for hedge funds, the tax burden would be more substantial, but I think still manageable and hardly destabilizing. Commercial banks generally pay several (e.g. 5-10) basis points more for buying a particularly security than for selling it - this buy/ask spread is the profit for the counterparty (broker). Adding an additional 1/10 to 1/2 of a basis point would hardly make normal trading activities unprofitable - it would be much less, for example, than the increase which occurs during a period of constrained market liquidity. (During the height of the crisis, buy/ask spreads for securities increased by many - i.e. 10, 20, or more - basis points across the board. This is one reason why trading has recently added so much to the profit margins of particular banks - who earned much heavier profits on these wider spreads). Hedge funds which focus solely on pricing arbitrage (small price differences between equivalent instruments) may see declines in profitability, but this would only be critical for those funds which are solely focused on very small pricing gaps and who engage in repeated "flash trades". They indeed might be compelled to close, change business activities, or move to a domicile which does not have the tax but, aside from the slightly reduced market liquidity, this would hardly be a systemic problem. Also, if we assume this is a source tax (collected on the exchange, itself) then it would not be possible to evade it just by moving a fund's headquarters. Traders dealing in shares in Shell or RMBS originated by Lloyd's on exchanges in London, for example, would still have to pay the tax there. There is a concern that, if one country did not implement the tax, they could attract commercial banks, hedge funds, and other high-transaction volume players to a new exchange there (think of the Bahamas or Singapore). This is indeed a problem, but it is still questionable how much trading activity would move to new exchanges, given that such moves do have costs, and the burden is still not large.

For developing countries, I think the new transaction tax would have basically no effect on investment; I thus vehemently disagree with the comments in this regard. Let me explain why. At current, any investment into developing ("emerging") economies must be compensated with a relatively high risk premium (let's say several hundred basis points, depending of course on the instrument and the country). An emerging markets investor will not buy Peruvian treasury bills or Bangladeshi stocks unless he/she expects a much (several percent) higher return than what could be expected for a similar instrument in a more secure market, in order to compensate exchange rate, country, and liquidity risk. Here, the transaction tax plays virtually no role, as its level pales in comparison to the risk premium and transaction costs already at play. For microfinance transactions, we are talking about similar issues (remember that even Kiva, which many of us know and love, charges 10% or 1000bp of your loan amount for administration). For an actual borrower, of course, the 0.1 cent on the $100 loans is not an issue.

Overall, though I would still need to see some calculations, I can assure you that Kouchner's figure of $30 bn is much more credible than the back-of-the-envelope $5 trillion which John gets. (Incidentally, 0.5 bp of $1000 trillion is $50 bn, not $5 trillion, remembering that a basis point is 1/100 of one percent). The total is distributed very broadly over many financial institutions and market parties. Whether the tax creates additional financial stability by "throwing sand in the wheels" of the financial system, as Tobin originally proposed, is an open question. However, I think we can live with the tax's very minor distortionary effects, especially if there is a more or less global consensus on its implementation so that there are no major financial centers without the tax. This is the key issue, I think.

On a final note, since industrialized countries have shown they are unwilling to fulfill their promise of 0.7% of GDP toward development aid through current tax funding, perhaps this is a reasonable measure to create a long-term funding source for development aid.

September 25, 2009

Per Kurowski

When we now see in the Financial Times Peer SteinBrück is talking about a 0.05 percent transaction tax (and not Bernard Kouchner´s proposed 0.005 percent) that sounds indeed as a very high tax that could introduce a lot of distortions in the market place.

Before any tax of this sort, the world´s poor, and most of the rest of the world, would benefit more from taking away that financial tax that the current capital regulations for banks represent in that, above of what the market already charges for risk differentials, it creates arbitrary costs, far from minuscule, that directly taxes those more prone to be considered as more risky, like the poor and the development countries. http://bit.ly/4yX7k1