Jeffrey D. Sachs
Wall Street and the City did little to deserve their record profits. A Robin Hood tax is the only fair solution
Banking occupies a unique niche in the economy. Both vital and prone to crisis, Wall Street and the City of London are the beating hearts of the economy, pumping liquidity through the arteries of industry nationally and globally. When they suffer a financial arrhythmia, as in the dire crisis of September 2008, the entire world economy risks sudden death.
Life support systems are wheeled in. The Federal Reserve and the Bank of England, the ultimate providers of liquidity, not only save the banks but pad their profits too. The seignorage of the central banks (income earned by the privilege of money creation) is, in effect, shared with leading banks by lending them funds at near-zero rates that they lend out at a higher rate.
Thus were Wall Street’s record profits of 2009 concocted by the Fed, despite the banks’ terrible balance sheets and record of reckless behaviour. The Fed pumped more than a trillion dollars of new liquidity into the system, and Wall Street netted an estimated $55 billion or more of profits. With a knowing smirk, the bankers helped themselves to their share of the seignorage as well, to the tune of $20 billion in bonuses, not even counting unrealised stock options.
The big financial institutions, notably the primary dealers for the central banks, such as Barclays, Deutsche Bank and Goldman Sachs, therefore occupy a blessed position. By all rights they are public utilities, vital organs for the economy that owe their financial rewards and lifelines to their proximity to central bank printing presses. The mega-bonuses flow year in, year out, rain or shine, boom or bust.
SNIP>>>>>>>>
Of course, taxation can be only one part of a coherent strategy of reform, including taxes, new regulations on leverage and compensation, controls on derivatives markets and more stable monetary policies than in the Greenspan-Bernanke era.
If the public remains alert, therefore, we will have a financial sector tax introduced throughout the G20 economies. But what should we demand of it? For those of us who have advocated for years a global financial transactions tax or banking tax, the answers are well known.
First, we should demand international tax harmony, so the banks don’t simply manoeuvre their books and trades to the lowest-tax havens.
Second, we should demand a transparent and collectible tax base, focused on leading institutions, with the tax levied on financial transactions, or on banks’ liabilities or on some combination of the two. The choices are largely technical: administrative feasibility, magnitude of collections, incidence of the tax and the benefits in reducing irresponsible bank behaviour. The Obama Administration recently proposed a liabilities tax. The German and French governments, on the other hand, have proposed a financial transactions tax. Both options, and others, should be explored.
Third, a key goal should be to recapture some of the privileged profits of the big banking houses. And we should demand justice in the use of these funds, especially in the shadow of broken fiscal promises and broken hopes for economic justice. No small part of the tax should be directed towards deficit reduction, reflecting the urgency for fiscal solvency in all of our countries. But some should be devoted to the global poor — why its proponents call this combination of tax and transfer the Robin Hood tax.
SNIP>>>>>>>>>>>>>>
Jeffrey D. Sachs is director of the Earth Institute at Columbia University
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article7055759.ece
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
