Er, no Ritchie, no….

OK, so we\’ve got several people saying that big banks need to be broken up so that none of them are \”too big to fail\”.

Hmm, not sure I agree really. Still, leave that aside for a moment, here\’s what Ritchie has to say about it:

And if ever evidence was needed of why we need financial transaction taxes to retrain bank trading this is more to add to the existing pile in its favour.

Err, no, actually, it doesn\’t.

What is being said is that the level of trading we\’ve got is just fine we\’d just rather that it was spread among more players so that no individual player is systematically important.

In fact, it\’s the very opposite of what Ritchie says.

Having looked at the problems in the banking system these wise men have decided that it isn\’t the level or amount of trading that is the problem. They\’ve decided that it\’s the concentration of risk that is. Thus they recommend dispersing the risk rather than reducing the amount of trading.

I also have this feeling that if financial transaction taxes were felt to be the solution they\’d have said so but maybe that\’s just me being picky.

8 comments on “Er, no Ritchie, no….

  1. It’s noticeable that the most aggressive anti-bank voices (like this lot: http://baselinescenario.com ) share most of Richard’s broad views (banks are bad, and do not contribute nearly as much to society as the proportion of value add they capture) do not see transaction taxes as part of the solution (although they may also be in favour of them)

    it’s not just the concentration of risk by the way, it’s the amplification of risk that arises when big banks have an implicit govt guarantee. We should break them up so they no longer feel that guarantee.

  2. Wouldn’t it be much simpler to set in stone, say loud and say it proud – no bank is too big to fail? You don’t actually have to break banks down into smaller banks, just make sure bankers and customers know that the taxpayer will not ride to the rescue.

    How did that implicit guarantee arise; The FSA claiming to be regulating things and then doing a rubbish job at it?

  3. Gareth, well said! If banks know they will not be bailed out and individuals have to take risk on their own shoulders and governments stop being the nanny state then everybody will act in a more responsible way. Then perhaps we will have an economically stable, prosperous and happy world.

  4. does anyone dream of a world where there is a snuff movie involving Fred Goodwin and that twat at the head of Lehman’s?

  5. I’m with Gareth. March all senior bankers in to the BoE and make them place their cuff-links on the table.

  6. “Wouldn’t it be much simpler to set in stone, say loud and say it proud – no bank is too big to fail?”

    That would be what’s know in the game theory literature as a “non credible threat”. No US administration would ever let Citi or Goldmans go to the wall, and nobody how has really thought about what the consequences of doing so can imagine otherwise.

  7. the transaction tax is the solution to the need for more tax…to save the poor etc. Unfortunately by putting on said tax you remove the incentive to transact and all your calculations of the lovely free money that your Robin Hood Tax will give you go up in smoke. But er you have already spent the money. Tricky, just have to tax “the rich” even more then! Simple. Incidentally be interesting to see just how much of teir income, Richard Curtis, Bono etc have actually paid out since 1997? Anyone know? Bono is presumably single digit %

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