Mr. Milne is talking bollocks too

The price being paid in wasted lives and broken public services is the direct result of the City\’s uncontrolled derivatives trading

Err, no. It wasn\’t derivatives trading that caused any problems at all.

It wasn\’t futures or options or swaps or anything of the kind that fell over. It was housing finance: bonds and mortgages. These simply are not derivatives, they\’re plain vanilla products.

Milne\’s simply spouting bollocks here.

A transactions tax would not only raise cash but help to calm the speculative frenzy in financial markets that led to meltdown in the first place.

As he is here too. Bonds, especially CDOs and MBS, are rarely traded.  They tend to (not always, but tend to) get created and then placed to maturity. A transactions tax has very little effect on something that\’s not transacted all that often.

But the British political class insists any transactions tax that isn\’t adopted globally would lead to a haemorrhage of business to New York and the Far East, lose tax receipts and damage prospects for renewed growth. The evidence suggests the loss would be far less dramatic than ministers claim.

But that is funny. He\’s actually using the IMF report, the one that says that the Tobin Tax would raise the cost of capital to companies, thus slow growth, increase unemployment, reduce wages and generally make everyone poorer, as evidence in favour of the tax.

Over the past generation that has developed, as in the US, into a parasitic financialisation of services and households, while the industrial economy has been disastrously hollowed out.Turning that round will take a lot more than a Tobin tax. To rebuild a productive economy and shift its centre of gravity from finance demands decisive public intervention: a core of publicly owned and remutualised banks to drive investment in transport, energy and housebuilding, for a start. That would be fiercely resisted by the City and its patrons……

Fine, go off and do it. Nobody in The City could give a shit.

That has never been the City\’s priority. It has historically favoured international dealing, trading and short-term lending, rather than long-term local investment.

Quite. The City is the world\’s financial market. You go off and finance British industry however you damn well like. Got entirely bugger all to do with how the Square Mile organises funding for a dam in Malaysia or a mine in South Africa.

You can have all the mutuals you want for the UK, just don\’t screw up our largest export sector at the same time.

12 comments on “Mr. Milne is talking bollocks too

  1. Once these mutual banks are set up by non-bankers, how long before they start lobbying for an exemption to the FTT on the basis of the purity of their motives?
    And would this lobbying be before or after they go bust?

  2. No, you aren’t getting it. This is our old friend the “nationalise all the banks” argument again. Nationalise them and strip them back to retail functions only, watch the City fold….

    What does he mean by “publicly owned and remutualised” though? Seems oxymoronic. Either they are owned by the state or they are owned by their members – not both, surely?

  3. It is tiny, in that it will take in a lot less revenue than claimed. Sweden had a financial transactions tax in the 1980s, and scrapped it in no small part because it brought in little to no revenue. (Capital gains taxes decreased offsetting whatever revenue the FTT brought in.)

  4. PaulB

    Mortgage-backed security tranches are no more toxic than any other sort of asset-backed securities. It was the mortgages underpinning them that were toxic. As Tim says.

    Oh, and the plain vanilla kind aren’t derivatives either. They are bonds.

  5. Yes he is on about Nationalising the banks , and it is here that we recall that Milne ( Daddy Alistair Milne head of BBC) was a keen defender of Stalin and that the last person to come up with Nationalised Banks was Oswald Mosley

  6. Frances

    Pools of bonds are just pools of bonds. But tranches of them are derivatives, and they are dangerous because their value depends on the correlation between default events, which there is no good way to estimate. Tranches of mortgage pools are particularly toxic because in stressed conditions there is no secondary market available – the work required to know enough about a particular issue to be able safely to quote a price just isn’t worth it. So there is no liquidity and no meaningful mark to market.

  7. Paul,

    Well, ok, they are bond derivatives. But tranching is simply a way of managing risk. The problem with MBS was that the assets underpinning them were created in a mortgage market that was leveraging to the skies with high-risk lending and riddled with fraud. That is abnormal risk by any standards. It is possible to estimate “normal” default risk statistically, and mortgage lenders have been doing this successfully for decades. But the risks in the US mortgage market were abnormal by any standards, and because of the “regulatory black hole” between mortgage origination and securitisation they were also unknown. MBS were therefore mispriced.

    MBS are indeed potentially toxic for the reasons you give. But the reason they became so was the collapse of the US housing market and the disgraceful behaviour of mortgage originators such as Countrywide and RBS.

  8. I think I lost that round of “Just a minute”. Repetition in 6th sentence of previous comment. I will try to do better in future.

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