Another wonderful idea

From guess who?

We could and should be taxing bank profits an extra 10%, according to tax campaigner Richard Murphy, to cover the cost of that unseen insurance.

Simply wonderful, don\’t you think? Higher taxes are indeed the solution to everything.

So, what actually happened? We had a regulated banking system. We also had a shadow banking system which grew up along side it. The regulated system indeed did have that insurance, the shadow not. The regulated banking system faced higher costs as a result of both the insurance and the regulation.

The shadow banking system, without insurance, fell over. As banking systems without insurance tend to do (this should be at the heart of any critique of what was going on. Banking systems without insurance will, not might, but will, fall over. We should indeed blame bankers, regulators, economists and Uncle Tom Cobbleigh for forgetting this basic point in their euphoria.).

However, the cost gradient, from regulated to shadow, led business to move from regulated to shadow, making the crunch, when it came, worse.

So what does Ritchie propose? That we should increase the cost gradient, that we should push more banking from the regulated world to the shadow.

Oh, well done sir, well done indeed, a work of friggin\’ genius.

4 thoughts on “Another wonderful idea”

  1. Insurance makes people less cautious. (Or perhaps, they become cautious about insurance companies not about the risk they are actually facing.)

    Were there no FSCS would people have simply chased the best rates? Were the FSCS more widely known would people have put huge sums into single institutions that were not actually covered by the FSCS but the Government decided should be? Would banks have been so reckless if the Government hadn’t positioned itself as a lender of last resort?(‘Follow our rules and you’ll be fine’ but then not enforcing those rules did that) Would banks have been so reckless if the ability to hedge their bets on CDOs had not been available?

    From the customer to the Government, they all believed they were covered so went off and filled their boots.

  2. My favorite part is his explanation of why equities are inherently unsuitable for long-term investment… I suspect he prefers tulips as an appropriate investment vehicle for the long term.

    Like you said, friggin’ genius!

  3. Were there no FSCS would people have simply chased the best rates?

    Yes.

    Were the FSCS more widely known would people have put huge sums into single institutions that were not actually covered by the FSCS but the Government decided should be?

    You mean Iceland, right? In which case, yes they would still have done that.

    Would banks have been so reckless if the Government hadn’t positioned itself as a lender of last resort?(’Follow our rules and you’ll be fine’ but then not enforcing those rules did that)

    Say what now? Which rules do you believe HMG didn’t enforce (specifically, which arm of HMG do you think should have acted against which banks when on the basis of what?)

    Would banks have been so reckless if the ability to hedge their bets on CDOs had not been available?

    Yes. CDOs are an irrelevance, a casino game – the recklessness was based on securitisation.

  4. I occasionally visit his website when I need a good chuckle. A twit of the first order.

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