This isn\’t an entirely thought out position here, more of just a little note.
We\’ve not seen the banks and the finance industry complain very much about the Robin Hood Tax proposal. Could be that they don\’t think it will ever happen, this is true. Could also be that they don\’t think that they\’ll be the people who will end up paying it….something which is indeed true.
A banking levy though (say, something like Obama\’s levy in liabilities) does seem to have got them stirred up:
Senior London bankers said they were \”deeply worried\” by the proposals that emerged over the weekend for a new tax, adding that if any measure were enacted unilaterally it could have disastrous consequences for the City of London and the financial services industry in the UK.
Now, looking purely at the politics of it, one whold assume that the greater the squealing the greater the effect on those squealing.
So whether they\’re right or wrong, bankers seem to think that the incidence of a levy will be upon bankers whereas the RHT will not be.
Again, I haven\’t worked through it all but that does sound plausible to me. A levy on liabilities would hit leverage the most. Leverage being what produces the profits (no, banking is not wildly profitable, you get high returns on capital by piling lots of debt on capital). Thus a tax on leverage will lead to less leverage and thus lower profits and, presumably, lower bonus pots for bankers.
All of which is what makes it so strange that those shouting (like Ritchie) that we must have lower bonuses and lower bank profits tell us that said tax on liabilities is a bad idea while a transactions tax like the RHT is a good one.
Now it\’s absolutely true that there are other issues with such a liabilities tax as well. The effect is the same as demanding higher capital ratios (which we\’re also doing) for lower leverage means just that, less debt piled upon the bank\’s capital.
Both make it more difficult for a bank to lend (which is the point of course) meaning that they will each shrink the amount of bank loans possible to industry, consumers etc. This might not be exactly what we might want to do in the middle of a recession (given that insistence that the banks must increase their lending for example)….but we must also make the difference between the right thing to do in a recession and what we might need to do to balance the economy over the longer term.
Just as we should make the difference between cyclical and structural deficits, the correct level of interest rates, QE and so on.
As I say (yet again!) this is a first pass at the subject. But if there do need to be changes to banking then this charge on liabilities seems better than one on transactions. And the fact that the bankers are squealing more about the liability tax would seem to be an indication of exactly that point.
BTW, before we get the claim that such heretical thoughts mean that I must hand in my libertarian secret decoder ring. One of the differences between a libertarian and a classical liberal like myself is, I think, the acknowledgement that yes, banking really is different. It is a business where the State has a both necessary and desirable role. No, not running the banks, no, not directing their activites but yes, regulation.