Financial Transactions Tax
European leaders have begun to discuss options for moving forward with a process called “enhanced cooperation,” in which nine or more members of the EU agree to work on a proposal together, to bring a trans-European financial transactions tax to fruition. Vocal supporters for this process include German Chancellor Angela Markel, Austrian Finance Minister Maria Fekter, and leaders in France, Italy, Spain, Greece, and Poland.
Last Friday, I participated in a Special Briefing on Capitol Hill in support of the Financial Transactions Tax (FTT). I came as a seasoned practitioner speaking on behalf of the real economy, not for the interests of the Wall Street trading community. What I tried to convey was that what the US and World needs is enhanced capital market function, and that an FTT can help bring it through a feedback loop, rather than complex regulation. The $50 billion plus of annual deficit reduction is a bonus. The session was standing room only, a big change from the Washington press briefing I participated in over a year ago. Is change afoot?
Bloomberg View has joined its Wall Street customers in coming out against the Financial Transactions Tax proposed by Germany and France, and recommended by the European Union, declaring it politically unfeasible while undermining economic growth.
Presuming for a moment that the politically unfeasible can become reality when good ideas are pursued in a real democracy, it is important to clarify the sound purpose and likely impact of a Europe-wide or, ideally, universal Financial Transactions Tax.
Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation.
- John Maynard Keynes, Speculator and Economist
“We conclude first and foremost that the crisis was avoidable,” declared Phil Angelides, chairman of the Financial Crisis Inquiry Commission. No act of God. Thanks Mr. Chairman.
The mystery of derivatives, the secretive multi-trillion dollar market that few understand but is believed to be at the heart of the financial meltdown needs illumination. Without it, policy makers have no chance of getting much needed regulation right. The recent NY Times piece, “A Secretive Banking Elite Rules Trading in Derivatives” was unhelpful in this regard. What follows is intended to be a laymen's and policy maker's guide to derivatives practices and profits.
Last week, Capital Institute co-convened with futurist Hazel Henderson at Ethical Markets Media (USA and Brazil), her company's facility in Florida, the new Committee on Transforming Finance (CTF). The CTF is a group of seasoned capital markets practitioners, scholars, and financial writers who share a belief that the policy responses to the financial crisis were more tinkering than transformative, our objective was to construct a statement on the need to transform the financial system to one that serves the economy rather than acts as its master, and to one that serves an economy that is just, and respects the imperative of ecological function.
The statement calls for finance to be recognized as a global commons.