Capital Institute’s founder and president John Fullerton writes about the need for transformation, not mere reform, of our flawed financial system in our Future of Finance blog. Click on each of the links below to read his posts focusing on three categories of concern: Commodities, Financial Transactions Tax and Too Big to Fail.
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While John agrees with the popular wisdom that speculation has contributed to the recent rise in commodity prices, he takes the view that it is the increasing scarcity of commodities in a global economy pushing up against resource limits that is playing a much greater role in commodity price inflation. The inextricable linkage between our food crisis and our failure to widely adopt alternative forms of energy illustrates why stronger oversight of commodity markets must be a public policy priority. When commodities become scarce, viewing “commodities as an asset class becomes an unintentional but immoral error,” John also maintains.
Financial Transactions Tax:
Governments worldwide have from time to time imposed a nominal tax on trading to raise revenue and/or to discourage excessive speculation. Sometimes called a Tobin Tax after Nobel Laureate economist James Tobin, but more commonly referred to today as a Financial Transaction Tax (FTT), it is currently levied in a number of markets, and support for it is growing in many European capitals. The U.S. imposed an FTT from 1914 to 1966 but its reintroduction here is meeting resistance from powerful financial lobbies. John argues that in our increasingly technology driven financial system, dominated more and more by speculative forces, the arguments in favor of an FTT are now stronger than ever.
Too Big to Fail:
The government’s rationale for its large-scale bank bailouts in response to the 2008 financial crisis was that these institutions were so large and so interconnected that their failure would spell disaster for the global economy and for society as a whole. John maintains not only that far too little has been done to address the issue of “Too Big to Fail” (TBTF) banks since that time, but that the TBTF crisis is deepening. He calls for an altered architecture for the banking system, mimicking natural systems, that balances efficiency and resiliency. Most critically, the new system must prioritize the long-term well-being of society and the planet over short-term financial returns.