http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/12/can_banks_save_the_planet.html?s_sync=1
Can banks save the planet?
Robert Peston | 12:18 UK time, Wednesday, 16 December 2009
If the current entente between G Brown and N Sarkozy ruled the world, we would be well on the way to a global tax on financial transactions.
In a recent joint statement, the unlikely double act said that the "revenues from a global financial transactions tax" - perhaps better known as a Tobin tax - could help defray the costs of transition to a low-carbon economy, especially for developing countries.
It's a live issue at Copenhagen, partly because - I suppose - the notion of a Tobin tax to pay for ecological rehabilitation is something of a blast from the past, a golden oldie beloved of the green movement.
You might call it a bit of ideological recycling.
So the Treasury's latest thinking on such a transaction tax is worth knowing about, you'd think.
And as luck would have it, the Treasury has published a paper - called "Risk, Reward and Responsibility: the financial sector and society" - which is about how superfluous financial dealings could be taxed and also how banks could be forced to make a greater contribution to the costs of clearing up after them.
Some would say (but I could not possibly comment) that the paper is a bit disappointing - because it is a miscellany of unconnected arguments rather than a rigorous analysis of the costs and putative benefits of either levying a worldwide tax on financial dealing or of charging banks for the de facto insurance against collapse that taxpayers provide to them.
What's most interesting - I guess - is the political statement represented by the paper, which is that such levies are very much on the government's agenda.
That said the Treasury is clear that this is not an area for unilateral national action, that such taxes or charges won't be imposed by the UK unless other G20 nations do the same (10 Downing St is a little less robust on this all-or-none approach).
The Treasury fears - after the horse has bolted, some might say - that an exclusively British charge on banks would cause undue harm to our financial services industry.
So it would need to be confident that Switzerland and the US would implement equivalent taxes before putting its paws into our banks' pockets again.
Hmmm. How likely is it that tax-loathing Switzerland, Singapore and the US will ever sign up for more taxes on banks, even to save the planet?
Well it would be a bit more likely if proponents such as the Treasury could furnish detail on what would be taxed, how and why.
The gaping hole in the Treasury's paper is any analysis of which financial transactions may be gratuitous - or "socially useless" to use Adair Turner's resonant phrase - or even potentially destabilising for the economy.
If such transactions could be identified with confidence, then taxing them might be harmless to the prospects for sustainable economic growth or even a good thing.
All that the Treasury trots out are the same old stats showing the exponential growth of financial transactions in recent years.
For example, it mentions that the outstanding gross value of over-the-counter derivatives rose from less than $100 trillion dollars in 1998 to almost $700 trillion in 2008 (or more than 10 times the value of everything the world produces per annum).
Now it's not ludicrous to conclude that a big chunk of those transactions were either designed to transfer wealth in a sophisticated gull from naïve investors to clever bankers, or to avoid tax, or to manufacture fees out of products with no serious underlying purpose.
It is also arguable that a proportion of those deals have not had a net smoothing effect on markets as a whole but have increased the volatility of share prices, and commodity prices and debt prices - in a way that may actually have damaged the interests of genuine wealth creating companies in the real economy, by making it harder for them to plan.
But although such intuitions may be reasonable, intuitions are no basis for levying a new tax.
What would be required is solid data.
It would be useful to know how many of these derivative transactions were 'naked' speculation rather than hedging of real-economy deals by non-financial businesses.
Take credit derivatives, those notorious de facto insurance contracts against debt defaults.
Only a minority of the $50 trillion odd of these that are extant are hedges for actual holders of debt. But what is the precise size of what some would see as these legitimate hedges, as opposed to the more speculative deals?
Similarly, what proportion of all derivatives have as their primary purpose tax avoidance?
Unless and until such data can be collected, the debate on whether a transaction tax could or should be implemented is probably going nowhere.
The point being that not all financial innovation is either harmful, fatuous or a gull.
In this context it is worth noting the almost hysterical reaction of big non-financial companies to the supposed cost implications of relatively anodyne proposals to route all derivative contracts through so-called central counterparties.
You can imagine the response of such businesses - not banks, but energy companies, telecoms outfits and so on - to the idea that they would be hit by the Tobin tax.
Which is not to say that we won't eventually see a transaction tax whose proceeds can be deployed for a grand social purpose.
But the tax is so amorphous right now that - surely - it can't be the financial glue at Copenhagen to unite developing and developed nations, even if it is a bond between France and perfidious Albion.
, and their social usefulness for the third sector as a fund-raising method (which is currently being promoted by the UK Gov't). Not to metion that the bond markets were also shown to be the main source of funding for the Gov't itself... and the report mentioned 'pension funds' (read: the good guy) as those providing the money to finance Brown's borrowing. Tax on bonuses was termed to be 'economically illiterate' (good selection of sources), which it is, because any below-market price creates excess demand... empty shelves were mostly due to the socialist countries keeping such artificially low 'affordable' centrally-controlled prices... coming soon to a bank near you. This pro-financial markets attitude is in a stark contrast to the previous week, when you got plenty of 'transaction tax gathering momentum' reports (currently there's a marked silence on the subject, at least the frequency has decreased), and very radical left-wing 'thinkers' getting airing, calling for The Tobin Tax AND the return of Glass-Seagal 'at the very least', but not stopping short of... total nationalization of the banking industry (yes, you've heard it correctly - that was during last week's 'Thinking Allowed').