Sunday, November 08, 2009

Financial services: leadership is possible

It has become an article of faith among media commentators that certain policy actions - such as what UK Prime Minister Gordon Brown recommends - "insurance fees to reflect systemic risk; collective or individual resolution funds; contingent capital arrangements; and global financial levies" -- must be adopted at a global level, or not at all. Brown has just said this in a comment article entitled How we can restore trust in financial institutions and added:

"in a global economy and with a global financial sector, any such measures could work only if applied globally."

A strong version of this statement -- that if one single jurisdiction gets captured by the financial industry and refuses to implement, then the whole house of cards falls down -- is a counsel of despair. It is a way of saying "give up! give the bankers everything they want!" and is the same argument used by secrecy jurisdictions when they say 'we won't move unless there is a level playing field.'

But this logic is fundamentally wrong. It comes from the notion that "if we do this alone, the money will flee."

The answer to this is, of course: this is just what we need. We need to cut finance down to size, so that it no longer eviscerates our democracies, so that it no longer transfers vast resources from poor to rich; and so that it no longer destabilises our economies.

Societies have come to realise that much of what bankers is, to put it timidly, socially useless (to put it more realistically, it is socially harmful.) The answer is: drive out the harmful parts. Tax the banks and the bankers properly, and you will drive out much of the harm, generally leaving the bits that are actually useful to the economy.

And you don't need international co-operation for that: it is easy to achieve unilaterally. All you need is leadership.

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