Tuesday, January 12, 2010

Obama weighs tax on banks

As the New York Times reports:

"President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday."

The idea is to plug deficits, curb risk-taking, and respond to public anger - all good things. As we've noted, you don't need to get international agreement to do this - all it takes is leadership, and improvements (or less severe deterioration, depending on what happens) will follow.

Let's see what they pull out. Judging by the past performance of this administration, it may turn out to be a damp squib. Here's something else, another of a myriad of critiques of the U.S. Federal Reserve:

"the Fed is an imperial anti-regulatory (sic) seeking vastly greater regulatory scope at the expense of (modestly) more effective sister regulatory agencies."

One might say the same sort of thing about the Bank of England, and indeed there is a piece in the Financial Times today observing a run-of-the-milll struggle between the Prime Minister and his Chancellor then noting, as we have before,

"Much more interesting – and disturbing – is a second struggle for control of the levers of economic management – this one between the chancellor and the Bank of England. The Bank, which already sets interest rates, has decided that it also wants a veto over fiscal policy."

The Bank of England, let's not forget, sits right at the geographical heart of the City of London, almost next door to the Lord Mayor's own Mansion House, and is very much the creature of City interests. Here the FT is talking about a struggle between elected representatives of the people, on the one hand, and an institution that is, to a very significant degree, historically and institutionally a representative of those financial interests.

The Conservative Party, which looks likely to be in power in the coming months, says it wants to transfer financial services regulation away from democratically accountable politicians and towards this shill (OK, it's more complex than that, but historically it has leaned strongly that way) for the bankers. As the FT commenter Philip Stephens rightly notes:

"I am among those who think it unhealthy for Britain’s democracy that an unaccountable quango should hold such extensive sway over policymaking."

Because of the City of London's global influence, this will have major impact on taxes, and tax havenry, the world over.

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