Thursday, April 02, 2009

UK government: tax havens contributed to the crisis

Stephen Timms MP, Financial Secretary to the UK Treasury, has been briefing people around the G20 summit. TJN's Richard Murphy, who is there, reports back:

"He also, very refreshingly, made clear it is government view that the opacity of tax havens did directly contribute to the crash in confidence between banks that precipitated the current crisis."

We are working with second-hand sources here, but it seems that the penny is dropping on this.


Blogger Physiocrat said...

We all need to cast out minds back to 2006. House prices had been rising steadly since 1996 due to increasingly free lending and willingness to borrow. Banks like Northern Rock were lending 125% mortagages on the security of rising values, which appeared likely to go on rising indefinitely. But these rises had themselves been induced by easy lending, and the house price rises were nothing more than a self-fed bubble pumped up by reckless lending and equally reckless borrowing.

Eventually, all real estate bubbles collapse, because the true value of real estate is the capitalisation of the rental income stream at a rate of not less than about 3%, below which the income from property that is actually let is insufficient to service the debt, which then turn toxic.

Tax havens were a handy place to stash the ill-gotten gains but how were they causative in the process just described?

10:03 am  
Anonymous TJN said...

Read six reasons here.
Plus evidence to back the case.

11:55 am  
Blogger Physiocrat said...

It seems to me that this account of tax havens would set them in an analogous role to fences - they do not commit the original crime but enable criminals to dispose of their ill-gotten gains. They are mere facilitators.

Northern Rock's underlying error was reckless lending for the purchase of houses which were not worth what the amount of the loans. How would that have been blocked by tightening up on tax havens?

2:33 pm  

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