Robin Hood Tax would lead to calmer markets

By Simon Chouffot of the Robin Hood Tax Campaign

Panic, plunge, turmoil and crisis featured on the front pages of the Mail, Financial Times, Guardian and Telegraph yesterday. The sovereign debt crisis, having been momentarily eased by agreement on Greece’s second bailout, is biting back, tearing shreds from stock market values.

Regardless of where on the doom-monger scale your predictions lie, the financial system is in peril, just three years since the last crisis. As Eurozone policy-makers (though not yet Cameron or Osborne at time of writing) cut short their holidays to plan collective action, whose interests will they be protecting?

What can we learn from our politician’s response last time? In 2008, as the largest economic crisis of a generation engulfed the world’s richest nations, a recapitalisation of major banks kept the financial sector alive. It was financed by the public purse and, at the cost of around £1trillion in the UK, led Governor of the Bank of England Mervyn King to paraphrase Churchill’s famous wartime quote: “Never in the field of financial endeavour has so much money been owed by so few to so many.”

King has also said:

“The real cost of this crisis is being borne by people who were absolutely not responsible for it.”

This is true both of the austerity measures announced by the Government to help bring down the deficit accrued through bailing out the banks and by the direct effect on our economy. The IMF has calculated that UK economic output worth £497 billion will be lost as a result of the systemic crisis.

Yet most of the financial sector’s profits have been protected from the ravages of the economic storm they created. Barclays profits for last year were up a third to £6.07bn, and HSBC doubled to £11.8 billion, whilst the rest of the economy struggled to report positive growth. Even as UK banks this week report below-par half-year results, owing to uncertainty in the market and the Payment Protection Insurance (PPI) fiasco, HSBC and Barclays both managed to beat expectations.

Two weeks ago the Office for National Statistics reported that City bonuses remain unchanged at £14 billion. As the Guardian highlighted, banks have anyway just negated the Government’s attempts to reduce bonus levels by increasing basic salary. They cited a report by recruitment firm Kennedy Associates “that an average investment bank managing director received £300,000 to £400,000 in base salary, as opposed to £175,000 four years ago at the peak of the market.”

Such profits and pay are only possible thanks to the taxpayer. Even for banks that were not directly bailed out with public money, their profits continue to benefit from an ‘implicit subsidy’. Credit rating agencies such as Standard & Poors know banks will not be allowed to fail thanks to the UK government [read taxpayer]. This means it’s a safe bet lending to banks, which improves their credit rating and makes borrowing that money cheaper.

Sound trivial? Andrew Haldane, executive director of financial stability at the Bank of England, said last year:

“The average annual subsidy for the top five banks over these years [2007-2009] was over £50 billion — roughly equal to UK banks’ annual profits prior to the crisis. At the height of the crisis, the subsidy was worth £100 billion.”

To ensure the financial sector contributes more, the government introduced the bank levy, which will eventually raise around £2.5 billion a year, yet corporation tax is being lowered to 23%, offsetting much of this. Meanwhile VAT has risen to 20%, which hits the poorest 10 per cent of the population twice as hard as the richest 10 per cent. Astonishingly, the financial sector remains VAT exempt.

Over the coming weeks as policy makers face the latest crisis, they must learn from these interventions and must not be held ransom to financial sector demands to protect their profits. Banks are somehow deemed to be under-performing if they are not surpassing the previous meteoric heights of pre-crisis profit. Yet it was the pursuit of such excess that led us into the crisis in the first place. Such profits should be viewed as a sign of an unhealthy economy where one sector is allowed to dominate, both economically and politically, to the detriment of others.

One policy option being discussed in Europe is the idea of a Financial Transaction Tax, known popularly in many countries as a ‘Robin Hood Tax’. A tiny tax would be levied on each stock, bond, derivative or currency transaction. It would target financial institutions’ ‘casino’ style trading that helped precipitate the economic crisis and is capable of raising hundreds of billions of euros a year. It could help support those who have been hardest hit by the financial crisis both in Europe and around the world.

France, Germany, Spain, Portugal and Belgium are among the countries to publicly support it. Both the European Parliament and Commission are actively seeking its implementation. Nicolas Sarkozy has made it one of his priority issues for France’s Presidency of the G20. It’s increasingly viewed as the most robust and simple way to ensure that the financial pays a fair contribution for its part in the economic crisis. Over 40 have already been implemented around the world and concerns about the feasibility have been shown by the IMF, European Commission and others to be overblown.

As Europe moves ahead and grapples once again with the might of the financial sector, the UK Government should deliver on its claim that ‘we are all in this together’, support their efforts and prove that it is capable of bringing the financial sector back under control.

http://twitter.com/debscov65/status/99753143390310400 Deborah Dyer

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/nicdakinmp/status/99756771991756800 Nic Dakin MP

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/cllrwalshaw/status/99756842103738368 Neil Walshaw

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/sr4longsight/status/99757480367763456 Suzanne Richards

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/sirenofbrixton/status/99761990133751808 Siren of Brixton

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/therightarticle/status/99762263757565952 Michael

Robin Hood Tax would lead to calmer markets – http://goo.gl/RvGl3
http://twitter.com/cllrwalshaw/status/99762625809883138 Neil Walshaw

Robin Hood Tax would lead to calmer markets – http://goo.gl/RvGl3
http://twitter.com/jblresearch/status/99765362333192192 John Lever

Robin Hood Tax would lead to calmer markets http://t.co/4cGJvuS
http://twitter.com/rooftop_roofing/status/99770718794952704 Matt Curtis

Robin Hood Tax would lead to calmer markets: Yet most of the financial sector's profits have … http://bit.ly/p3irI7 rooftoproofing.com
http://twitter.com/tucglobal/status/99775274241105920 TUCGlobal

Robin Hood Tax would lead to calmer markets – http://goo.gl/RvGl3
http://mad.com Jdam

“One policy option being discussed in Europe is the idea of a Financial Transaction Tax, known popularly in many countries as a ‘Robin Hood Tax’. A tiny tax would be levied on each stock, bond, derivative or currency transaction. It would target financial institutions’ ‘casino’ style trading that helped precipitate the economic crisis and is capable of raising hundreds of billions of euros a year.”

The Tobin Tax specifically targets the CURE and the FUNCTIONING MARKETS, rather than the problem and the problematic markets.

The problem is mispricing and illiquidity. The solution is effective, continuous repricing, which is accomplished through high frequency trading. When that happens, people do not accumulate massive positions whose value is suddenly repriced: the repricing occurs continually,those markets will have already responded dynamically.

The Tobin Tax specifically penalises markets that reprice in a timely fashion.

If intervention is needed, it is needed to address those markets
which DON’T turn over a high rate of transactions – those markets where the price discovery mechanism is opaque rather than transparently continuous and automatic.

Imagine if the illiquid market in MORTGAGE DERIVATIVES had been subject to the kind of high turnover, high liquidity trading that we see in the currency markets. Those instruments would have been repriced FAR earlier, FAR more efficiently.

Looking back at the pound: the market has been giving feedback for a while,
has been sending distress signals, deterring overinvestment in the pound and demanding action. If the value of the pound had been unresponsive to fundamentals of our crazy public finances, if it had stayed high,then people would have continued to overallocate into the pound and the fundamentals would have continued to deteriorate until the wheels fell off, a la EXACTLY WHAT HAPPENED with mortgage derivatives.

If a financially literate Intelligent Being had been asked to devise a fiscal or regulatory response to the credit crisis that was most specifically designed to damage the system, to cut away the meat, to leave the rotten aspects alone, to alienate the cure and to increase the chances of problems in the future, a Tobin Tax/Robin tax would have been the precise answer.

Switzerland, Singapore, Hong Kong, Bermuda, Dubai and a dozen other countries have stated that they won’t impose the broad FTT and would welcome the business from taxed jurisdictions.

Sweden enacted a Financial Trading Tax (FTT) in 1984. Futures trading volume fell 98%, options trading fell to zero, bond trading fell 70%, and most other markets’ trading volume fell by at least 50%. A large segment of the Swedish financial industry either left the country or went out of business. Total tax collections (both capital gains and related income taxes) fell dramatically. Those tax losses wiped out all the gains from the FTT. The total FTT taxes collected were only 3% of what the Swedish Finance Ministry had originally projected (a source of considerable embarrassment), and what had been promoted as a way to raise billions in taxes to support social services resulted in a net loss to the Swedish Treasury. The FTT was repealed in 1991. Sweden cites this experience as their reason for opposing the FTT.

The UK currently has a transaction tax (aka, “stamp tax”) and it doesn’t seem to have harmed their huge financial market. However, government data shows that over 75% of all UK financial transactions are exempt from the tax. Many large banking and investment firms are fully or partially exempt, and many London traders do their business on US or other exchanges to avoid the tax entirely. If capital flees Europe, London is projected to lose thousands of financial jobs, tens of billions in economic activity, and billions more in taxes (both income and capital gains taxes). The UK cites these projected losses as their reason for opposing the FTT.
http://twitter.com/jonathanpsadler/status/99779034740830209 Jonathan Sadler

RT @TheRightArticle Robin Hood Tax would lead to calmer markets> http://goo.gl/RvGl3. An idea floated for a while now needed more than ever.
http://mad.com Jdam

A financial transaction tax will not have any influence upon bankers and there bonuses, they are not investing there own capital, it is the capital of corporations and the public’s.

The cost of the tax will simply be handed to the public, as the end buyer of products ( after corporations who are forced to pay huge sums in the name of this tax when exchanging currency’s rightly look to pass the cost on) and any one who uses a banking services/investment fund. IE everyone.

Its a global economy, bonuses are paid to retain skilled workers otherwise they simple move camp, this tax will never happen on a global scale, to create an EU only FTT will do nothing more than drive the industry away and if this tax were to go global it would do nothing more than absolutely destroy the markets.
http://twitter.com/robjohnston82/status/99785630510354432 Rob Johnston

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://threescoreyearsandten.blogspot.com/ Harry Barnes

Well argued, see http://threescoreyearsandten.blogspot.com/2011/08/tackling-current-economic-crisis.html
http://twitter.com/godonlyknows19/status/99794798860443648 jamie pritchard

Robin Hood Tax would lead to calmer markets – http://goo.gl/RvGl3
http://twitter.com/ard_choille_1/status/99801980024786944 Ard Choille

Robin Hood Tax would lead to calmer markets – http://goo.gl/RvGl3
Anon E Mouse

MORE taxes? WTF???
http://twitter.com/jarnomakela/status/99809596213956608 Jarno Mäkelä

RT @leftfootfwd: Robin Hood Tax would lead to calmer markets http://t.co/kRp6h2m
Rhone

Stop raiding the people’s meager savings and investments. This type of tax will easily be passed off to the people. IMF states in the Final Report For The G-20, June 2010 about the financial transaction tax, “Its real burden may fall largely on final consumers rather than, as often seems to be supposed, earnings in the financial sector…A tax levied on transactions at one stage ‘cascades’ into prices at all further stages of production.” The people’s investment yields will be drastically reduced, the cost of goods and services will rise substantially.

Raise hundreds of billions? Really? Sweden’s six year experiments with their comprehensive transaction tax proved net negative revenues after subtracting other tax revenue losses, jobs and economic losses. Sweden’s FTT by itself alone before the losses produced a pathetic 3 percent of the projected revenue because the tax stopped economic activity. The UK’s stamp duty on shares, if removed, would yield several billion pounds more revenue by increasing economic activity, but the exchequer that collects the tax has much power and self-interest and keeps it in place. Does it make you feel powerful scapegoating savers and investors, stealing their investments so the debtors can create another financial crisis?
http://twitter.com/june4th/status/99831941049749505 Noxi

RT @leftfootfwd: Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/norm52/status/99874186390028289 Norm Nichols

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/discordian1/status/99901710083960832 Discordian

Robin Hood Tax would lead to calmer markets http://bit.ly/oA4VB0
http://twitter.com/tyronwilson/status/99902127761129472 Tyron Wilson

Robin Hood Tax would lead to calmer markets http://bit.ly/oA4VB0
Cormac Hollingsworth

This is exemplary of the confusion within the Robin Hood Tax movement. Either you’re taxing to raise revenue or you’re throwing Tobin’s “sand in the wheels of finance”. One raises revenue, or you’re taxing to remove high frequency trading. You can’t have both – the removal of HFT removes your source of revenue. Unfortunately this also exposes the fallacy behind the original Tobin tax. To stop speculation that stocks would have fallen by 10% (the move over the last week), the tax would have to be 10%, otherwise it’s still worth doing the trade. I’m afraid when the real money rushes for the door, no tax will stop them.
http://twitter.com/cols42/status/99915892263096320 Col Standing

Robin Hood Tax would lead to calmer markets http://bit.ly/oA4VB0
http://twitter.com/robertcp/status/99932224870293504 Robert CP

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
Leon Wolfson

Yea, Mouse, it’s almost like there’s not one prescription for everything or something.

The Tobin Tax is gaining considerable support globally, and would do a good deal for fiscal stability.
http://twitter.com/michael_grieve/status/99973459416842241 Michael Grieve

RT @leftfootfwd: Robin Hood Tax would lead to calmer markets http://t.co/TaoyYfG
ALex

the end customer will end up carrying the tax burden. In the form of higher fees, higher cost of capital (resulting in slower growth), lower pensions, etc. Speculators? They will go offshore, don’t worry. nobody will give up an extra pip. It is you who will end up paying.
http://www.timworstall.com Tim Worstall

There’s really only two problems with this idea.

1) It would not be the banks, not even the bankers, paying the RHT. There really is something called tax incidence, no, really, and it will be all consumers of financial prodcts that pay the tax. That’s us, the citizenry then.

Heck, one of the UK’s few Nobel Laureates, Sir James Mirrlees, has pointed out that trasnaction taxes are to be avoided anyway as they cascade through the economy.

2) Such transaction taxes will increase volatility, not decrease it. Sorry, but this is also true. Speculation, all those derivatives, they dampen price volatility, not increase it. Yes, I have read your reports and they’re all bollocks, you don’t know what you’re talking about.

So, let’s have an RHT so that we, us, can pay more taxes and so that we can have the financial markets gyrating ever more wildly.

Doesn’t sound so good now, does it?
Leon Wolfson

Sure, if you buy the nonsense that you’re peddling on these taxes, like the idea that high-volume algorithm-based trading dampens anything. No, it’s a MAJOR cause of volatility, and has caused some pretty silly situations which no Human would have caused in several cases (requiring rollbacks).
http://twitter.com/schouffot/status/100281698981388288 Simon Chouffot

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
http://twitter.com/green_caroline/status/100323758983741441 Caroline Allen

Robin Hood Tax would lead to calmer markets http://pulse.me/s/126Gt
Ed Snack

No Leon, you’re just making it up now. Sure, un certain conditions, some forms of badly programmed automatic trades can appear to cause “volatility”, but the overall affect is stability. For christ’s sake, do some research before you pontificate so ignorantly, just believing that you can “tax the bankers” isn’t enough.
http://twitter.com/jonslater74/status/100501698698686465 Jon Slater

Time to bring the financial sectorunder control @schouffot on why we need a @robinhood tax http://t.co/i4nIgSy
http://twitter.com/maxlawsontin/status/100523552066908161 max lawson

Time to bring the financial sectorunder control @schouffot on why we need a @robinhood tax http://t.co/i4nIgSy
http://twitter.com/robinhood/status/100527944685985792 Robin Hood

Time to bring the financial sectorunder control @schouffot on why we need a @robinhood tax http://t.co/i4nIgSy
http://twitter.com/toffeetechnoir/status/100530158825508864 Toffee TechNoir

Time to bring the financial sectorunder control @schouffot on why we need a @robinhood tax http://t.co/i4nIgSy
Leon Wolfson

Oh of course, Snack, I’m “making things up” when these things have actually happened. It must be nice living in a dream world where things work in the way you want them to.
Anon E Mouse

Leon Wolfson – In fairness to Ed Snack it’s hardly the first thing you’ve made up on this fine blog is it?

And as for dream worlds you should know….
http://twitter.com/stampoutpoverty/status/100569339576586241 Stamp out Poverty

Robin Hood Tax would lead to calmer markets: http://bit.ly/qx95eU : writes @robinhoodtax 's @schouffot
Leon Wolfson

Yes, Mouse, when you’re free to make things up as you do, anything’s possible.

And yes, I’ve worked in games, and know very well the sharp dividing lines. Shame you don’t.
http://twitter.com/tucglobal/status/100633760667664384 TUCGlobal

How the Robin Hood Tax is relevant to the current global economic crisis: http://bit.ly/pSm0GF
Anon E Mouse

Leon Wolfson – I have a great idea dude. Work with me here.

All we have to do to stop these criminals causing damage to shops with bricks and wooden poles is get you to walk nearby and all the bricks will remarkably bend towards you as they are thrown.

For the first time in your life Wolfy Boy your danger magnet can be put to good use so instead of the bombers, bullets and “ambushes” that have diverted themselves towards you as you’ve gone about your business this time it will be for the benefit of someone else instead of yourself.

Which for you, doing something for someone else will be a novelty I’m sure but think how much kudos and ability to exaggerate the story, in the typical Wolfster style will be!

Get yourself to Peckham I say! MMMMMMMWWWWWWWHAHAHAHAHAHAHAHAHAHA!!!!
http://twitter.com/soton_unite/status/100660198074613760 Soton_Unite

How the Robin Hood Tax is relevant to the current global economic crisis: http://bit.ly/pSm0GF
http://twitter.com/robinhoodtaxau/status/100701473956040705 Ned

RT @leftfootfwd: Robin Hood Tax would lead to calmer markets http://t.co/HrRk91G
http://twitter.com/oxfamsouthwest/status/100967142144483329 Oxfam South West

Robin Hood Tax would lead to calmer markets and support those hardest hit by the financial crisis in Europe/World http://ow.ly/5Yyac
http://twitter.com/alexbrassard/status/101142242936369152 Alexandre Brassard

Robin Hood Tax would lead to calmer markets http://feedly.com/k/q4c0Ry
http://twitter.com/kingsburyqc/status/101145899031478273 Marc Renaud

Robin Hood Tax would lead to calmer markets http://feedly.com/k/q4c0Ry
http://twitter.com/alexhern/status/119757581953667072 Alex Hern

@nathanbcollins It's being proposed as both (http://t.co/SNdDZ042). It's a perfect tax, because it is levied on undesirable behaviour.
http://www.leftfootforward.org/2011/11/financial-transaction-tax-george-osborne-on-side-of-the-one-per-cent/ On the Financial Transaction Tax, why is Osborne on the side of the one per cent? | Left Foot Forward

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http://www.leftfootforward.org/2011/11/osborne-in-public-i-am-not-against-tobin-taxes-osborne-in-private-he-remains-unconvinced/ Osborne in public: “I am not against Tobin taxes”; in private: “He remains unconvinced” | Left Foot Forward

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