This weekend, David Cameron joined the growing list of politicians advocating a Robin Hood Tax, to claw back for the taxpayers a small percentage of the millions the banks are making in profits. But, as the Observer’s Heather Stewart notes:
David Cameron’s announcement yesterday that he would unilaterally impose a tax on the banks – as President Obama also plans to do – is welcome, but doesn’t get to the heart of the problem.
Indeed it doesn’t because taxation is not the same as regulation. Politicians are jumping on the taxation bandwaggon as a way of showing the voters that they will punish the nasty horrid bankers. The trouble is, taxation would not stop banks from doing all the same old things that caused the financial crisis.
Heather Stewart quotes Boston University’s Larry Kotlikoff:
Kotlikoff argues forcefully that the deregulation of the financial sector over the past 20 years has created an extraordinary situation where today’s bank bosses – from bridge-mad Jimmy Cayne of Bear Stearns, to the terminally egomaniacal Dick Fuld at Lehman – have been free to gamble with our money.
“These guys, they flunked out of college, they were smoking dope,” he says of bosses generally. “The problem is the leveraging of the taxpayer by people with no formal training in finance or economics, no personal downside, an assortment of Napoleon complexes, the money to buy ratings in New York and policy in Washington, and the ability to run circles around regulators.”
As things stand at the moment, there has been very little in the way of regulation that would stop them from doing it all over again once the global economy picks up, and as Kotlikoff says, America doesn’t have the money to bail financial services firms out again if there is another crisis. Neither does the UK or any of the other major economies.
Banking taxes have become the politicians’ magic bullet. They seem to think that sticking a levy on the banks will satisfy the public’s need for revenge and then we can all carry on as before. There is something vaguely Mandelsonian about a Robin Hood Tax – we are intensely relaxed about you getting filthy rich, provided that, for every grand you trade, you stick 5p in the poor-box.
It might look good on a manifesto and it might assuage the guilty feelings of the few investment bankers who have them, but a bank tax will not fix the problem. That will require tough and internationally co-ordinated regulation. It will be several months before even the basic principles of such a framework are agreed. Let’s hope the politicians can get some rules in place before anyone else does anything silly.