LONG LIVE TOBIN. COMMENTARY ON FINANCIAL REGULATION
By Robert von Heusinger
[This article published in: Frankfurt Rundschau 8/31/2009 is translated from the German on the Interne. The Tobin tax ,proposed in the 1970s and named after Nobel Prize economist James Tobin, would impose a tax on financial transactions and thus make speculation less attractive. The comment on the article is from Orlando Pascheit, editor of www.nachdenkseiten.de.]
Very slowly the regulatory debate is becoming interesting. It creeps up in questions about enclosing financial capitalism. In a curtain raiser for the next G20 meeting at the end of September 2009 in Pittsburgh, the excessive bonuses of investment bankers made headlines. Mistrust, uneasiness and questioning are in the background.
After the bailout of the system, the heads of government of the most important national economies now turn to concrete regulation. Concrete regulation is important for investment bankers. Initially they could not restrain their greed and demanded their old salaries of millions.
Liberal politicians can no longer tolerate such salaries given the many trillion euros that must be raised from taxpayers worldwide to stabilize the system. Therefore heads of government like Angela Merkel and Nicolas Sarkozy now make a stand against bonuses.
First the banks capsized and then the world economy tottered. Now the financial branch is reorganized.
However regulating bonuses may be an impossible undertaking. Therefore a second thanks is due to Adair Turner. The head of British Financial Services dared to speak the truth. The demand that the state limit bonuses is populism. The whole banking sector and its potential profit possibilities must shrivel.
Turner's demand for introduction of a global Tobin tax on all financial transactions is a very old demand of many critical economists. The tendency of banks to take flight in casino capitalism and neglect their role as servants of the real economy has made the crisis into a real fix for us. The ideology that financial markets are efficient and therefore always right has definitively broken down.
That is why hurdles for financial capital must be set up in Pittsburgh. The Tobin tax is a first step. The prohibition against trading securities over the counter is one new hurdle like a global licensing board for financial products and high capital-holding requirements for institutes that want to avoid fraud.
Commentary by Orlando Pascheit
While the proposal of the British Financial Services Authority (FSA) Adair Turner to introduce the Tobin tax on financial transactions is welcome, one should be skeptical. A notorious swine is driven through the village.
The argument that excessive bonuses cannot be regulated is na´ve. Regulation does not have to be direct. By minimizing the risk affinity in banking transactions, high bonuses will take care of themselves. When 30-40 percent of all business returns of the national economy come from the financial sector as in the US, the high bonuses are not surprising. To limit financial management to a reasonable size, several ideas from Britain have been thrown into the general debate.
However people on the eve of the G20 meeting gradually learn which plans will be seriously tackled. For example, where are the proposals to divide up big banks or reduce their size? Then a bank could be easily sent into bankruptcy. At least certain financial products could be banned and subject to new regulatory scrutiny. The FSA has already demanded higher capital-holding requirements and more stringent controls. Several proposals are worth considering. The Tobin tax could be one of them. May it finally be made concrete!