Shake me, I must be dreaming. I could have sworn that Gordon Brown just called for a “Tobin tax” on international financial transactions to curb the excesses of the banks and provide funds for developing nations and climate change. Can’t be true, surely. I must have nodded off, somewhere.
This is the prime minister whose ‘light touch’ regulation and tax breaks turned Britain into the biggest offshore tax haven in the world. A man who has been bought and sold by the City of London. A First Lord of the Treasury whose minions rubbished the idea of a tax on financial transactions when it was floated by the boss of the Financial Services Authority, Adair Turner, only three months ago.
But there it is in black and white in the communiqué from the G20 summit in St Andrews. Gordon Brown has asked the International Monetary Fund to look into the feasibility of “a financial transactions tax” - a tax on international bank transfers first proposed by the American economist James Tobin over thirty years ago to rein in the anarchic forces of financial globalisation and dampen currency fluctuations. The Prime Minister appears to have conducted the most dramatic economic u-turn of his entire period in office.
Brown says that he wants a new “social contract” with the financial services industry. “It cannot be acceptable”, he said in his speech to the G20 meeting of finance ministers in St Andrews, “ that the benefits of success in this sector are reaped by the few, but the costs of its failure are borne by all of us”. Powerful stuff: the St Andrews Declaration, it should be called. This column has been pretty tough on the prime minister in recent years, along with the rest of the UK media, but on this at least, Gordon Brown deserves to be praised. That is, if he means it. There is a suspicion that the PM has floated this idea secure in the knowledge that it will never happen. But let’s dream on for a moment, and imagine that he really is serious.
So what would this Tobin Tax look like? Well, first of all it needn’t necessarily be a tax. Brown wants to create a fund to ensure is that, in future, it is the world’s banks that pay the cost of banking crises not the taxpayer. At present, when one of our mega banks, leveraged 30-1 and loaded up with toxic mortgage bonds, becomes insolvent, it holds a gun to the government’s head: either bail us out, or we’ll wreck the economy. It’s the Dirty Harry approach to financial regulation: “Ok punk. Do you feel lucky
Politicians don’t want to go down in history for creating economic depressions and throwing millions out of work, so they generally hand over the money. It isn’t theirs, after all. The Bank of You and Me is the most generous financial institution in the world, ever ready to empty its accounts in order to salvage the spivs and speculators. After they get their hands on our bail out cash, the banks then just carry on speculating as before, paying themselves colossal bonuses, sowing the seeds of the next crisis. It is our old friend moral hazard.
Banks are intellectually and morally incapable of seeing that this is an unacceptable way to behave. They are blinded by a curious, almost religious conviction in their right to hold the world to ransom. As the boss of Goldman Sachs, Lloyd Blankfein, confirmed bankers believe they are on a mission from God - doing “God’s work”. Society must find a way to make this deluded cult see that their personal wealth is derived from the expropriation of millions of ordinary people around the world. If it hadn’t been for the bank rescues, all of the Wall Street banks would have gone out of business, Goldman Sachs included. Mr Blankfein would have gone to meet his maker
Socialism for the banks is unacceptable. It's time to liberate them from the state. They must be made so contribute to a stabilisation fund, either through taxation or through insurance, so that in future when “systemic” banks like HBOS or Royal Bank of Scotland go under as a result of their own greed and irresponsibility, they do not turn to the taxpayer for help. The money is already there. This is simply prudent financial management - based on the same principle as the hedge fund. The only difference is that the banks pay for their mistakes, not society.
Needless to say, the bankers aren’t keen on this. They say it would wreck competition, deprive productive industry of capital, slow down the wheels of finance. Well, they would say that wouldn’t they. More seriously, the idea has been dissed by the most powerful banker of all, Tim Geithner, the American Treasury Secretary, and if the US doesn’t adopt the system, then it will fail because no other country will take it up. But it is not acceptable for a country which has been the epicentre of the greatest global financial mismanagement in history to have any veto on attempts to prevent it happening again. I believe Barack Obama can be made to realise this.
It is certainly feasible technically given the information technology that allows international finance to take place. If we can trade Collateralised Debt Obligations and Credit Default Swaps then we can tax financial transfers. If it is international, then no country faces a loss of competition. A Tobin tax is not just a financial measure, but a call for a form of world governance and would require to be administered by the IMF or the United Nations. Pah, say the critics - they’ll never get their act together. Well, if they don’t we are all doomed, because climate change will also demand a form of world governance. Brown was right to link the financial transaction tax directly to the environment because humanity no longer has a choice but to manage its affairs on a global basis. The financial transactions tax is a suitable vehicle since the richest nations would be making the greatest contributions.
Yes, Brown may be guilty of cynical posturing, trying to sound tougher on the banks than George Osborne. But now that this issue is on the international agenda it will not go away. The Prime Minister has finally given the world a moral lead. And as Roosevelt said, the only thing to fear is fear itself.