Good morning

Note: apologies for yesterday’s missing post. WordPress, in its wisdom, decided to delete it. I will re-type and re-post later today.

Another note: it’s nice to be back.

The headlines:

  1. An EU Financial Transactions tax.

    Link: it’s coming.

    EU finance ministers are meeting today, and are expected to give eleven EU countries the “green light”* to start preparing a financial transactions tax. The move is expected to deeply unsettle banks and trading houses. And bring in some revenue.

    Why this could be a good thing: as I wrote about in my post on share-holding patterns, one of the trends in modern financial history is the increasingly short-term bias of shareholders. This is not a good thing for the other stakeholders of a company (its staff, customers, suppliers, etc). A financial transactions tax will act as a Tobin’s Tax (penalising short-term speculation) and/or a Pigovian tax (correcting for the negative externalities of market behaviour). Increasing the transaction cost of trading will hopefully encourage longer-term investment.

    Why this could be a bad thing: the trouble with transaction taxes is the freedom of capital. Because money can move, the trading houses and shares can move to exchanges in countries where there is not so much transaction tax – creating a competitive advantage for financial centres outside of Europe. But I do think that this is a question of extremes – there is an inherent bias to staying listed where you’re listed, and trading where you live. It has to be quite a costly tax to encourage movements of the scale we’re talking about.

    A quote:

    “There are so many things that we don’t understand about the financial system, in ¬†much the same way that 17th-century doctors could understand a couple of things about the human body but not the whole picture. Using a tax on financial transactions to tackle the ills of finance such as high frequency trading could turn out to be the equivalent to a 17th-century course of leeches.”

    *Such a journalistic phrase.

  2. Republicans to vote on a 4 month extension.

    Link: how useful.

    The Debt Ceiling debate has reached a new low/high – depending on your perspective. After many stop-gaps, the House Republicans are voting for a further stop-gap, being a 4 month extension to May.

    So much debate, so little outcome.

That’s all for now.

Have a good day.