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Bank Bonuses Funded By Tax On Savers

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From TFA

There is nothing clever in what Goldman and others are doing. Essentially it is just another form of skimming. It's happening not so much in fees and commissions – though these too seem to be going through the roof in some banking activities – as in the "spread", or the turn, securities traders take in matching buyers and sellers.

These spreads have widened enormously, particularly in bond trading, much of which takes place outside established stock exchanges through institutions where there is inadequate price transparency and where it is therefore easier for bankers to manipulate prices to their own advantage. The more opaque the pricing and the less liquid the security, the bigger the spread bankers are able to apply.

Government officials pretend to be as incensed by the phenomenon as the clients, but aren't prepared to do anything about it. To them, allowing bankers to rebuild their capital by ripping off the customer is preferable to having a second round of taxpayer funded bailouts.

You might reasonably think that what's going on amounts to much the same thing. Bankers are paying for the sins of the past by imposing a tax on savings. A return to boom time banking profits and pay also means a bigger take for the taxman. Governments love stealth taxes, and this is a good one. Few seem to have noticed the life blood being further drained out of their already depleted pensions.

What can be done about it? The obvious long term solution is simply that of fostering more competition, yet beyond mere lip service to the idea, policy makers on both sides of the Atlantic seem peculiarly reluctant to pursue it.

They've rejected the case for a Glass-Steagall like separation of investment banking from plain vanilla retail and commercial banking, and they seem largely to have ignored calls for a wider break up of the banks into smaller, bite sized chunks.

I exempt from this generalisation the odd couple of Mervyn King, Governor of the Bank of England, and Neelie Kroes, the European Competition Commissioner.

Does anyone have the historical data that would support/ refute this claim - that spreads have widened?

The senior Government officials and senior bankers that lobbied/ bribed them to allow 'too big to fail' banking to continue should be first in the queue for the guillotine come the revolution

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Execution spreads are tight when people want to take risk because there is more liquidity, and wide when less people want to take risk because there is less liquidity and it is harder to get out of positions.

That's all there is to it.

It's not a tax on savings, the funds that banks do business with could not achieve their returns without assistance from the banks in getting liquidity in the assets and derivatives that they want to buy.

As I've tried to explain before, it's just like Tesco taking a spread on a can of beans or whatever. Is that a "tax on your income"?

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