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Tax Socially Useless Banks Says Fsa Head

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http://www.telegraph.co.uk/finance/newsbys...ord-Turner.html

Tax 'socially useless' banks, says FSA chief Lord Turner

Lord Turner, chairman of the Financial Services Authority, has backed a tax on banks to curb excessive bonuses, saying the City has grown too big and parts of it are "socially useless."

By Angela Monaghan

Published: 7:28AM BST 27 Aug 2009

Lord Turner, chairman of the Financial Services Authority, said that the City had grown "beyond a reasonable size". He said that the City had grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country's brightest graduates.

It should be cut down to size through new taxes if necessary, he said during a round-table discussion organised by Prospect magazine.

Bank bonus culture to come under spotlight at G20 talks "I think some of it is socially useless activity," he said, referring to the complex financial instruments that have largely been blamed for triggering the biggest global financial crisis in decades.

Areas that had grown too big included fixed income securities, derivatives, trading and hedging, and possibly also asset management and share trading. Lord Turner said he would be in favour of imposing City-specific taxes, if necessary.

"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he said.

If higher capital requirements did not eliminate "excessive activity and profits", options could include taxes on financial transactions, so-called Tobin taxes, after the economist James Tobin.

The economist suggested a small tax on foreign exchange transactions in the 1970s to discourage speculative trading.

No such taxes are under consideration, aides to the Chancellor, Alistair Darling, have reportedly said.

Lord Turner said the FSA would push banks to defer more bonuses and to pay more in shares, not cash. There will remain four or five global financial centres, and it is almost certain that one will be London," he said.

Angela Knight, chief executive of the British Bankers' Association, disagreed with Lord Turner's comments about being "wary" of protecting the City's competitive advantage.

She told BBC Radio 4's Today programme: "I think that if we say we do not want to have an international, competitive industry here, then we will do to financial services what we have done to manufacturing and engineering in the past and that is have it as a minor industry and lose it to others."

Any new tax or regulatory changes would need to be introduced on an international basis, she said.

"The Tobin tax ... was proposed by economists, has been discussed for many years but has never been applied.

"And the reason it has never been applied is because of all the adverse consequences you get out at the other end.

"However, where changes are to be made, they have to be made by all financial centres together because all you get if you don't do that is a shift in business around the world."

Edited by AvidFan

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Has a nice ring to it. I reckon it will be the anchor-meme with which to beat the banks from here on out.

How about "Socially useless vampire squid" ?

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I think some of it is socially useless activity

The FSA and his job for a kick off.

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I think he is totally, totally (and I mean totally) spot on.

Reduce the City down to its core activity of allocating scarce capital to the best projects - and there won't be much left to regulate anyway.

Respect to the guy.

Don't think he is long for this world.

it is not up to government to decide 'how big' some industry should be. what they should do is stop bailing out the wreckless lenders and let it contract organically, by propping them up and bailing out banks they're directly contributing to a future disaster

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Isn't this just a case of HMG realising that they've been shafted by the bankers and desperately trying to claw back some much needed taxpayer money?

Door. Horse. Bolted

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I think he is totally, totally (and I mean totally) spot on.

Reduce the City down to its core activity of allocating scarce capital to the best projects - and there won't be much left to regulate anyway.

Respect to the guy.

Don't think he is long for this world.

He says lots of things. The moment he came into the job he said LTVs have to fall requiring 20-25% deposits for a long time, since when he has done nothing whatsover about it. Now they're talking about counter-cyclical controls which imply increasing LTVs during a bust, not reducing them.

He's just a placeman spouting politically acceptable rhetoric which will never see the light of day.

I can't see the difference between what he is saying today and Gordon's "no more boom and bust" or "I won't let house prices get out of control" or "2.5% fall is something that is containable".

Of course what he says is easy on the ears. That's one of his skills. Talking with an earnest and sincere conviction. He can, and does, say what he likes, but he's given a job to do and the FSA have demonstrated they are incapable of doing it. I've not seen anything concrete he's done which changes that in the slightest. If there were charges brought against a single top bankster then I'd sit up and pay attention.

So, let's watch what he does, not what he says. All I've seen him do is fine (with a 30% no challenge discount) a small time IFA £10k for employing a dud.

I read Gillian Tett's article in the FT this morning and to be honest I think she's lost the plot.

Edited by For no one

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Don't think he is long for this world.

Also discussed here, where the last paragraph provides an opposite view, ham:

Let me know what you think, and if any of my figures and explanations are wrong. Finally of course there are some interesting ramifications here that qualify this post for the tag "political shenaegans". The BBC is having a lot of trouble summoning up City voices to rubbish Lord Turner - possibly because, while these are just his personal views, he is also their regulator with the power to give any institution what my friend in start-up finance calls, holding up one finger, the "rubber glove treatment".

Peter.

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Opening a can of worms here. Don't forget the city has given the govt loads of money over the years.

Much more than the bailouts (so far). Gordon p*ssed it all up the wall

We already know the banks have a very special position. It's almost impossible not to make money

unless you get really greedy. It could be said we should tax that money creation position, but that's

basically a tax on debt... no way the govt will go for that.

We now know that the banks are effectively backed by the govt (read: taxpayer), so a much more easy

option would be to charge the banks some kind of insurance (read: tax). It could be calculated on the amount

of risk and exposure the bank has. If calculated correctly (and I think it's possible), it should reduce the profits

on the more risky areas of banks (and reduce bonuses) but not discourage day to day sensible lending. In some

cases it could also be a larger deposit, given back when the deal is closed (delaying profit and bonus).

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I just noticed this bit:

If higher capital requirements did not eliminate "excessive activity and profits", options could include taxes on financial transactions, so-called Tobin taxes, after the economist James Tobin.

Interesting! Although it isn't anything concrete, it suggests the tightening up of reserves, which we have discussed in other threads. If this is being done methodically, it will reduce the influence that the banks can make to the economy.

This talk of the banks being an industry to the world though makes me a bit queasy though. They should are just a mechanism to facilitate real business and shouldn't be encouraged to be anything else. The fact this opinion is prevalent is a sign of the times though, I suppose... :(

P.S. I had the misfortune to accidentally watch some BBC news earlier. They had some idiot interviewing a Lord Turner saying something about banks supporting real business (yes! does he get it?!), but in the next breath he said 'like bricks and mortar' (sadly, no) - I was speechless! :blink:

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it is not up to government to decide 'how big' some industry should be. what they should do is stop bailing out the wreckless lenders and let it contract organically, by propping them up and bailing out banks they're directly contributing to a future disaster

Is "Too big to fail" too big?

Letting the banks fail would have resulted in the kind of depression we've seen time and time again over the past 200 years. People would starve whilst food rots in the fields, people would be homeless whilst houses stand empty, and companies would close whilst an entire nation is desperate to work.

The financial system as it stands is a fraud. The only options are to reform it or carry on bailing it out with tax-payers' money again and again every time it fks up.

The free market notion of letting it "fail" is not an option, unfortunately.

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Is "Too big to fail" too big?

Letting the banks fail would have resulted in the kind of depression we've seen time and time again over the past 200 years. People would starve whilst food rots in the fields, people would be homeless whilst houses stand empty, and companies would close whilst an entire nation is desperate to work.

The financial system as it stands is a fraud. The only options are to reform it or carry on bailing it out with tax-payers' money again and again every time it fks up.

The free market notion of letting it "fail" is not an option, unfortunately.

I disagree.

Banks can go bankrupt like any other company, with their assets (loan books) auctioned off to the highest bidder. The share holders can be wiped out and the remaining deposits (which were supposed to be risk free) made good by the tax payer (up to the insurance limit - £50k I think) and/or the bidder for the loan book. It happened to Leymans and many banks in the US each week.

Yes, there may have been a deflationary spiral, but then so there should have been - prices have been driven too high by easy credit. There may be some point which the tax payer would step in to backstop further deflation, but by letting virtually no bank fail, the tax payer is essentially back stopping the whole lot. Worse still, they get to spend this on what they like, as they haven't been nationalised in the process - they have privatised the gains, but pushed their losses onto the tax payer and carried on, business as usual.

In addition to this luxury of a huge tax bill, we also get lumbered with ridiculously high house prices, rather than letting them fall to an affordable level. We are essentially paying to keep house prices high, at the expense of lining the bankers' pockets... yeah, what a great deal we got! <_<

In an ideal world, there should be no government backstopping at all and risk is perceived and realised right through the system. It causes bankers to take more risks than they otherwise would, as they know they are essentially above the government - bail us out or we will cause a depression etc.

Edited by Traktion

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I accept that as a valid point. I should clarify - I do not necessarily agree with his possible solution of a Tobin tax.

I am simply referring to his questioning of the role and size of the City and what the negatives are of the current situation.

It is only once you have correctly defined the problem can you find the proper and long lasting solution. I don't think anyone in such authority has had the prescience or brain matter to ask these fundamental questions to my knowledge. It is this with which I totally agree. But as you say, what has he implemented - he is up against some mighty foes (the City and the government) from a position of weakness.

Yes, I don't disagree with what he is saying about the size of the City or it's socially useless aspects at all.

I wouldn't credit him with anything novel personally. Mandelslime has also said our economy needs to be 'rebalanced' several times that's I've heard, and I've heard similar stuff from people like Myners.

The point for me isn't what's said it's what's done and I'm confident in several years when we've had the discussions and debates and proposals and perhaps tinkered a bit here and there and he's drawing his nice little pension and making speeches in the Lords getting nods of approval and approbation for his sagacity and we're on the cusp of the next boom all of this will go out of the window whilst said boom is ridden to destruction.

And none of the lot that conspired to cause this collapse will have ever appeared in court. 100% guaranteed. Freeloaders, thieves and placemen without exception.

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I think he is nuts. He is dabbling in politics when he should really be sorting out his own organisation which failed to regulate lending and has backed away from doing so again, despite it being its job.

He is working for his Labourian paymasters in an effort to keep his job. This is nothing more than petty minded vindictiveness coming as a result of banks not lending the amount needed to keep Labour in power. The non-state owned banks should be under no obligation to lend to anyone they don't want to. And if they do so, it should be to whom they wish and at the rate they choose. To tax a company because it isn't fulfilling your political leader's wishes is the next step towards the Stalinist state and anyone who can't see that deserves what they have coming to them.

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it is not up to government to decide 'how big' some industry should be. what they should do is stop bailing out the wreckless lenders and let it contract organically, by propping them up and bailing out banks they're directly contributing to a future disaster

Hear, hear !!

I agree that it shouldn't be the role of government to control industry, but this government sees the world as needing endless interference. Turner was a political appointment after all - who else would useless such a loaded phrase ?

One could go as far as saying anyone on the dole is socially useless. It's utter hypocrisy, but to be expected when joe public has a say on something emotive with only half facts

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I think he is totally, totally (and I mean totally) spot on.

Reduce the City down to its core activity of allocating scarce capital to the best projects - and there won't be much left to regulate anyway.

Respect to the guy.

Don't think he is long for this world.

He says lots of good things: remember the announcement that the FSA were likely to introduce capped salary multiples to X3 and a requirement of a 10% deposit. He got his wrist slapped forthat one and the spin has been that this will get kicked into touch in September.

He will get hauled over the coals for this too I expect....Rothschild had a chat with Mandy about it a couple of weeks ago by the pool.

If they were serious (and G20 focussed on it), then it would have to be a global structure and the tax havens would get nailed. Otherwise all the high risk banking will just move to Dubai or somewhere else.

My bet is they will see the potential tax take of a resurgent industry and decide to let it lie...... :(

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Well as the financial sector is grossly oversized compared to the real economy it is supposed to service, then by definition much of it must be "socially useless".

Getting rid of the socially useless part would be easily achieved by re-introducing mark-to-market. Turner seems to prefer maintaining the bubble and then taxing it into Government revenue.

Agree that Boris Johnson is a prat though.

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