What began as an American sub-prime mortgage problem has mutated into a terrifying financial meltdown, requiring massive government bailouts. Our symposium looks at the crisis from a number of angles. Former City big-beast and microfinance entrepreneur Mark Hannam examines the sub-prime problem that started it all, explaining where we went wrong in lending to the poor and how we can (and must) do better in the future. Financial investor Clive Cowdery argues that we will never curb the speculators, so must make them pay their way by levying the Tobin tax—a small ad valorem charge on all financial transactions. Former Lehman Brothers economist, John Llewellyn, points out that, worryingly, economic forecasts tend to go off-beam when the economy experiences a novel shock as it has done now. Then we have a Keynesian perspective from Keynes’s biographer Robert Skidelsky, explaining why the old master is back in fashion, and a piece from the Wall Street Journal’s Simon Nixon explaining why we shouldn’t write off the City of London just yet. Lastly, we have a heart-rending tale from Alex Renton about how his assets got frozen in Iceland.
Also, exclusively online this week, Josh Kurlantzick argues that the crisis is doing serious damage to America’s economic leadership of the world—and China is already taking advantage. And Daniel Litvin asks: where is the voice of Corporate Social Responsibility? The much-touted movement has so far had nothing to say about the greatest crisis of capitalism in a generation.
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Clive Cowdery makes an interesting suggestion but is he sure his proposed Tobin tax on international speculative flows will cause enough hesitation to prevent damagingly high turnover at minuscule margins? Would George Soros have been prevented in 1992 from allegedly sparking Black Wednesday if the Tobin tax were in force? Mr Cowdery has been an exceptional business man and made a fortune out of closed life assurance funds. Market makers in the shares of Resolution plc before it was sold were essential to determining its value. Had they not touted their speculation to test opinion on its value, Mr Cowdery would have had no way of knowing if he had sold at the right price.
Was it not misplaced incentives that fuelled speculation and distorted performance? What about disallowing directors’ remuneration as a deduction from profits and moving it down the profit and loss account to the distributable reserves? If directors then had to compete for remuneration from the reserves with shareholders looking for a dividend, the heat would really be on deserved rewards – especially if a resolution to distribute to directors could only be proposed by shareholders. What chance then that Fred Goodwin would be paid £4 million to bust a bank?
The disadvantage of a tax on financial transactions, like stamp duty on buying shares, or capital gains tax, is that it finds it way into prices paid for investment products because of its impact and administration costs. The purpose is quickly lost and we kick off as before.
Robert Skidelsky says that Keynes would have endorsed the rescue operation mounted by the world’s governments to save the global banking system. But why doesn’t Skidelsky discuss the fact that, being more than an economist, Keynes was interested, not only in poetry and psychology, but in politics and international relations and intellectual history. All these are highly relevant to what Keynes would have thought about the kind of INTERNATIONAL response has been needed – and will be needed! – to the current global economic turmoil. Keynes’s thinking and experience on these topics is actually reflected in Skidelsky’s biography of Keynes, and in Donald Markwell’s book on Keynes and International Relations (Keynes on ‘economic paths to war and peace’), and some of the other good books on Keynes, like those by Donald Moggridge.
Real And Virtual Energy, And Keynesian Salvation Prospects
A. From an earlier post:
In the present return to Keynesian steering out of the catastrophic world economy crisis the government is called to stimulate demand through fiscal measures, to effect a balancing act, ‘creating’ just enough money to cover a ‘natural’ amount of economic activity, without gliding either towards inflation or unemployment.
This is, in effect, assigning to money and credit in the economy the functional attributes of energy in life’s evolution.
However whereas energy, life’s and evolution’s monetized currency, the capacity of acting or being active, is real, money and credit are virtual reality. Their functionality depends on the image-environment experienced through human sensory-imagination stimuli. This smacks of psychology or faith-religion.
So what are the odds that a Keynesian course will steady the rocking boat? The odds are like odds of other things that depend on human reactions-attitudes. This steadying course will be as effective as the conformation of the ‘people’ with the ‘hopeful’ reactions-attitudes on which the
Keynesian assumption is based.
B. Odds of economy’s salvation via Keynesian prospects
- Economy’s salvation via Keynesian prospects depends on the “people’s” reactions-attitudes to sensory-imagination stimuli effected in them by their societal environment.
- The stimuli thus effected depend, in turn, on the cultural constitution of the “people”.
- It is difficult, very difficult, to modify human culture by decree or even by revolution. Human culture changes normally by evolution, a slower, more basic, process than by decree or revolution or even – as exposed in the present world economy – than by reaction to a catastrophe. The evidence of this is all around us nowadays in the world stock markets, and in the lobbyings of inflated-bubbled-businesses for public help lest the “people” are hurt by recession due to the collapse of the bubbles.
The present tone of the world’s culture, and even ethics, including the banners of a variety of types and shades of greed, has been set by the 20th century Technology Culture. Its essence is the legitimacy and admiration of gaining capital via virtual activities, activities without or beyond production of real assets, real life resources.
So the odds of the economy’s salvation via Keynesian prospects are, in the long run, proportional to the odds that the culture of Earth’s humanity will evolve towards ever more rational self-organization…which is, how unsurprisingly rational, the odds of every organism to survive…
Dov Henis
(A DH Comment From The 22nd Century)
http://blog.360.yahoo.com/blog-P81pQcU1dLBbHgtjQjxG_Q–?cq=1
Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.
By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?
So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.
The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one’s investments every 7 days (based on the specs you give the agent).
A system like this will make the financial markets work as smoothly as the local fruit market.