Britain stepped up its push for a global tax on financial transactions Monday as part of broad plans to reform the banking sector following the financial crisis, amid concerns that the US may act alone.Er um... if the problem is recklessness then the solution is simple, requires NO NEW REGULATIONS and is not expensive for the tax-payer: just let the banks which are reckless to the point of failure fail.
Prime Minister Gordon Brown insisted that his proposal for an international levy on financial transactions was "gathering support around the world," a day after Chancellor Alistair Darling hit out at US proposals.
... Brown has urged leading economies, including the United States, France and Germany, to consider a tax on financial transactions to make banks more accountable to society.
The prime minister has pressed the idea of a so-called Tobin Tax but said nations could also consider an insurance scheme aimed at preventing a repeat of the huge state bailouts of banks caused by the financial crisis.
A Tobin Tax was originally proposed in 1971 by Nobel Prize-winning economist James Tobin as a means of reducing speculation in global markets, but Tobin himself later doubted his own idea was workable.
... On Monday meanwhile, Brown told a press conference: "There is a very big risk that if we don't take the action that is necessary, sometimes very controversial, that banks will relapse into what they were before, taking reckless risks at the expense of the customers."
Bailouts - even if they're just implied by the law and not explicit - remove the moral hazard for recklessness and encourage recklessness.
The fact that the markets saw the mortgage based derivatives as being backed b the US Treasury is what made the investors who bought them reckless.
Therefore, the solution is not taxes or regulations, just the courage to let the market heal itself.
AGAIN: GOVERNMENT IS THE PROBLEM, NOT THE SOLUTION:
- IN THE USA, THE GOVERNMENT ACTUALLY FORCED BANKS TO MAKE RECKLESS MORTGAGE LOANS WITH THE IMPLICIT GUARANTEE THAT THE USG WOULD BACK THEM UP VIA FANNIE MAE.
- THIS FUELED THE BUBBLE AND LED TO THE BAILOUTS.
- IF GOVERNMENT HAD NOT FORCED THE BANKS TO MAKE RECKLESS LOANS (IN THE NAME OF SOCIAL ENGINEERING AND BECAUSE OF THE COMMUNITY REINVESTMENT ACT, THE CRA) , THEN THERE WOULD HAVE BEEN NO NEED FOR ANY BAILOUTS BECAUSE THERE WOULD'VE BEEN NO BUBBLE TO BURST AND NO BANKS WITH ANY RECKLESS LOAN PAPER OR THEIR DERIVATIVES.
THE ANSWER IS SMALLER MORE LIMITED GOVERNMENT.
LET BANKS BE BANKS AND LET THEM AND THEIR SHAREHOLDERS KEEP THEIR PROFITS OR TAKE THE LUMPS.
LET MARKETS BE FREE.
IT'S CHEAPER FOR THE TAXPAYER.