Tax the rich or tax the rest of us? That was the question for UK finance minister Alistair Darling as he outlined the government’s finances on Wednesday.
Over the past decade, the UK government has been happy for the super rich to pay 10% tax (recently raised to 18%) compared with 40% for the ordinary middle class.
It feared if it asked the rich to pay the same tax as everyone else, they would leave the country. There are relatively few rich people, the government says, it would gain much anyway from taking them more.
POLITICS OF ENVY
Seen this way, taxing the rich is more symbolic: the politics of envy, opular but pointless.
But all governments desperately need money so Tax The Rich is back on the agenda.
Lenin’s Birthday, April 22nd, was the date chosen by the UK government to bring back taxes for the rich – for the first time since former UK Prime Minister Margaret Thatcher slashed them in the 1980s.
Darling announced a new 50% top rate of tax for those earning more than £150,000, equivalent to $200,000.
Tax specialists at the Institute for Fiscal Services say it will raise £3 Bln at the most, a drop in the ocean when the UK faces a budget deficit of £175 Bln.
The IFS says it would be more “efficient” raise taxes on a broader range of people. But that’s madness.
The Irish government increased taxes on middle class people by 2% - or $200 a month - in the middle of a recession. These politicians belong in an asylum.
While there is a RISK that taxing the rich would cause them to leave the country, we know for CERTAIN that boosting taxes on the majority will make this recession worse.
The government has a gap in its the coming year's budget of £175 Bln – that’s the gap between its income and its spending. And it can’t find the money.
The one thing governments could do is cut spending. However, UK politicians face a general election next year and the Labour government regards public sector workers as key voters.
So It will borrow £200 Bln by selling gilts, or government I.O.U.s. That’s such a large sum that it could mean financial markets raise the interest rate they charge the government. Because of the way the financial markets work, that would push up interest rates for everyone.
Governments clearly do not want to cut spending. Despite plans to spend about $3 Trillion (that’s three thousand, thousand million), President Obama has asked the US Congress to look for ways to save just $100 Million. That would be funny if it wasn’t sick.
When the G20 leaders met in London last month to congratulate each other on their handling of the economic crisis, their biggest, almost only, achievement was to increase funds available to the International Monetary Fund which lends… to governments.
So far, the only measure western governments have agreed upon, is to borrow huge sums and then print money to pay it back.
Despite a series of small but mean-spirited measures like increasing the tax on beer, that's essentially all the UK chancellor has done.
But Turner Radio Network, a side operation of the Hal Turner Show, claims to have got an inside copy of the stress test results and says – of the top 19 banks – 16 are already technically insolvent.
Do they really have a copy of the report? Many of the top US banks are indeed insolvent – but a stress test can show whatever the stress test is designed to show.
And I doubt the US Treasury would report the obvious, even if it was obvious to everyone else.
If you assess the banks the way they would assess us, then they are insolvent.
In plain English, they are bust.
Gor Blimey’s poodle is planning two new bands at GBP 100k and 140k.
As the UK Budget approaches, it's clear the government is desperate to screw the taxpayer, but lacks the courage. "James Brown, senior research economist at the IFS, said: "Alistair Darling's income tax increases for the rich will significantly complicate the tax system, and may well raise little revenue.
"A simpler and smaller increase in tax rates across a broader range of high-income taxpayers would raise the money the Treasury is looking for more efficiently, especially if combined with measures to make income tax harder to avoid."
We’re talking about a rich tax that will raise £3.2 Bln at the Treasury’s most optimistic guess. It’s a drop in the ocean. The previously estimated deficit of £118bn for 2009-10 will be closer to £150bn.
So like the Irish, Darling faces the choice of cutting spending dramatically, or raising tax revenue today at the cost of future growth.
Hmm, what would these politicians opt for? Elections are due by the middle of next year.
Form would suggest:
No significant assault on the public sector (voters)
No big tax rises now (voters)
Perhaps the announcement now of something that kicks in after the election, plus a few stealth taxes if Darling is very brave.
A headline-grabbing soak-the-rich tax that, more importantly, fails to address the government’s revenue problems.
This, it turns out, is the view promoted more sophistry at the FT:
"This wait-and-see approach, Mr Darling is likely to argue, will give a future government more time to restore prudence to the public finances without killing any economic recovery. The Treasury believes that economic uncertainty is so great at the moment that it makes no sense to set a detailed strategy for deficit reduction when any such plans might need to be ripped up in a month’s time."
And these problems are getting much, much worse.
"Jonathan Loynes, of Capital Economics, thinks the economy will shrink by 4% this year - the weakest performance since 1945 - and will continue to contract, albeit more slowly, next year. Borrowing will peak at £230bn (around 15% of GDP)."
Don’t listen to the green shoots talk from vested interests, politicians and media flunkeys.
The big issue, that is barely discussed by MPs, and was not discussed the G20 summit in London – is the failing banks.
The solvency of UK or Irish banks is no better than that of US banks – and the biggest are effectively insolvent.
The US can borrow, for now, but it could end up like the Irish government, forcing its taxpayers to bail out the banks while loading the same taxpayers with higher taxes and lower benefits.
In the boom years both the US and Ireland turned a blind eye to banking and investment regulations (or scrapped them altogether), allowing an unfettered boom and bubble, most obviously in property.
In the bust, both governments have handed taxpayers the tab for losses that are almost so big the banks can’t or won’t say what they’ve lost.
But unlike the US, the Irish government cannot borrow. Investors are worried about the Irish state’s solvency.
Unable to borrow money, except at penal interest rates, the Irish government has turned on its taxpayers, boosting taxes, cutting benefits, while all the time booking the cost of the crisis to the taxpayer.
Why is the US different to Ireland? It's not about size. The US dollar is the world's premier reserve currency, and whatever assets international governments and corporations have, they put a lot of them into US dollars, effectively lending to the USA.
Why is the US similar to Ireland? It didn't save for a rainy day, it lived (and even fought wars with borrowed money) and now those who lend to the US (the Chinese, the Japanese) are asking what's being done with their money.
Krugman's point: The US may follow Ireland if it continues to shovel bailout funds into the banks, allowing the banks to make private profits with public money, all because the government - staffed by former financiers - has decided the financial sector is the only sector that's too big to fail.
Kathleen Barrington writes in Who Sold Ireland Down The River?, that €100 billion was not wiped from the value of the Irish stock market but earned by savvy investors, who had a better nose for information than most others.
Hedgefunds spoke to renegade estate agents, no doubt paying them juicy fees to tell the truth about over supply in the property market. Investors were able to make huge profits by selling the shares of Ireland’s banks who were directly invested in the property bubble.
PUBLIC SOLD A LIE
Don't blame the investors – how are they different from people who profited from rising prices? They were able to profit from the fall because they had information that others didn’t. They were only able to profit because they paid estate agents to tell them the truth. The implication is that everyone else was sold a lie.
She writes: “This message was brought home to me by a fascinating anecdote contained in Derek Brawn’s new book, Ireland’s House Party: What the Estate Agents Don’t Want You to Know…
Brawn is critical of politicians, bankers, estate agents, developers, regulators and journalists.
"He accuses them variously of either failing to recognise the property bubble, or for trying to conceal the truth about the bubble from the public, particularly by attempting to silence those who questioned the consensus view that there would be a so called soft landing, rather than a fully-blown property and financial crash such as we are currently experiencing."
Barrington is clear on one thing: the gold of the Irish boom did not simply turn to dust. Collapsing prices generated huge profits for those who saw past the lies perpetuated by those in business, politics and journalism.
We should keep this in mind when governments impose higher taxes on middle-income earners while bailing out banks with the equivalent of a pass to get out of jail free.
Goldman has a venerable history, promoting highly leveraged investment trusts on the eve of the 1929 Wall St Crash. The bank made big profits and got its money out in time. Shame it didn’t tell investors.
Public image is all, and the bank put its dodgy beginnings behind it, going on to become one of the most highly-regarded investment banks.
But almost 80 years later Goldman Sachs was again using the leverage trick – piling one investment on top of another using borrowed money to magnify illusory gains.
Now it wants to move on, free itself to invest again and, no coincidence, avoid Obama's proposed government limits on bankers' pay.
It’s telling everyone it wants to pay back the taxpayer, returning $10 Billion of bailout money, while remaining schtum on the fact that it received $13 Billion of cash it (as of 31 December 2008) via the government bailout of AIG – as well as up to $35 Billion in government loan guarantees.
Who’s the fall guy? A blogger and investor (who admits he’s shorting Goldman stock, ie betting it will fall – while it’s lately been rising). But worse, in Goldman’s eyes, he’s spilling the beans on the bailout fraud.
I published this on the RT site back in October 2008. It struck an immediate chord, gaining 35,000 views in two days. Since then, much of the mainstream media has adopted similar views - though carefully hidden behind jargon and political waffle words.
Since I wrote this, the sums spent on the US bailout have tripled to $2.4 Trillion, with another $10 Trillion promised by the government to banks and financial institutions.
There's a new US Treasury Secretary, Tim Geitner. Like his predecessor Henry "Hank" Paulson, he used to work for big fibbers (failed investment bank) Goldman Sachs - reflecting the close, and many say, self-serving ties between the US Government and the secretive bank.
02 October, 2008, 09:28
The $700 Bln bailout is not about US cash. The U.S. is a debtor nation. The cash for the bailout has to be borrowed, primarily from the Japanese and Chinese.
According to one person I've spoken to who knows the top Japan and China banking regulators, they are not happy about the U.S. p***ing their money up the wall.
The better informed congressmen have lines of communication to the Chinese & Japanese and know they can't sell it.
Bush in Tuesday's speech insisted the toxic assets could, if held for some years, be sold at a profit.
That's plain rubbish. If that was the case, there would be no need for a bailout. Banks could just sit on their assets until they recover in value. The problem is, they were so wildly overvalued, they are not going to recover in value.
How were they so wildly overvalued. You won't read it in the FT or hear it on the BBC but clearly the answer is lies and fraud.
Even more important
This is not a liquidity crisis. On Tuesday night, European banks deposited well over 100 Billion euros at the ECB. The banks were not prepared to leave their money for one night in a retail bank. Perhaps, they know something we don't?
If the banks deposited E100 Bln there is no shortage of cash. The point is they won't lend it. Not to each other, not to companies, not to home buyers, except at rates which make a mockery of the word 'lending'.
This is a default crisis. Banks and large corporations are going to default. The banks know that. The public do not yet.
What is the answer
Hank Paulson, the dour looking ex-Goldman Sachs trader worth $500 Mln, says there is no alternative to buying the banks failed betting slips.
There are several alternatives. One is to let the Japanese and Chinese buy the US's failed investment banks. They already own large chunks but politically the US cannot stomach Asia buying the Ivy League banks.
Barter their assets. In 1998 the IMF told Russia that it should not bail out its banks. Ten years later the IMF is encouraging the US to do just that. One rule for the emerging markets, another for the Masters of the Universe.
Russia dealt with illiquid banks by knocking their heads together and forcing them to swap assets at knockdown prices. Washington does not have the balls for that. It proposes using taxpayers money to buy assets the banks don't want. It is a recapitalisation of the banks by stealth and lie.
God help us.
The death of a protester at last week’s G20 summit after he was twice attacked by police (truncheoned once and then, a few minutes later, beaten across the legs and shoved to the ground) has generated enormous comment, globally. The man died of a heart attack a few minutes later.
The BBC, it turns out, neglected to cover Ian Tomlinson’s death at all on the day, or the day after, focusing instead on presenting the G20 summit, hosted by prime minister Gordon Brown, as a successful solution to the biggest economic crisis since the Great Depression 80 years ago.
Perhaps the BBC was keen to avoid comparisons with the killing by Italian police of an anti-globalisation demonstrator at the Genoa G8 summit in 2001.
Either way we should ask some questions.
The story is covered fully by Internet sites so I have just a few comments.
An American fund manager filmed the attack on Mr Tomlinson and offered his footage to the BBC when he decided that the family of Mr Tomlinson was not being listened to.
The BBC, which had ignored the death for 48 hours after the summit, refused to air the tape saying it was “a London story”. The tape was then offered to The Guardian newspaper and became a huge story.
I used to work for the BBC. We were often told not to run London stories, meaning – precisely – that we were not to bore the nation with stories about how badly the London underground compares with the Moscow, Kiev or Paris metros.
This is an important issue so let’s be clear. The idea of not reporting London stories means this: The vast majority of BBC staff live in London but we were not supposed to let our daily concerns bore the rest of the country.
Now when the BBC decides that Gordon Brown hosting the G20 summit is such a big story that it goes live, internationally, for two days, covering every tiny segment of the story, how come the death of a man caught up in the protests is not a story?
When the Canadian prime minister Stephen Harper missed the G20 photocall while all the leaders said cheese in front of the world’s press, because Mr Harper was, reportedly, in the toilet, the BBC did a three-minute live report. Ha, ha, ho, hum.
The BBC broadcast extensive coverage of the police “kettling” operation, describing their plans to contain protestors in specific zones. Kettling, by the way, is an interesting metaphor. Kettles boil. If the police called their plans to contain demonstrators, “kettling”, were they hoping for some reaction?
When a man died, the BBC coverage was…. Zilch.
On April 8th, the BBC finally covered the story. The report contained: One sibilant reporter, one statement from the IPCC, the Independent Police Complaints Commission, and one comment from a “caring health expert” saying it is possible to get so upset at being suddenly attacked that you may, indeed, suffer a heart attack.
Duration of report: about one and half minutes.
Sky News (declaration: I worked as a newsroom journalist for BBC radio and television and as a correspondent for Sky News) devoted about five minutes to the story, with a comment from a member of the IPCC who said she had always been very concerned about police brutality and feared the police did not do enough to remove people who positively revel in violence from their staff.
The real issue is not whether the police have learned from their public relations blunders over the Jean de Menezes incident. Then, it was hard to avoid the conclusion that senior officers lied to try to minimize the damage that the killing of an innocent man would do to the force and to their careers.
This time, the story was ignored by the state broadcaster and played down by the police who lied on three counts: first that he was a “protester”, second that police had tried to rescue the man under a hail of missiles including beer bottles (images show no missiles), third that police had had no “contact” with the man (what we used to call intercourse) when actually police had attacked him on two occasions before his fatal heart attack.
Various sites that I visited earlier on the 8th April are no longer operative as I write including the comments section on this blog and even the self-proclaimed "Liberal Voice" The Guardian removed from the front page this trenchant comment by journalist Duncan Campbell which attracted a huge response.
The reasons for the way this story has been covered demand greater research.
This latest embarrassment to the police comes despite extensive measures to prevent themselves being filmed.
The Counter-Terrorism Act 2008 covers offences relating to information about members of armed forces, a member of the intelligence services, or a police officer.
Section 76 of the 2008 Act implicates anyone who 'elicits or attempts to elicit information about (members of armed forces) ... which is of a kind likely to be useful to a person committing or preparing an act of terrorism'.
That includes photographs and video – and the law was used against London photographer Justin Tallis who was threatened while he covered and anti-BBC protest in January for simply taking a photograph of a police officer.
The story of Mr Tomlinson shows why it is important that independent individuals, neither from the police nor the state broadcaster, are on our streets, covering national events, regardless of whether they put the country in a positive or negative light.
And that raises important questions about what the BBC thinks its role is.
The $500 up front to refinance the IMF is for governments to lend to governments. Not surprisingly at a meeting of G20 politicians, this was their No.1 priority.
But this is not stimulus, as I understand it. IMF money is primarily to bail out governments who are facing default and comes with strings attached.
Much of the rest of the $1 trln must cover the unspecified IMF sales of gold and printing of money via SDRs.
A fair chunk of this money will be lent to east European governments and will, I suspect, find its way to western banks via the refinancing of east European banks. Thus, the familiar bank bailout by another name.
The export credit insurance is the most important thing announced in London - as well as the most obscure.
Global trade has collapsed - evidenced by the stagnant seaways - because of the bank freeze. Ninety per cent of global trade happens on the basis that both parties are insured against non-payment. Without that insurance, no trade.
According to various reports, between $100 bln and 250 bln has been "allocated". Bear in mind the G20 doesn't have any money. This has to come from national governments or banks.
Thus the gleeful television and press reports have more to do with a pat on the back for a "good show, old chap". So far, we can rightly ask, "where's the beef (ye roast of olde England)".
It has chosen the day of the London Group of 20 summit of world leaders to loosen the most important accounting rule affecting US banks.
At the London showdown, the US was demanding other countries do more to stimulate the world economy. On banks alone, the US has already spent half as much again as the whole of Europe combined.
However, Europe’s leaders preferred to focus on preventing future crisis, by discussing new rules to regulate the financial markets.
In fact, the most important issues facing the leading economies, the cost of the massive banking bailout and the trillions of dollars of toxic assets burning a hole in their balance sheets – were not even on the London agenda.
Why European leaders preferred to talk about future crises, instead of the economies melting beneath their feet, is a question I asked in yesterday’s blog.
US PLAYED HARD
France and Germany pushed hard for stronger regulation of the financial markets - but even that was softened in the final communiqué.
Now the US has stolen the limelight from the G20, by deciding to loosen, not strengthen, bank regulation in the key area of mark-to-market.
This is the banks’ most-hated rule, which forces them to account for the losses they have made as assets plunged in value.
Now the Financial Accounting Standards Board will let banks be more creative with how they value assets which may have a higher value in the long term.
In a healthy market, banks never hold assets like bonds to maturity. It’s more profitable to trade them. While credit default obligations and mortgage backed securities were booming in value, banks were happy to account for their market value.
Now that many assets are trading well below face value, removing the obligation to mark-to-market will improve their balance sheets.
The US played hard in London, too.
“It was a very big win for the United States,” says John Kirton, Director of the G20 Research Group. “You start reading the communiqué: Open markets, growth, jobs, that comes first. Regulation comes second and here it’s effective regulation, not stronger regulation, regulation for itself, but regulation to restore trust.”
SHORT ON DETAIL
Financial market players concede that the derivatives market in particular does need regulation.
Derivatives are a way of trading or betting on the value of commodities, shares, currencies without owning the underlying product, say a barrel of oil. They give the chance of earning much more - or losing much more - than you do by owning the actual product.
Derivatives boosted bank earnings when the markets were rising but now they are amplifying their losses.
This needs regulating, says Kevin Dougherty, Moscow based fund manager with Pharos Financial Group, “specifically the over the counter derivatives market. Quite frankly it is a place where banks, investment banks and hedge funds go hide risk”.
However he said derivatives risk is really only an issue for the biggest financial centres. In Russia the derivatives market is both smaller and more tightly regulated.
The summit was short on detail, with no explanation of how politicians proposed to regulate banks or ratings agencies.
“This is a prudent recognition by leaders that with a few exceptions they really don’t know enough about how credit rating agencies and credit markets really work.” says John Kirton.
“So broad principles, yes, that ratings agencies must be registered, that they must be overseen when they are used for regulatory purposes but to get the details right, that’s the job of the new Financial Stability Board which they created and I think we will see those details coming in a sensible way over the next six months.”
REVERSE MARSHALL PLAN
By the end of the summit it was not clear whether the G20 really exists.
On the one hand, countries like Russia had a platform to push ideas like a supra-national reserve currency. On the other hand, the major players largely ignored the proposal.
As Barry Eichengreen argues in The Daily Telegraph, there should be a G7/8, but not today’s. “Rather it means a 21st century G7/8 made up of the US, the EU, Japan, China, Saudi Arabia, South Africa, Brazil and maybe Russia.”
Ultimately the measures the G20 called for, to revive the global economy, depend on domestic governments.
Above all, solving the crisis depends on the US fixing its broken banking system. The summit fell short of delivering a new world financial order.
However, the politicians snuck a kind of reverse Marshall Plan into the communiqué. The London summit agreed to refinance the International Monetary Fund and the World Bank to the tune of $1 trillion.
Much of the money will go to indebted East European countries that need to repay their creditors - the Western banks.
Political leaders from the Group of 20 leading industrial countries meeting in
Western European politicians in particular seem convinced that stronger international rules could have averted the financial crisis.
This search for a God-like regulator with the power to intervene in any country’s financial system looks naïve. It’s unlikely to be the IMF or the World Bank so no doubt they’ll dream up yet another expensive international financial institution.
Would the same politicians who are now proposing this super regulator willingly stand aside and let it interfere in their national financial markets?
In a mood of somber reflection (no repentance is evident yet) politicians may appreciate the virtues of wearing a financial straightjacket. But would they just take it off again in the madness of the next boom?
RESPONSIBILITY FOR CRISIS
Governments enjoyed all the benefits of the boom. The bubble hugely boosted their revenues.
It doesn’t take a genius to spot there’s something suspicious about politicians from so many countries determined to talk about getting regulation right in the future – instead of talking about the economies crumbling under their feet.
Dreaming of a super regulator saves politicians from confronting their responsibility for the roots of the global financial crisis.
Western governments run misanthropic tax policies with one rule for the rich and another for the rest of us. In the past they justified this by saying wealth would trickle down from the lightly-taxed corporations.
GOVERNMENTS LOST CONTROL
Now politicians say rules were too soft. They blame light-touch regulation for the banking and insurance crisis.
Talk to small business people, small investors and those trying to save for pensions – there’s no light touch. Bureaucrats and tax inspectors follow their every step, from
That’s unproductive and unfair but it didn’t cause the financial crisis.
“Ultimately, it was central banks and governments that created an environment where private financial institutions were "encouraged" to take excessive risks. After all, the roots of the crisis can be traced to the government's negative real interest rates and growing budget deficits that create the illusion of an abundance of money,” says Evgeny Gavrilenkov, chief economist of Russian broker Troika Dialog, writing in The Moscow Times.
Gavrilenkov backs the view that governments and central banks “lost control over growth in the money supply,” allowing banks to create a parallel currency out of mortgage backed securities and collateralized debt obligations.
The worst nightmare of any
So the G20 is set for a clash between the
Where do emerging economies stand in all this? The emerging markets did not cause the crisis but they are sharing the pain. In return, they want a voice in finding a solution.
That’s like asking a smoker to quit.