The Secret Plan to Pass a Global Tax

The Secret Plan to Pass a Global Tax

AIM Column By Cliff Kincaid December 14, 2009

The global tax is being called “the Robin Hood tax,” in order to convince people that it is somehow designed to take money away from rich people in order to help the poor.

With President Barack Obama attacking "fat cat bankers on Wall Street," left-wing non-governmental organizations (NGOs) see a great opportunity to pass a global tax on financial transactions that could generate at least $700 billion a year from the U.S. and other "rich" countries. They are expecting Obama's support.

The banks are a key target because of the "anger" that already exists against them for their roles in the global financial crisis, says a detailed 13-page memorandum from Max Lawson of the foreign aid group Oxfam.

Calling the global Financial Transactions Tax (FTT) "an idea whose time has come," Lawson says in his memorandum that "politically the time is now" to pass such a tax. "It will take some great campaigning but I think we can do this," he says in a message introducing the memo.

Lawson explains, "The global anger against the bankers; the huge pressure on rich country budgets; the need for money in 2010 to rescue the MDGs [Millennium Development Goals] and from failure; to protect poor countries from the economic crisis; and the need to come up with money for climate change to unlock a global deal. All combine to make a very strong political backdrop."

The MDGs were established by the United Nations to make sure that the U.S. and other Western nations devote 0.7 percent of Gross National Product to official development assistance or foreign aid. As a Senator, Obama had introduced a bill, the Global Poverty Act, to mandate U.S. compliance with the MDGs at an estimated cost of $845 billion.

Lawson, head of development and finance for Oxfam in Britain, has distributed his 13-page memorandum to members of NGOs in the U.S. and other countries. "There is potentially plenty of money here for all of our issues," he tells them.

The global tax is being called "the Robin Hood tax," in order to convince people that it is somehow designed to take money away from rich people in order to help the poor. Another variation on this theme is the claim that the tax is aimed at Wall Street to help Main Street.

In reality, such a tax would affect IRAs, Mutual Funds and pensions by taxing the exchange of financial transactions. It would hand over great sums of money to politicians in the name of bashing the big banks but ordinary Americans and their life savings would be hurt.

As outlined by Lawson, however, the idea is to create the appearance of public support for the plan, ultimately enabling G8 leaders meeting in Canada in June to agree to the global tax and then get acceptance from the G20 leaders meeting afterward.

At the same time, the U.S. Congress is moving ahead with the "Let Wall Street Pay for the Restoration of Main Street Act of 2009" (HR 4191), a financial transactions tax introduced by Rep. Peter DeFazio (D-Ore.), a leading member of the Congressional Progressive Caucus.

Lawson's document cites support for the tax from Democratic House Speaker Nancy Pelosi, who endorsed the DeFazio measure during a December 7 news conference and, according to a CNS News report, announced that the bill would have to be made "global" to keep U.S. investors from taking their business overseas and out of taxable reach.

Senator Tom Harkin (D-Iowa) is introducing a similar bill, which has the backing of the AFL-CIO, in the Senate.

An "Open Letter from Economists in Support of Financial Transaction Taxes" has been released and signed by 200 liberal and left-wing economists.

Lawson also cites support for the tax from billionaires George Soros and Warren Buffet and such media organizations and figures as Le Monde, The Mail, The Guardian and Paul Krugman of the New York Times.

President Obama "supported [the idea] during his campaign," Lawson says, but the U.S. Treasury Department under Timothy Geithner has been resisting it.

However, Politico reported on December 3 that Pelosi is now pressuring Geithner to accept the global tax proposal. "Geithner was widely seen as opposing such a levy when it was proposed by Gordon Brown, the British prime minister, at a meeting of G-20 finance ministers last month in Scotland," the publication reported. But after a telephone conversation, "Pelosi told colleagues that the secretary indicated he was more open to some such fee than had been reported," it added.

Some elements of the Lawson plan that are designed to secure passage of the legislation seem modeled on the 1999 "Battle in Seattle," when 5,000 activists marched against the idea of global free markets, producing confrontations with police trying to keep order on the occasion of a meeting of the World Trade Organization. Lawson suggests "two or three global events" and "days of action" where "activists climb up banks" in order to pressure officials to adopt the global tax.

Joseph E. Stiglitz, a cabinet member in the Clinton Administration, claimed in his book, Globalization and Its Discontents, that the "protests at meetings of global financial leaders in Seattle, Prague, Washington, and Genoa..." had put pressure on the international community for more global action to solve the world's problems.

Stiglitz is one of several high-profile figures listed in the Lawson memo as supporting a global financial transactions tax.

In Copenhagen, where governments are now meeting on the so-called "climate change" issue, some of the same leftists have been on display, marching in the streets under the banner of "Climate Justice Action" to demand that the U.S. and other Western nations pay "reparations" and an "ecological debt" to the less developed nations. U.N. reports have put this figure at $24 - $45 trillion.

On the eve of the Copenhagen summit, French President Nicolas Sarkozy joined with Prime Minister Gordon Brown in issuing a statement calling for a global financial transactions tax and other "innovative financing mechanisms" to assist countries fighting climate change.

Other elements of the Lawson plan seem modeled on "anti-poverty" campaigns such as Live Aid and Comic Relief. Live Aid was a rock music concert held on July 13, 1985, in order to raise funds to fight global poverty, while Comic Relief was designed to use comedy and laughter to alert the public to poverty.

In terms of using celebrities and making a big splash in the media, Lawson cites the case of Richard Curtis, a film director and the "creative energy" behind the Make Poverty History campaign, which urges people to wear a white band around their wrists as a "common symbol of the global fight to end poverty."

Lawson says Curtis "is very interested in a short campaign" to press for a Financial Transaction Tax and "is working with colleagues in the advertising industry to work up ideas around a set of creative ideas that could be used by campaigns around the world, based on a Robin Hood Tax.

His hope is to produce a set of materials that would be useful to all, and give the issue a huge global profile. He is also likely to use his media contacts around the world to ensure high profile for the fight for the tax."

The global targets are the G8 and G20 groups of nations because the G20 summit in Pittsburgh in September decided that the G20 would replace the G8 as the leading international body for economic matters. As numerous media organizations have observed, the move signaled a major shift in global politics that has seen the authority and power of the U.S. in global affairs undermined. President Obama went so far at the G20 meeting to agree to a proposal for an International Monetary Fund study of how a global tax could be implemented.

Oxfam, which is spearheading the campaign to get a global tax implemented, is one member of an international coalition of organizations working "to fight poverty and injustice." Its American affiliate receives funding from such entities as the Bill & Melinda Gates Foundation and the Rockefeller Foundation.

So-called progressives in the U.S. are now openly pressuring the Obama Administration to go along with the proposal. "We need to make this bill [the DeFazio/Harkin approach] a reality in the United States--and then take it worldwide," The Progressive magazine proclaims.

Support can also be expected from the New Rules for Global Finance coalition, which runs the gamut from typical liberal-left groups to religious-oriented organizations.

The main problem with the Lawson scenario is that the truth about massive corruption in the foreign aid business is a matter of public record.

The Senate Foreign Relations Committee published a report in 1995 which revealed that the cost of foreign aid provided by the U.S. to the rest of the world since the end of World War II had already reached nearly $2 trillion, with little to show for it in terms of alleviating poverty.

Two excellent books--The Lords of Poverty by Graham Hancock, and The Road to Hell by Michael Maren--exposed massive corruption in the foreign aid business.

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Source:http://www.aim.org/aim-column/the-secret-plan-to-pass-a-global-tax/

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Obama’s Ersatz Capitalism

By JOSEPH E. STIGLITZ
Published: March 31, 2009

THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.


Harry Campbell

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.

Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.

The prospect of high compensation gave managers incentives to be shortsighted and undertake excessive risk, rather than lend money prudently. Banks made all these mistakes without anyone knowing, partly because so much of what they were doing was “off balance sheet” financing.

In theory, the administration’s plan is based on letting the market determine the prices of the banks’ “toxic assets” — including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets.

The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.

Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Even in an imperfect market, one shouldn’t confuse the value of an asset with the value of the upside option on that asset.

But Americans are likely to lose even more than these calculations suggest, because of an effect called adverse selection. The banks get to choose the loans and securities that they want to sell. They will want to sell the worst assets, and especially the assets that they think the market overestimates (and thus is willing to pay too much for).

But the market is likely to recognize this, which will drive down the price that it is willing to pay. Only the government’s picking up enough of the losses overcomes this “adverse selection” effect. With the government absorbing the losses, the market doesn’t care if the banks are “cheating” them by selling their lousiest assets, because the government bears the cost.

The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.

Some Americans are afraid that the government might temporarily “nationalize” the banks, but that option would be preferable to the Geithner plan. After all, the F.D.I.C. has taken control of failing banks before, and done it well. It has even nationalized large institutions like Continental Illinois (taken over in 1984, back in private hands a few years later), and Washington Mutual (seized last September, and immediately resold).

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization.

But we are already suffering from a crisis of confidence. When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.


Joseph E. Stiglitz, a professor of economics at Columbia who was chairman of the Council of Economic Advisers from 1995 to 1997, was awarded the Nobel prize in economics in 2001.


Source: http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?_r=1&pagewanted=all
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Open Letter to Dr. Joseph Stiglitz and Challenge to Debate, February 5, 2009

Open Letter to Dr. Joseph Stiglitz and Challenge to Debate, February 5, 2009

Note: Dr. Joseph Stiglitz is a professor at Columbia University, former chairman of President Clinton’s Council of Economic Advisors, former chief economist for the World Bank, and a recipient of the Nobel Memorial Prize in Economic Sciences.

Dear Dr. Stiglitz:


I have just finished reading your article published on Alternet.org entitled, “Is the Entire Bailout Strategy Flawed? Let’s Rethink This Before It’s Too Late.” http://www.alternet.org/story/124166/

With all due respect, I believe you have missed the point of what is going on within the U.S. economy, which causes your proposed solutions to be similarly flawed.

The purposes of this letter are to delineate my objections to what you have written, to bring our differences before the public, and to challenge you to a debate when I visit New York City on February 27-March 1, 2009.

You state that, “America’s recession is moving into its second year, with the situation only worsening.” But you then say, “The hope that President Obama will be able to get us out of the mess is tempered by the reality that throwing hundreds of billions of dollars at the banks has failed to restore them to health, or even to resuscitate the flow of lending.”

You thereby imply that the economic crisis is due to problems within the financial sector and that it would be a good thing to “resuscitate the flow of lending” without challenging why that lending became such a huge factor in our economy.

I say: The problem does not lie with the financial sector except that the debt-based monetary system acts as a parasite on the producing economy, resulting in the vast overhang of debt that can never be repaid. “Resuscitating the flow of lending” will do no good, because the collapse of consumer purchasing power due to job outsourcing and income stagnation has made it impossible for people to pay their debts. Most of this debt now needs to be written off and our producing economy restored as our chief source of wealth.

You say of the government’s bailout actions late last year: “Then there was the hope that if the government stood ready to help the banks with enough money — and enough was a lot — confidence would be restored, and with the restoration of confidence, asset prices would increase and lending would be restored.”

I say: In making this observation you may be correct, but you fail to challenge the policy whereby asset price inflation, in the absence of real economic growth, has become an ersatz economic driver. Throughout your writings you have ignored the fact that the government and the banking system have deliberately created financial bubbles to shore up the economy, engender profits, and maintain tax revenues. This is what the Federal Reserve under Alan Greenspan did in collusion with the Bush administration to create a recovery when the Dot.com bubble was collapsing in 2000-2001. None of your proposals would revitalize the producing economy or restore consumer income. You seem to be mainly trying to re-inflate the asset-financial bubble in your own way.

You say: “The underlying problem is simple: Even in the heyday of finance, there was a huge gap between private rewards and social returns. The bank managers have taken home huge paychecks, even though, over the past five years, the net profits of many of the banks have (in total) been negative. And the social returns have even been less — the financial sector is supposed to allocate capital and manage risk, and it did neither well. Our economy is paying the price for these failures — to the tune of hundreds of billions of dollars.”

I say: It is true that bank manager salaries and bonuses are obscene, but the way you characterize “social returns” is shortsighted. You speak of bank profitability falling short even though, since the financial deregulation of the 1980s and 1990s, the banks have become the nation’s chief growth industry, with profits as late as 2006 of over $500 billion. Further, the financial sector doesn’t really “allocate capital.” What it does is skim the cream off the top of the producing economy by financing consumption and facilitating the most irresponsible types of speculation in the real estate, equity, hedge fund, and derivative markets. For example, up to 97 percent of futures contracts comes from bank loans irrespective of whether such lending has any benefit for consumers or producers. The banks allocate capital primarily for their own benefit, which I believe you recognize, but we now need to find alternatives to a monetary system based on bank-created debt, not just try to get it running again while ignoring the disasters that have befallen working men and women and their families.

You say, in regard to the ongoing government actions: “But even were we to do all this — with uncertain risks to our future national debt — there is still no assurance of a resumption of lending. For the reality is we are in a recession, and risks are high in a recession. Having been burned once, many bankers are staying away from the fire.”

Again, you speak favorably of a “resumption of lending” as resolving the problem. I say: “What you are proposing is simply to shore up our debt-based monetary system without addressing the facts that our manufacturing jobs have been exported to China and other low-cost labor markets, our automobile industry is collapsing due to the failure of consumer demand, wages and salaries have stagnated for two decades, workers have not shared in productivity increases, and the total societal debt load on a GDP of $14 trillion is now approaching $70 trillion. These are the problems that must be addressed, not getting the banks to lend again when people can’t pay off the debts they already have.

You say: “What’s the alternative? Sweden (and several other countries) have shown that there is an alternative — the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance…Inevitably, American taxpayers are going to pick up much of the tab for the banks’ failures. The question facing us is, to what extent do we participate in the upside return?”

I say: “Having the government run the banks instead of the private sector will not restore the economic fundamentals of a weak economy. Availability of bank credit does not by itself lead to greater production of goods and services. What it should do is make the liquidity available for the production-consumption cycle to work smoothly. The idea that a deregulated financial sector should be given precedence over all the other economic sectors is the essence of the supply-side, trickle-down philosophy that began during the Reagan years and has catastrophically failed.

You say: “Eventually, America’s economy will recover. Eventually, our financial sector will be functioning — and profitable — once again, though hopefully, it will focus its attention more on doing what it is supposed to do.”

I say: Please tell us exactly HOW America’s economy will recover. Will it recover after real unemployment, including “discouraged workers” hits 20 percent, which it is likely to do over the next few months? Will it recover after millions of more people have their homes foreclosed? Will it recover after the automobile industry dies? What exactly is your prescription? If you don’t have one, I would ask you to consider what I am proposing in my paper: “A Bailout for the People: Dividend Economics and the Basic Income Guarantee.” In that paper I put forth what I am calling the “Cook Plan.” This consists of a $1,000 a month payment per capita made by the government through a system of vouchers for necessities that are then deposited in a new series of local community savings banks that would lend at one percent interest for small business, local manufacturing, and family farming. The vouchers would be a dividend, distributed as each citizens’ fair share of our amazing productive economy without recourse to government taxation or debt. The dividend would provide income security, eliminate poverty, and result in a renaissance of local and regional economic activity, and it would start to act immediately, not “eventually.”

On Friday, February 27, 2009, I will be in your hometown of New York City presenting the “Cook Plan” at the 8th Congress of the U.S. Basic Income Guarantee Network and the Annual Convention of the Eastern Economic Association. That evening I will present the program at a Town Hall meeting in connection with President Obama’s series of citizens’ forums at Nola Studio B, 244 West 54th St., 11th floor in Manhattan, at 8 p.m.

On the evening of Saturday, February 28, I am free, and would be glad to meet you to debate these ideas at a location of your choosing.


Respectfully,


Richard C. Cook

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Source: http://www.richardccook.com/articles/

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