From the TUC

Former J.P.Morgan Managing Director backs financial transactions tax

18 Apr 2010, by in Economics

On Thursday, key US groups came together to call for a financial transactions tax (FTT). The AFL-CIO (their TUC) were involved, as were Oxfam America, the Global AIDS Alliance, veteran US Senator Tom Harkin, and others. They probably count as the usual suspects, but John Fullerton is anything but. He’s the Founder and President of Capital Institute, a think tank dedicated to “harness the power of capital and markets to evolve a more just, resilient, and sustainable economic system”. But more importantly he’s a former managing director of J P Morgan, the Wall Street investment bank, and he said:

“I am here to express my support for a Financial Transaction Tax.”

Fullerton’s speech sets out three good reasons for an FTT: it would combat market short-termism, it would improve the resilience of the market, and it would raise much needed money for public goods like fighting climate change and global poverty, and plugging the hole in government budgets (more on this by TUAC’s Pierre Habbard, by the way). He said that there was only one bad reason for an FTT which was top punish the people who caused the crisis – we must resist that temptation!  But he also has a lot to say about how an FTT would affect liquidity – one of the main objections to FTTs raised by economically literate people. His response is that liquidity would indeed be reduced by an FTT in good times (but not by enough to make a difference – a trade worth making) and that, in bad times, the main problem is not liquidity but resilience, so the FTT’s main impact is positive.

21 Responses to Former J.P.Morgan Managing Director backs financial transactions tax

  1. Tweets that mention Former J.P.Morgan Managing Director backs financial transactions tax | ToUChstone blog: A public policy blog from the TUC —
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  4. Tim Worstall
    Apr 19th 2010, 8:52 am

    I do think your continued support for this very bad idea is most amusing.

    The World Bank says it’s a bad idea:

    And the European Union says it’s illegal:

    Breach of Single Market rules you see.

    At the very best in order to have the tax on currency transactions you would need to change the Treaty of Rome. You remember how long it took to get the Lisbon Treaty through?


  5. Harry Barnes
    Apr 19th 2010, 9:43 am

    Tim Worstall : The fact there are opponents to a Financial Transaction Tax and it needs to overcome legal barriers is no case against its advocacy. If people don’t raise the idea and argue for it, they get nowhere. No one knows this better than the Trade Union Movement.

  6. Tim Worstall
    Apr 19th 2010, 9:49 am

    It’s not just overcoming legal barriers. The Treaty of Rome is our constitution. It expressly states that there will be free movement of capital around the EU.

    You’ve not just got to change a law or two you’ve got to change out very constitution.

  7. Harry Barnes
    Apr 19th 2010, 10:05 am

    Constitutions can be changed, even our own “unwritten” one. The Treaties in operation for the European Union have been altered numbers of times. The biggest reforms we need are those that would transform the European Union into a social, properly federal and fully democratic body. With a wide range of constitutional powers being devolved to its nation states. Capital will then need to adapt to new rules.

  8. Tim Worstall
    Apr 19th 2010, 10:08 am

    So you are actually calling for the end to the free movement of capital in the EU then?

  9. Harry Barnes
    Apr 19th 2010, 10:20 am

    All that I have supported so far is a tax on financial transactions. But I am also for regulating the activities of those who produced the recent economic crisis, which needs to be determined as democratically as it can be at international, european (etc) and national levels.

  10. Owen Tudor

    Owen Tudor
    Apr 19th 2010, 10:24 am

    Tim Worstall is as usual industrious in his crusades – we’re honoured to engage with him, so this is sadly not as detailed a response as he desreves or I’d like.

    Tim says the World Bank doesn’t like a Robin Hood Tax. As Harry has implied, whether the World Bank likes a policy hasn’t ever actually been the determining factor in deciding whether the TUC supports it. But also, this ISN’T the view of the World Bank – the report Tim cites has the usual disclaimer in it. And, interestingly, although it was only published in March, the paper was finished last August, before even Lord Turner had kicked off the latest debate on an FTT. So the paper takes no account of all the papers written since then. My view is that those papers suggest it IS a good idea.

    Secondly, the European Commission paper which Tim cites simply doesn’t say that an FTT would be illegal – it gives an opinion, and whilst Tim may now take the view that any view European Commission officials take is unchallengeable, I don’t. European constitutional law often involves balancing one right against another – with the European Court of Justice deciding. Again, our view is that FTTs WOULD be legal, and whilst it’s difficult for Tim to prove a negative, the fact that the UK already has one (Stamp Duty on share transactions), which hasn’t – as far as I know – been challenged (certainly it hasn’t been ruled illegal!) suggests that Tim and the Commission officials are wrong.

    Apologies for brevity and glibness. Both papers Tim cites need fuller analysis and discussion.

  11. Tim Worstall
    Apr 19th 2010, 10:36 am

    Do read the EU paper. For it discusses the Stamp Duty on shares issue. That’s legal. But an impost upon specifically cross border or cross currency transactions would not be.

    Thus taxing FX would not be legal.

  12. Owen Tudor

    Owen Tudor
    Apr 20th 2010, 12:21 am

    Tim, sorry I haven’t answered your point about whether a currency transactions levy would be legal under the current EU Treaty. Our view is that it would be but I haven’t had time to dredge up the detail on that. I’ll get back to you tomorrow.

    However, this is just to draw attention to the fact that the 0.005% currency transactions levy would only raise a small fraction of the total sum we expect an FTT would raise – so even if you were right that a CTL would be contrary to the Treaty, it wouldn’t make much difference. Still, as said, we don’t think you’re right about that.

  13. Tim Worstall
    Apr 20th 2010, 6:07 am

    I’m aware that the currency part is only part of it. The major revenue comes from taxing derivatives at nominal value rather than option or premium value. Which is its own kind of crazy.

    I have actually read the papers you’ve been putting out you know…..

    My complaint right from the start has been that while you’ve been geeing up the crowds with this idea of lots of free money to be had from bankers to do wondrous things, the actual details of your plans don’t add up.

    The currency part would be illegal, the incidence of the tax would be on all users of financial markets and financial products, not bankers and so on.

    Such a tax would have made no difference at all to CDOs or the housing market….which was after all the cause of the current mess and so on.

    You have, in short, been misleading people. Which really isn’t very nice, is it?

  14. Owen Tudor

    Owen Tudor
    Apr 20th 2010, 8:38 am

    Tim, you disagree with us. That doesn’t mean we’re misleading people and you’re crusading for truth and justice.

    Our case for the Robin Hood Tax is that we believe the world needs more cash to deal with government deficits, climate change and global poverty. We think it can be raised by redistributing cash from richer people to poorer people and from “socially useless” or even harmful economic activities to more effective/worthwhile ones.

    Others (maybe you, but I’m not accusing you of anything) believe that government deficits should be reduced by cuts in public services, climate change doesn’t exist and global poverty would best be addressed by promoting free enterprise.

    These are policy options. We can indeed argue about their efficacy (although blogposts are rarely the place to do so) and we can contest for public support. But I don’t think either of us is misleading the public (although as I said in my earlier posts, if it comes to misleading, you described a paper as ‘what the World Bank thinks’ when it clearly said it wasn’t, and described the opinion of a Commission official as fact.)

  15. Tim Worstall
    Apr 20th 2010, 8:55 am

    “This tax on banks – not you or I – has the power to raise hundreds of billions every year.”

    This is indeed a lie from your own site. You know and I know that the incidence of the tax will be upon all users of financial markets. Yet you say that users of financial markets will not be paying the tax.

    Yes, I’ve read Kapoor’s paper and it’s laughable.

    “We already have a 0.5 per cent tax on buying and selling shares in UK companies. It’s called stamp duty. This is the kind of rate the campaign wants to see introduced globally on all such share trades.

    Most people do not directly own shares- though many – generally better-off – people invest indirectly through their pensions, ISAs and other savings. Such savings schemes invest in lots of different shares, but on average they tend to turn their portfolio around once a year. Current levels of UK stamp duty does not stop this kind of saving, and in any case the costs funds are already paying to buy and sell shares tend to be significantly higher than stamp duty, particularly for day traders and others who speculate in shares on a short-term basis.”

    You know very well that the incidence of Stamp Duty is on both pensions in hte form of lower returns and companies in the form of higher costs for raising capital (which then depresses the worker’s wages).

    But oh no, you say that us plebs won’t have to pay the tax.

    “So who does pay? Only very wealthy individuals and companies frequently trade currency and other financial products looking for short term profits. The high-frequency trading firms can turn over all their capital several times in a single day. The tax will therefore fall on institutions such as investment banks and hedge funds – and very few ordinary people invest in these. While some pension funds invest a small part of their funds in hedge funds, the tax will have much less effect than the charges and other costs of the pension fund – and if hedge funds become less good an investment then the funds will probably look elsewhere.”

    You know very well that reducing liquidity in such markets will increase the spreads or margins. So that everyone will bear part of the economic burden of this tax.

    Yet you say that us plebs won’t have to pay any of it. It’s just freebie money from bankers ain’t it?

    “Of course they will try and pass the costs on to those on whose behalf they are making transactions, but these customers are not ordinary account holders but some of the richest people and funds in the world.”

    You know very well that the study of tax incidence is not about “trying to pass on costs”. It’s about how peoples’ behaviour changes in the presence of a tax and thus who ends up paying more. Which will be us of course.

    Yet you say that us plebs won’t have to pay any of it.

    “One study by Rodney Schmidt uses econometric modelling of what might happen if a tax at a rate of 0.005 per cent was applied on currency transactions. He shows that it could raise in excess of $30 billion a year on the 4 major currencies whilst reducing market volume by 14 per cent.”

    You and Schmidt know very well that reducing turnover will lead to widening spreads. Heck, this is even referenced in that report that Richard Murphy did for the TUC.

    and widening spreads will mean that we all pay more as a result of this tax.

    Yet you say that us plebs won’t have to pay the tax.

    “But the tax will increase the costs of trading for all financial institutions to some extent. This will have a number of effects. Firstly, the profits of some financial institutions will fall. This is most likely in the wholesale banking sector, but the good news there is that changes in the cost of trading tend not to be passed on because the market is highly competitive. Falling profits will mean some job losses, mainly among highly waged currency traders and the like, and some lower dividends for the shareholders of those banks. The costs of the tax in the equities market would fall on the big managed funds who buy and sell shares. Both of these will have some knock-on effects on the wider economy, including pension funds, but the impact is likely to be small relative to the size of the swings in the various markets in which funds invest, and overall, the impact of the tax will be highly progressive – i.e. the burden will largely fall on those most able to pay.”

    You even agree that pensions will be hit, that foreign exchange for a holiday will be more expensive. Yet you tell us that us plebs won’t have to pay any of this tax.

    In short, your public statements “Oooooh, look, free money from bankers!” are statements which you know to be untrue.

    We have a word for this sort of behaviour in English. “Lying”.

  16. Harry Barnes
    Apr 20th 2010, 9:57 am

    Tim Worstell : Why are you so offensive to Owen Tudor ? He has attempted to be as reasonable as he can in responding to you whilst still standing his ground. Even if you are correct (which I don’t think you are) and we plebs end up paying this tax, there are other matters to consider. There is the socially beneficial use that can be made of the tax revenue in benefiting the poorest plebs. The economic consequences of such expenditure would also overcome any dampening effect which the tax itself had on the activity of investors. Although the dampening effect on currency speculation would be of benefit to those nations who currencies are undermined by this widespread practice.

  17. Tim Worstall
    Apr 20th 2010, 10:18 am

    “Why are you so offensive to Owen Tudor”

    Because I dislike, am habitually offensive to, those who try to run political campaigns on the basis of untruths.

    I shout at people, in very similar terms, who claim that all tax cuts inevitably pay for themselves (they don’t, it depends which tax at which rate in which economy), at those who claim that global inequality has gone up in recent decades (it hasn’t, it has fallen), at those who wibble about “ever increasing working hours” in the UK (working hours have been falling for the past century), at those who insist that we need to reverse globalisation to reduce climate change (read the IPCC reports, please, globalisation produces higher incomes for fewer people with lower emissions than not globalisation) and so on.

    I’m an equal opportunities insulter.

  18. Owen Tudor

    Owen Tudor
    Apr 20th 2010, 10:08 pm

    Harry, many thanks for springing to my defence, but Tim is of course not my harshest critic, and I rather assume it wasn’t a personal attack, but an attack on the Robin Hood Tax campaign as a whole.

    First, let me go back to the question Tim raised about whether a currency taxation levy would be legal under EU rules. We’ve now looked at the issue in depth, and we’re even more convinced than ever that the Commission opinion Tim cites is wrong, and a CTL would be legal. There is probably a lot of work for lawyers here, but Tim’s simply wrong to say that one partial assessment of the issue should be treated as gospel.

    Second, in terms of the incidence of our planned financial transactions tax, Tim says we’re not telling the truth when we say it would fall on the rich and not on the poor, or ordinary people. Our view is that the tax will fall mostly on the richest people, and will certainly be the most progressive of all the possible options (ie other taxes, or public sector cuts). WE have made clear that you can hone the tax, as the US Congressional proposal does, to exclude direct application to certain potential tax payers. But I think Tim’s key point is that the tax would be passed on. Well that’s true of any tax. If you raise the income tax of the richest football stars, they may well then raise their wages, which will mean ticket prices go up and ordinary football fans will pay more. However, I don’t think anyone would argue that it would be fair to say “higher income tax on top footballers will be paid by poor fans” – and that’s what we mean by saying that the Robin Hood Tax won’t be paid by ordinary people.

    This may well be shorthand, but then when you’re running a popular campaign, the simpler messages are done in shorthand. As indeed Tim’s original post on this subject did – I could accuse Tim of being a liar for saying that the World Bank opposed an FTT but I didn’t, I just drew attention to the fact that it was untrue.

  19. Harry Barnes
    Apr 21st 2010, 9:06 am

    Owen : Perhaps I was in the place too long, but I did not like Tim’s use of unparliamentary language. It also undermines the position of those who use it. Whether a currency tax is legal or not under EU rules, it still has my continuing support. Here is something from the “all our yesterdays” –
    Owners of capital will always seek to pass on their increased costs to others, but as far as competition works within markets there are supposed to be some constraints upon them doing this.

  20. Jason Chang
    Apr 28th 2010, 4:29 am

    Dear Mr. Owen Tudor,

    We have noticed that the link you provided of Mr. Fullerton’s statement in support of FTT leads to an error message on our website, due to a change in the blog title. Please find the correct link at:

    Much thanks for mentioning our work, please feel free to visit and comment.

    Cheers from New York,

    Jason Chang, Capital Institute

  21. ToUChstone
    Apr 28th 2010, 9:29 am

    Thanks for that Jason – link updated!