The G20 group’s discussions this weekend may lead to banks and other financial institutions having to pay two new taxes to fund future bail-outs. The global proposals by the IMF are “more radical” than most had anticipated.
Banks are likely to be horrified, especially about the proposed tax on pay.
Insurers, hedge funds and other financial institutions must also pay the taxes, the IMF argues, despite them being less implicated in the recent crisis. If not, activities currently carried out by banks would be reclassified as, for example, insurance or hedge-fund services to escape the levies.
The main focus is on the European Union and United States, where much of the financial crisis played out.
My feeling is that it is crucial to regulate complicated financial products that not even the people who invented them understand fully. A case in point are the subprime debt securities, not to mention the CDOs, sold in the United States and Europe that played a key role in the financial crisis. They were almost non-existent in Asia and a major reason why the region was able to recover more quickly from the global recession.
Good timing that a former Goldman CDO man just published a novel he wrote “about the cliched high life I had been living while creating and selling billions upon billions of these securitization and credit derivative products, now better known as ‘toxic assets”.
President Obama took his rhetoric of reform on Thursday to the nation’s financial capital in a high-profile foray to chide Wall Street bankers for their “reckless practices” and to press for tighter regulations meant to avert another financial crisis.
It is my belief that if there is no oversight and regulation of new complex financial products it is just a question of how long it takes before we have another global crisis. So I am pleased that the Senate approved legislation to tighten regulation of derivatives trading a couple of days ago. But will that be enough? We need similar legislation in Europe and the rest of the world. Debt securities based on life insurance instead of sub prime morgages have been sold for quite some time already. Let’s hope Wall Street isn’t, again, betting against them with a complicated CDO as well?
G20 countries have to find common ground on a variety of reforms to prevent a repeat of the credit crisis that led to a global recession. Otherwise operations will just move to countries where it is allowed. Do you think it will be possible to agree on regulations that make a difference? Or will financial companies just find loopholes and new ways of doing whatever is profitable.