LONDON, England – On a quiet summer day in August, when many in London's financial district are away, or wishing they were away, comes a lightning bolt from the head of the Financial Services Authority.
Adair Turner proposes the idea of a special tax on financial transactions.
Adair Turner, the man in charge of regulating the City of London, has said that some parts of the financial sector have grown "beyond a socially reasonable size," and some of what it does as "socially useless activity."
In short he thinks financial services account for too much of Britain's output, robbing other sectors of some of the best and brightest.
To underscore his point, he looks at what “percentage of highly intelligent people from our best universities went into financial services." And then goes to say, "Unless you've got a theory that explains why financial intermediation suddenly needs all this extra resource, there is something of a conundrum. Is it really the case that financial intermediation today is a more complex thing that a decade or two back?”
He proposes the idea of a special tax on financial transactions.
His is not a new idea.
Originally, an economist named James Tobin suggested a special tax on foreign currency transactions to curb speculation. Then in 2005, then president of France, Jacques Chirac, placed a "Tobin tax" on financial transactions to deal with what he perceived to be the excesses of "liberal globalization."
"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," Turner said.
It's clear that freewheeling capitalism didn't work, that policymakers need to devise ways to curb excessive risk taking. Higher capital requirements should be the first line of defense.
Unsurprisingly, Turner's possible solution and open questioning of whether the financial district is too large, is already provoking sharp debate and response. He even went so far as too suggest that London's competitive advantage as one of the world's premier financial hubs shouldn't be defended at any cost.
The head of the British Bankers Association Angela Knight, did not mince words in response. "I think that if we say we do not want to have an international, competitive industry here, then we will do to financial services what we have done to manufacturing and engineering in the past and that is have it as a minor industry and lose it to others," she said.
I agree with Knight.
Yes, there have been excesses and recklessness in the financial sector that will take decades to unwind, including eye-popping amounts of money bailing out a financial system that could have been put to much more productive use.
But haven't they acknowledged the excesses? Let's not further undermine an economy already on its knees by making it less competitive and attractive. Let's first start with better supervision.
Do you agree there should be global taxes on financial transactions as a way of curbing excesses? Would such taxes be effective?
HONG KONG, China - "Asia's astonishing rebound", says the front cover in today's edition of The Economist newspaper (yes, they call it a newspaper). It is astonishing, too, when you look at the headline economic numbers coming out of the region at the moment.
Asia’s steady rise: Can it continue without consumers in the U.S. and Europe increasing their spending?
Take second-quarter economic growth for example: China up 7.9 percent, Hong Kong up 3.3 percent, South Korea up 2.3 percent, and even poor, lumbering out-of-shape Japan is expected to break its 18-month recession on Monday with Q2 growth of 1 percent. In Europe, recession is ending, too. But look at the numbers. Germany and France can manage growth of just 0.3 percent in the second quarter; Britain and Spain are still in recession.
Why? Why are these export-driven Asian economies leading the global recovery, when their key markets are still only now just stirring after the knockdown punch of the global crisis of late last year?
In a word: stimulus. It's not just China's $585 billion funneling into the economy; it's also Japan's $150 billion, and South Korea and Hong Kong's $11 billion apiece. Tax breaks, enormous investment projects, and government-funded property incentives all helped to keep the Asian consumer afloat, and generate economic growth. Restocking in the United States and Europe also helped, as companies broke from their deep-freeze and started building up inventories.
But. ... and there is a big one here: In its current form it's not sustainable. Asian policy-makers have done a remarkable job lifting economic growth out of the gutter, but until the real engines of global growth get off the ropes, the Asian rebound isn’t going to go anywhere.
What's needed is strong, sustained demand from consumers in the U.S., Europe AND Asia. It's starting in Asia, but this is still an export-focused region.
Glenn Maguire, chief economist at Soc-Gen, says it will be decades before Asian economies have rebalanced so that domestic demand can keep economies growth healthy by itself. And here's a clear statistic to back that up: Maguire says the U.S. consumer market in 2007 was about $10 trillion. China, by contrast, was $1 trillion. Even taking into account the rest of Asia (except Japan) but including India it comes to about $2 trillion. Some other estimates put the total at $4 trillion, but you can see Asia is still a long way behind.
It's a given that the U.S. consumer has changed his/her buying habits. Job security and rock-bottom home values and big, big personal debts will do that. It will be a long time, perhaps many years if ever, before the U.S. consumer, or for the matter the European consumer, is prepared to go on the sort of buying binge we've seen build up during the past two decades.
That means lower economic growth, for all of us, for a long time to come.
First it was Goldman Sachs, Now it's JP Morgan Chase. The banks are making billions of dollars again...and planning bonuses galore!
At one level we should, of course, celebrate the survival of the banking system. Like it or not, we need banks to make the economy function. But it is a bit galling; just months after they had to be bailed out with hundreds of billions of dollars in cash, that they turn round, hand back the money and start raking it in hand over fist.
All at a time when they are still refusing to lend to consumers, and more and more people are losing their jobs. It is inevitable that we should feel perhaps bitter about this when the outlook is so grim. …the collateral damage as the military might say.
So I say to the Banks – remember, you survived because of the taxpayer cash, not in spite of it.
Nothing will enrage us more than having our noses rubbed in an orgy of bonuses and excesses while we dig ourselves out of the crises. It is something that few of us will forgive. Will you ?
HONG KONG, China – You can tell a lot about the state of the economy by what passes as positive news.
A worker works on a product line at a factory in Chengdu of Sichuan Province, China, February.
Business across the globe has gone from bad to worse, and a new phrase has crept into the lexicon of the credit crisis in recent weeks: the "less-worse" economy.
"I expect things to get less worse as we proceed through the year," Richard Fisher, chief executive officer and president of the Dallas Federal Reserve Bank, told CNN last week (although he also expects U.S. unemployment to eclipse 10 percent in 2009). Watch Fisher comment on economy
Translation of a less-worse economy: It's still bad - much worse than a year ago, in fact - but still not as bad as the previous month or business quarter. Some recent less-worse news:
– The U.S. Federal Reserve released a report on April 15 that showed "overall economic activity contracted further or remained weak." However, five of the 12 districts across the United States that supply data to the Fed noted a "moderation in the pace of decline. Several saw signs that activity in some sectors was stabilizing at a low level."
– Exports from Japan dropped 46 percent last month, compared with March 2008. But that's less than the nearly 50 percent year-on-year drop the month
– China's exports were down 17 percent year-on-year last month, but still $25 billion more than in February
– An Associated Press-GfK poll early this month showed that 40 percent of Americans think the country is headed in the right direction, double the percentage in October
The less-worse economy is still tumbling downhill. But when optimism is in short supply, people find hope where they can.
(CNN) – Mayfair has been the playground of London's super rich for centuries.
Berkeley Square, one of London's most exclusive addresses, has lost some of its luster.
Since the 1990s, it's also been home to the hedge fund and private equity crowd, joining the private banks dotted around Berkeley Square in Georgian townhouses or low key new buildings.If you've shopped on New or Old Bond Street or Savile Row, if you've stayed at Claridges or the Dorchester or just played Monopoly, then you know Mayfair; the ritzy area surrounded by Piccadilly, Regent Street, Oxford Street and Hyde Park.
The past decade, Mayfair's players have attempted to keep a low profile. You'd never know you were walking by the headquarters of Blackstone, Carlyle or, at No. 1 Curzon Street, AIG Financial Products where many of the losses occurred and where many of those infamous bonuses were paid.
And you certainly would not have known that the small townhouse known as No. 12 Berkeley Street was the London offices of Madoff Securities International Ltd.
Those offices are now up for rent. Someone I talked to recently said he had a good look around at place to relocate now that Mayfair has become more "affordable" but felt the place had bad karma.
He noted as well that the office had swipe card entry access to every cabinet which he thought excessive. That goes along with reports that Madoff had a camera installed in the London office so he could keep in better contact from New York.
Property group CB Richard Ellis estimates that rental prices in Mayfair have fallen between 25-30 percent since prices topped £120 ($173) per square foot in 2007, the most expensive place on earth for office space at the time. Now new rent prices have fallen behind rents in New York and Tokyo and likely Hong Kong.
Still, occupancy stands at 94 percent so it's not as if the property market has collapsed. After all, a hedge fund might be three people and a secretary in one small office. The impact would be much greater if a private equity group were to move out.
On the day I walked around Mayfair, there was a Rolls Royce and Maserati outside Gordon Ramsay's at Claridges. There were plenty of Bentleys roaming as well. No surprise really since one of the premium corner spots is filled by the Jack Barclay Bentley dealership (there is a Porsche dealer opposite).
And that seems to be the key to Mayfair; after private money flies into London and checks into Claridges or the Dorchester or the Hilton, it wants a private banker or wealth advisor within walking distance. Then it's lunch nearby at Ramsay's or Nobu and maybe a drink at Mayfair's most exclusive (and hardest to find) club, Annabelle's.
AIG, UBS and other big names all have big offices in the City of London or in the Docklands, but they want their private banking and alternative investments arms separate.
Whether its Mayfair or Greenwich, Connecticut, the super wealthy and those who cater to them like to be off on their own, tucked away from the day-to-day banking operations.
Yet, thanks to Mr. Madoff and those at AIG getting big bonuses, the spotlight is uncomfortably focused on them and the neighborhoods they like to walk around - usually without a tie.
Watch my report on how the financial crisis is hitting Mayfair.
LONDON, England – Few have escaped the impact from the world financial crisis - and week-by-week the accumulation of data showing just how bad it is grows and grows.
Case in point: The United States. According to new statistics from the Federal Reserve, the net worth of Americans - that is the difference between their assets and liabilities - was $51.5 trillion last year, down nearly 18 percent from 2007. That's a massive drop in one year.
To put that in perspective, it's the first decline in net worth for American households since 2002 and one that puts their wealth back to 2004 levels. Four years of gains wiped out in just 12 months.
The value of their stock market holdings, including retirement plans, fell to $12.1 trillion in 2008 from $20.6 trillion the year before. And, of course, we know further losses have been suffered this year.
Add in rising unemployment, and it is no wonder Americans as consumers elsewhere are feeling more uncertain. I suspect a year from now, 2009, will show another drop in Americans' net household worth.
Of course, the wealth destruction we've seen in the United States is being repeated elsewhere. Sharp downturns in housing prices have hit the UK. There, the Bank of England has this week introduced quantitative easing - sometimes called "printing money" - to pump cash into the system. Interest rates, now at 0.5 percent, are at their lowest in the bank's 315-year history and have not much further to fall, hence the need for a new strategy.
Meanwhile Japan, the world's second largest economy - which itself tried quantitative easing earlier this decade - announced this week that it had seen its worst drop in GDP in the last quarter since 1974.
Chinese exports fell 25 percent last month - even Chinese Premier Wen Jiabao has said he was worried about the safety of China's assets in the United States.
But these are the numbers, statistics and data. Behind the figures lurks a massive cost to men, women and children around the globe.
Central and Eastern Europeans who bought homes in other currencies are now facing a sharp increases in mortgage payments because of the fall of their own currencies.
Those workers who came to places like Dubai and Taiwan to find employment on construction sites and in factories have lost jobs - and with it, the pay check and safety net they provided to their families back home.
Even Russian oligarchs have had billions shredded off their wealth with the fall in commodity prices.
The fallout from this financial crisis is not over yet - and for tens of millions the pain being felt across the globe will remain for sometime.
How is the recession affecting you - and what are you doing to deal with it? Tell CNN and tell the world how you are surviving the downturn by posting comments below or sending a video iReport to our Road to Recovery special.
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