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May 1, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

links for 2010-04-30

Posted: 30 Apr 2010 11:02 PM PDT

The Size Tax for Financial Institutions

Posted: 30 Apr 2010 04:20 PM PDT

Kenneth Rogoff on the IMF's proposal for a tax that increases with the size of financial institutions:

All for One Tax and One Tax for All?, by Kenneth Rogoff, Commentary, Project Syndicate: ...Recently, the IMF proposed a new global tax on financial institutions loosely in proportion to their size...The Fund's proposal has been greeted with predictable disdain and derision by the financial industry. More interesting and significant are the mixed reviews from G-20 presidents and finance ministers. Governments at the epicenter of the recent financial crisis, especially the United States and the United Kingdom, are downright enthusiastic... Countries that did not experience recent bank meltdowns, such as Canada, Australia, China, Brazil, and India, are unenthusiastic. Why should they change systems that proved so resilient?
It is all too easy to criticize the specifics of the IMF plan. ... But, while regulation must address the oversized bank balance sheets that were at the root of the crisis, the IMF is right not to focus excessively on fixing the "too big to fail" problem. A surprising number of pundits seem to think that if one could only break up the big banks, governments would be far more resilient to bailouts, and the whole "moral hazard" problem would be muted.

That logic is dubious... A systemic crisis that simultaneously hits a large number of medium-sized banks would put just as much pressure on governments to bail out the system as would a crisis that hits a couple of large banks. ...

Any robust solution must be reasonably simple to understand and implement. The IMF proposal seems to pass these tests. ... The IMF is on much weaker ground, however, in thinking that its one-size-fits-all global tax system will somehow level the playing field internationally. It won't. Countries that now have solid financial regulatory systems in place are already effectively "taxing" their financial firms more than, say, the US and the UK, where financial regulation is more minimal. The US and the UK don't want to weaken their competitive advantage by taxing banks while some other countries do not. But it is their systems that are in the greatest and most urgent need of stronger checks and balances.

Let's not go too far in defending the "holdout" countries that are resisting the IMF proposal. These countries need to recognize that if the US and the UK do implement even modest reforms, a lot of capital will flow elsewhere, potentially overwhelming regulatory systems that seemed to work well until now. ...
The IMF's first effort at prescribing a cure may be flawed, but its diagnosis of a financial sector bloated by moral hazard is manifestly correct. Let's hope that when the G-20 leaders meet later this year, they decide to take the problem seriously...

GDP Grows by 3.2 Percent, Initial Claims for Unemployment Insurance Remain Elevated

Posted: 30 Apr 2010 11:25 AM PDT

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At CBS MoneyWatch, a reaction to today's release of the advance estimate of 3.2% GDP growth for the first quarter of this year, and to yesterday's news that the four week average for initial claims for unemployment insurance increased slightly:

GDP Grows by 3.2 Percent, Initial Claims for Unemployment Insurance Remain Elevated, by Mark Thoma

I explain why I am not as excited by the 3.2 percent growth figure as others seem to be.

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