The G20 meetings look to be a barnburner:
Ottawa rejects IMF bank tax recommendation, shows flavour of summit to come:
[W]hile Ottawa supported the process to ask for the IMF study, the government is rejecting the results – in stronger language than ever.
"We believe that Canadian taxpayers should not bear the costs of bailouts of financial institutions in other countries," Flaherty told a Toronto financial conference, a day before heading to Washington to make the same argument to his international colleagues.
I can't see why Flaherty should back down.
We should probably start by dispensing with arguments to the effect that "Banks are bad, so we must tax them." This is, as the saying goes, not even wrong. Even if your hatred for banks burns with a pure, hard flame, you will never be able to force a bank to pay the tax – because banks are not people. Indeed, Canadian banks are an excellent example of the standard story of the incidence of corporate taxes. There cannot be a sentient Canadian who doubts the ability of our banks to push costs off to their workers and customers. Banks wouldn't be paying the tax; we would.
And for what? The idea seems to be to create some sort of global fund to pay for bailouts in the event of a future financial crisis. A bank bailout insurance policy for governments, if you will. Is this a good idea for Canada? At first glance, the case for participating seems weak: our banks just went through a pretty severe stress test without requiring a bailout.
The case doesn't get seem to get stronger when you look more closely. Stephen Williamson has a couple of very nice recent posts comparing the Canadian and US banking systems, here and here. One of the points he makes is that Canadian banks are "essentially self-insured" already – largely at the behest of Canadian regulators.
So what exactly would we be buying? It looks to me as though Flaherty's interpretation is the correct one: we'd be paying for bailouts of banks in other countries.
Stephen Williamson makes this comment:
Part of the conventional view of this historical experience is that there is something inherently wrong with banking – in converting illiquid assets into liquid liabilities banks leave themselves open to runs and panics. A Canadian perspective on this might be entirely different. A Canadian might look at US banking history and wonder why these Americans can never get it right.
There may be financial reforms that Canada should adopt in the light of recent experience. The bank tax doesn't seem to be one of them.
Worthwhile Canadian Initiative 
Bob: ” And it’s hardly a controversial suggestion that when the costs of selling coffee go up, the price of a cup of coffee will go up with it.”
Dunno. Have you been following comments on my “minimum wage” post? That’s a controversial statement over there 😉
OK Bob,
Two banks, One in a highly competitive market (say the US). One in an oligopoly (say Canada). Both face the G20 bank tax hike.
Both banks are maximizing profit. Which bank can more easily pass on the universal tax hike to its customers/labour? The one with the high service fees, low levels of customer service, high profits; or the one with low service fees, innovative products, more moderate profits? They can’t be exactly the same.
Coffee is not a valid analogy here – maybe airlines with cabotage.
“If I were running a very small country, I would be very tempted to do the following: support a global bank tax, and then encourage my country’s banks to take some very big risky bets (get my regulators to turn a very blind eye). Heads I win; tails the rest of the world will bail us out.”
Agreed. If I was, say, the President of Romania, I’d do exactly this.”
Still not teaching ethics in the economics curriculum I see…
Also, just for the record, even though I can see why you might think you should, you don’t put ‘the’ before OSFI, the ‘the’ is implicit in the acronym.
“Still not teaching ethics in the economics curriculum I see…”
Whether or not it’d be ethical is up for debate (what if the bet pays off and a half a million people are lifted out of poverty? Is it still unethical?). That being said, when I teach marketing I don’t put how to throw a curveball in the curriculum. When I teach microeconomics, I also tend to gloss over the discography of Gary Numan. I try to stick to the subject at hand.
Ah, but a major part of applied ethics is acknowledging the existence of temptation 😉
“Ah, but a major part of applied ethics is acknowledging the existence of temptation ;-)”
Agreed. But overall it’s hard to teach introductory game theory, if, when you introduce the Prisoner’s Dilemma the answer is “He shouldn’t defect! That’s unethical!!!”
Just,
Sorry, why don’t you think both banks (or banks on both markets) in your example could pass along increased costs (such as a bank tax) to their consumers? Let’s assume that banks are price takers in both their respective domestic labour markets and the international capital market (neither of which, I think, are strong assumptions).
In the perfectly competitive market (let’s call it the US) the cost has to be fully passed along to consumers (because, given our assumptions, they can’t be passed along to labour or capital.
How the tax plays out in the imperfectly competitve market (Canada), I suppose depends on how you think that market should be modelled. If you think that Canadian banks behave like Bertrand competitors, you’ll get the same result as in the competitive market (because in equilibrium, in that market, price equals marginal cost). If, on the other hand, you think they behave like cournot-nash competitors, I suppose they will eat a portion of the tax (because their increase in price will reduce the quantity of services demanded and the corresponding economic rents they’re earning), though if the demand for bank services is inelastic (as one suspects it is), the bulk of the tax will still be borne by consumers. I couldn’t tell you which of those two models is the better approximation of the Canadian bank sector (though my suspicion is that it’s more accurately modelled as Bertrand competition because banks really compete on price, not on quantity of output), but in either model the bulk of the tax will be borne by consumers.
It’s also interesting that you mention airlines as your preferred model for how banks might behave. I would have thought that would be the worst possible example for your case, because we both know how they respond to an exogenous increase in costs (ie, rising fuel prices or a new tax). In both imperfectly competitive markets (like Canada) and highly competitive markets (like the US and Europe) the airlines respond to rising costs by tacking on surcharges and passing along that cost to consumers.
Nick – Touche! 🙂
Sorry, why don’t you think both banks (or banks on both markets) in your example could pass along increased costs (such as a bank tax) to their consumers?
Umm, consumer backlash. Political backlash. Threat of further regulation in an oligopoly.
Remember the public outcry over negative option billing when monopolistic cable companies tried to increase revenue by forcing its customers to opt out rather than opt in? Sure, monopoly is not the same as oligopoly, but similar in profit maximizing strategies.
The reason your coffee analogy is not even close to being analagous is, next to a children’s koolaid stand, it probably has one of the lowest barriers to entry for someone who wants to sell some some joe. And having driven a coffee truck as a teenager to construction sites, I can tell you that my clientele was quite different than the one you’d find browsing the internet in a Starbuck’s today. And the economics/profit dynamics are different. When coffee beans cost $0.10 per cup and it goes up to say $0.15, it’s going to affect a 7-11’s margins (say selling at $0.79 per cup) much more than a Starbuck’s selling for say $1.95. One is selling hot flavoured water when you fill up your gas tank, or grab a hot dog, the other is offering an friendly environment to hang out and enjoy a conversation.
Re airlines. My point is analagous to Canada’s banks because there are significant barriers to entry (Air Canada and Westjet only ones close to truly national carriers) and as a duopoly, the profit dynamic is different again than a fully competitive one. The point being, that your ability or willingness to pass on costs depends upon where you operate and what market segment you target (and there are different classes of customers). Remember when Westjet was accessing Air Canada’s reservation system (through a former AC employees account) and gathering valuable market info on their flight schedules and capacities? That gave them significant competitive advantage – because load factor x price determines profit, all other factors remaining constant. It’s getting the appropriate mix that maximizes profit – not simply “cost plus”. In a duopoly, if you know what your only competitor is doing, you can easily reassign new flights or change pricing accordingly, and over time as the plane fills up, or the time to departure shortens. You would never be able to do that in a fully competitive environment with multiple airlines (though American Airlines once tried by improperly gathering competitor info through the reservation system they supplied to industry which became the standard).
In any event – just introducing real world constraints 🙂
Just,
Yes, there could be political limits to the bank’s ability to pass along increased costs to consumers which economic models, of neccesity, can’t predict. Basically, you’re saying that they won’;t pass along the cost because someone, somehow, will stop them. Kinda hard to argue with that, you know. That said, the banks have been pretty succesful heretofore in dealing with avoiding the imposition of regulation of that sort in the past, so I wouldn’t bet on them failing to do so in the future. And, from a pratical perspective, it likely isn’t possible to prevent the banks from finding a way (at least in the medium term) from passing on those costs to consumers.
And again, you keep providing examples that disprove your case. I mean, you cited the example of the cable industry. Well, we’ve seen how successful they are at passing on a “tax” to consumers. When the CRTC imposed an added charge on them (to fund the broadcasters), they called it a tax (a not entirely wrong characterization – I wondered about the constitutionality of it) and passed it on, in its entirety, to their customers (while running a hefty ad campaign blaming the CRTC and the broadcasters). Now, there’s a real world example that’s right on point. If you impose a special tax on the banks, they’ll do exactly what the broadcasters have done, pass it along to their consumers (presumably through something they’ll label prominently in monthly statements as a “bank tax surcharge”) and tell angry customers to take it up with their MPs.
rogue: But by the time an insolvent bank takes the fall, insiders will have scuttled it of any value.
I’m not sure that this would always be the case. The test case is Lehman’s, which the IMF bank tax/bailout fund would be designed to to rescue. At its failure, Lehman’s was bankrupt, but its bankruptcy was liquidity-driven and a deep pocketed investor could have profited if he could have picked it up and held it unti the markets rebounded.
Without a doubt, a global bailout mechanism will create moral hazard. But can this moral hazard be mitigated? My suggestion of transferring ownership to foregin agents in case of a bailout was meant to target the idea that small nations would encourage their banking systems to take unneccesary risk. If the results of these risks led to their foreign ownership taking over their banks, these small countries would hesitate before pursuing risky behaviour. Just consider the IMF itself — it’s a bailout mechansim, but countries do not want to tap the IMF because their programs are painful.
Also, would the potential for moral hazard be worth the benefits of the plan. If such a plan was in place, and if it prevented the crash of October 2008, it would have been a net positive, even for countries like Canada whose banking systems weren’t about to go under.
rogue continued: Taking off from the healthcare analogy, preventive monitoring and health maintenance always trumps having a comprehensive insurance coverage, at least in as far as ensuring people are not being careless about their health. I think the same is true with banks.
Valid points about preventitive monitoring and maintenance BUT neither supplants the need for insurance coverage as failures/crises/accidents still happen. The same is true for the banking system — insurance/bailout mechanisms are needed, and given the the severity and breadth of the last crisis, it looks like global mechanisms are needed.
I would think that it is obvious that some international coordination is needed on this issue. Obviously the IMF plan has its drawbacks: moral hazard and one size does not fit all being two obvious ones. But we still have to ask whether the IMF plan would be good for global banking stability? Could it prevent another crisis like what happened in the fall of 2008?
Related, is there a better approach to improving global banking stability? Perhaps more importantly, are these alternate approaches viable? Can they be implemented? As bad as the IMF bank tax may sound, at least it can be implemented. Going back to your health care analogy, a global system of preventitive monitoring and maintenance would be fantastic, but implementing such a system is near impossible. Which brings us back to the IMF bank tax, is the IMF plan the best that we can do?
Re: cable companies ability to pass on fees.
One of the main reasons why CRTC is opening up competition – allowing TELCOs, satellite providers to offer alternatives and provide similar services to cable cos. Convergence. Don’t think that all of those interventions by groups like The Public Interest Advocacy Centre or the Consumers Association of Canada have fallen on deaf ears.
Economists, in my opinion, should be advocating opening up protected industries, providing incentives and brow beating of industry to invest in R&D and investments in productivity training and equipment, not constantly arguing for lower corporate taxes (using some contestable points) as the chosen path for Canada’s continued and future prosperity, which appears to be the case with some. It starts to appear to outsiders as purely ideology.
Coffee is not a good comparison for banking in Canada. The Canadian banking sector is an oligopoly, while the coffee shop sector is competitive.
The profit margins are also quite different. The margins in banking are more like software than like coffee.
Kosta,
While you’re right that the insiders won’t always have scuttled, I think the more serious problem is that the people who would bear the burden of transferring ownership (i.e., shareholders) are typically as much the victims of the mismanagement of a corporation as the perpetrators. Arguably, part of the reasons why banks take on too much risk is that the insiders reap most of the rewards of taking those risk (through bonuses – it’s shocking to see the magnitude of those bonuses set against the actual returns to shareholders.), while the risks are borne by shareholders. Transferring ownership to forein parties (or the government, as in the case of GM and Chrysler) doesn’t really solve that problem (because, really, how is that any different, from the perspective of the insiders, from wiping out shareholder through bankruptcy?).
The better way to go about this, is rather than taxing banks (which doesn’t solve the fundamental problem, but just provides reassurance that, if things go bad, the banks will be bailed out), governments have to find some way to improve corporate governance (generally, that applies to more than just banks) and to get shareholders more involved in the management of their companies. I know there are some propositions floating around for having votes on pay (not a bad idea), but you could futher by making it harder for insiders to control the board of directors (in practice, insiders really choose their directors – shareholders just vote to approve their slate), and by making it easier for shareholder resolutions to make their way into annual meetings.
“”Ah, but a major part of applied ethics is acknowledging the existence of temptation ;-)”
Agreed. But overall it’s hard to teach introductory game theory, if, when you introduce the Prisoner’s Dilemma the answer is “He shouldn’t defect! That’s unethical!!!””
Nick – yes, although there is a continuum of legitimate and illegitimate temptation. i.e. me telling you I was tempted to steal office supplies from work, vs. me telling you I was tempted to beat up a 9 year old kid in the street and take his cell phone. But it was Mike’s comment I took issue with, not yours. It’s one thing to say that a certain framework will tempt people to behave unethically, another to proclaim that you yourself will behave unethically when it is to your advantage.
Mike – no. If you don’t cover the ethical element, you can’t really teach the prisoner’s dilemma, nor can you explain how people react to Prisoner’s Dilemma situations. The answer ‘He shouldn’t defect! That’s unethical!!!’ is crucial to gaining an understanding of the issues raised by a Prisoner’s dilemma, and is often the chosen solution to a Prisoner’s Dilemma in real life – there’s a reason the word ‘dilemma’ is right there in the name.
Also, your assertion that there is no more relation between ethics and economics than there is between marketing and baseball is a bit bizarre, albeit consistent with the economics teachers I encountered back at university. I find it funny that fields where ethics is only peripherally related to the task at hand often have mandatory ethical training, but in economics, where the foundations of the whole field are built on assumptions about ethics, teachers often seem to believe that ethics is completely irrelevant.
” I find it funny that fields where ethics is only peripherally related to the task at hand often have mandatory ethical training”
That is a heck of a lot different than suggesting that ethics be taught in a microeconomics class.
“Also, your assertion that there is no more relation between ethics and economics than there is between marketing and baseball is a bit bizarre”
That’s not what I asserted – I asserted that I stay on the subject at hand. I’m all for teaching ethics in ethics class, and I’d be the first to promote including a course such as “Ethical foundations of economic behavioural assumptions” in the curriculum. But to make it part of every class, that’s a little much.
As well, you get the kind of people who assert that ANYTHING they disagree with is unethical without ever explaining why, which is always fun to deal with in a classroom setting.
We generally prefer to do our moralising at the end of the analysis. For example, declaring “Banks are Evil” a priori is unlikely to lead anywhere useful.
Whenever I teach Prisoners’ Dilemma, I always like to leave as a parting shot: “Now, just suppose they hadn’t in fact committed the crime. Would they still confess? I wonder how many false confessions we get?”
“Whenever I teach Prisoners’ Dilemma, I always like to leave as a parting shot: “Now, just suppose they hadn’t in fact committed the crime. Would they still confess? I wonder how many false confessions we get?””
I ought to try that sometime. I usually end up discussing mechanisms that can support the ‘cooperation’ outcome – repeated games, credible threats, social sanctions, etc. I suppose you could think of the latter as delving into ethics, but I never use the ‘e’ word. Too loaded.
Bob wrote: “The better way to go about this, is rather than taxing banks (which doesn’t solve the fundamental problem, but just provides reassurance that, if things go bad, the banks will be bailed out), governments have to find some way to improve corporate governance.”
I agree that improving corporate governance is good thing as is ensuring bank regulation are effective. But a couple more kicks at the bank tax can (or beats of the dead horse if you prefer). First, don’t you think there’s merit to some of the proposed taxes to the bank’s capital structure? Specifically, I am referring to the Volcker tax on banks above a certain size or Obama’s proposal for a 0.15% tax on nondeposit liabilities? Could not targetted taxes help shift banks into less risky activities? Of course, for such taxes to be effective, they would have to applied globally, or banks will shop for juristictions where their preferred activities are not taxed.
Second, in my mind, the real benefit of the IMF bank tax proposal is the formation of a bailout mechanism for multinational institutions. While the recent financial crisis was sparked by the collapse of the US housing market, it only became global when Lehman Brother’s failed. Lehman failed in part because there was no mechanism to rescue/seize an international investment bank (and in part because Hank Paulson didn’t have the balls to make up a mechanism). It would be a good thing to have mechanisms in place so that the next time such a multinational financial institution ran into trouble, that insitution could be rescued or seized and liquidated in an orderly manner.
There is a need to prevent the next Lehman’s. A bank tax may not prevent the next Lehman’s from happening, and a multinational bailout fund may encourage risky behavior, but just looking a what happened to the global economy in 6 months subsequent to Lehman’s failure, it’s clearly paramount that another such failure be avoided. A bank tax to fund a global bailout found seems to be a logical way to prevent such a failure.
“We generally prefer to do our moralising at the end of the analysis. For example, declaring “Banks are Evil” a priori is unlikely to lead anywhere useful.”
Sarcastic, defensive reactions to anyone raising the topic of ethics is also a trait specific to economics in my academic experience.
Mike, I think you might have missed the point of my initial comment which was that if ethics were part of the economics curriculum (any part, not mixed in with every lecture), then economists might be less likely to advocate taking advantage of other people for personal gain (or to be tempted to do so).
The part about the Prisoner’s Dilemma was a digression from my initial point in that while ethics doesn’t need to be involved in every class of economics, it does need to be involved in that particular lesson since otherwise it doesn’t make any sense (i.e. without ethics you have no basis for analysing the dilemma or even asserting that it can exist).
” it does need to be involved in that particular lesson since otherwise it doesn’t make any sense (i.e. without ethics you have no basis for analysing the dilemma or even asserting that it can exist).”
Sure it does – the dilemma is that the equilibrium of the game is Pareto-dominated by one of the other potential outcomes. That’s an ethics-free statement.
“might be less likely to advocate taking advantage of other people for personal gain (or to be tempted to do so).”
When do economists advocate this?
I said, “might be less likely to advocate taking advantage of other people for personal gain (or to be tempted to do so).”
you said, “When do economists advocate this?”
Nick said, “If I were running a very small country, I would be very tempted to do the following: support a global bank tax, and then encourage my country’s banks to take some very big risky bets (get my regulators to turn a very blind eye). Heads I win; tails the rest of the world will bail us out.”
You said, “Agreed. If I was, say, the President of Romania, I’d do exactly this.”
Do you see that this is basically advocating insurance fraud, i.e. taking advantage of others for personal gain? i.e. defecting in a Prisoner’s dilemma?
“the dilemma is that the equilibrium of the game is Pareto-dominated by one of the other potential outcomes. That’s an ethics-free statement.”
Yeah, sure it is.
Here’s paragraph #2, from the Stanford Encyclopedia of Philosophy,
“The ‘dilemma’ faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent. But the outcome obtained when both confess is worse for each than the outcome they would have obtained had both remained silent. A common view is that the puzzle illustrates a conflict between individual and group rationality. A group whose members pursue rational self-interest may all end up worse off than a group whose members act contrary to rational self-interest. More generally, if the payoffs are not assumed to represent self-interest, a group whose members rationally pursue any goals may all meet less success than if they had not rationally pursued their goals individually. A closely related view is that the prisoner’s dilemma game and its multi-player generalizations model familiar situations in which it is difficult to get rational, selfish agents to cooperate for their common good. Much of the contemporary literature has focused on identifying conditions under which players would or should make the “cooperative” move corresponding to remaining silent. A slightly different interpretation takes the game to represent a choice between selfish behavior and socially desirable altruism. The move corresponding to confession benefits the actor, no matter what the other does, while the move corresponding to silence benefits the other player no matter what that player does. Benefiting oneself is not always wrong, of course, and benefiting others at the expense of oneself is not always morally required, but in the prisoner’s dilemma game both players prefer the outcome with the altruistic moves to that with the selfish moves. This observation has led David Gauthier and others to take the Prisoner’s Dilemma to say something important about the nature of morality.”
If the two prisoners in the dilemma have perfectly correlated preferences, then the dilemma can’t even arise in the first place. Therefore, even postulating the existence of a prisoner’s dilemma requires an assumption about people’s preferences regarding each other (i.e. ethical concerns).
“Do you see that this is basically advocating insurance fraud, i.e. taking advantage of others for personal gain? i.e. defecting in a Prisoner’s dilemma?”
Where’s the personal gain?
Or to put the question differently: Do you think it’s ethical for the President of Romania to ignore his fidicuary duty to his people?
RE: “The ‘dilemma’ faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent. But the outcome obtained when both confess is worse for each than the outcome they would have obtained had both remained silent.”
Which is exactly what I said earlier. Although your quote delves into questions of morality, it’s clearly wrong to suggest “that particular lesson since otherwise it doesn’t make any sense”. It makes perfect sense when examined through the lense of Pareto Optimality.
“Therefore, even postulating the existence of a prisoner’s dilemma requires an assumption about people’s preferences regarding each other (i.e. ethical concerns).”
This is neither a necessary or sufficient condition to examine the prisoner’s dilemma. Suppose I have the following payoff matrix:
(2,2) (3,0)
(0,3) (1,1)
What assumption have I made about the two actors preferences towards each other?
“Do you think it’s ethical for the President of Romania to ignore his fiduciary duty to his people?”
Fiduciary duties don’t extend to unethical behaviour (at least not in this context). i.e. You don’t have a duty to behave unethically on behalf of someone because you have a fiduciary duty to them.
“What assumption have I made about the two actors preferences towards each other?”
You’ve assumed that there is a situation which has different payoffs for the two prisoners, which wouldn’t happen if they had perfect loyalty. e.g. If I treat jail time for my fellow prisoner as being just as bad as jail time for me then I am indifferent to whatever the interrogator proposes. Thus the prisoner’s dilemma relies on the existence of a self-interest that differs in some way from the group interest, with the conflict between self and group interest being one of the oldest, most fundamental issues in ethics.
OK, let me elaborate a little bit and then I’ll stop hijacking the thread (sorry – although as always I find it helpful to be forced to think more about these things).
The Prisoner’s Dilemma represents a (particular type of) situation where there is a conflict between personal interest and group interest. In the large majority of cases, it is in the interests of society (and hence ethical) for participants in these dilemmas to cooperate rather than compete (i.e. by compete I mean to pursue their self-interest ahead of the group interest). In fact in many cases, the group is society and hence the group interest and the social interest are synonymous.
The great insight of Adam Smith was that in the particular case of the competitive market, it was in the interest of society that people compete rather than cooperate (or ‘collude’ as cooperation is known as in the context of a competitive market). In essence, the prisoner’s dilemma of the competitive market had three levels rather than two, the personal interest, the group interest and the social interest, with the social interest taking precedence over the group interest.
So, whereas we teach our children to cooperate rather than compete and we generally support cooperative behaviour, within the marketplace competitive behaviour is encouraged instead. We expect companies to compete with each other in a self-defeating round of price cuts (i.e. defect in their prisoners dilemma) because we know that the end result is beneficial to society (as long as this competition is conducted within certain (different) ethical rules).
So economists (microeconomists in particular) constantly interact with this atypical case in which defection in a Prisoner’s Dilemma is encouraged (considered ethical) as opposed to discouraged (considered unethical), the reverse of how things are (for the most part) outside of the world of competitive markets. In my opinion, this accounts for much of the ethical uneasiness people feel with economics (especially when first introduced as students) and also accounts for some of economists’ defensiveness on the topic of ethics, and also accounts for a tendency of this attitude that defecting in prisoner’s dilemma’s is acceptable behaviour to leak out into other areas where in fact defection in the dilemma is not helpful to the social interest.
For example, in the case of this post, countries encouraging unsustainable financial risk-taking due to moral hazard is not socially beneficial behaviour in the way that companies cutting prices is.
The standard introduction to the Prisoner’s Dilemma, where the prosecutor is trying to get confessions from (accused) criminals, is again an unusual case in which there is a third interest, the social interest (convicting the criminals) that outweighs the group interest. And even though this third interest is unstated and unformalized in the problem, it nevertheless may be taken into account in how people react to the situation. That’s why Nick’s parting shot is so well chosen, it makes the students consider the opposite (more typical) case in which society’s interest is in having the prisoner’s cooperate rather than compete (defect).
Note: this comment is basically a repeat of arguments that Joseph Heath makes in ‘The Efficient Society’
Declan: ” If I treat jail time for my fellow prisoner as being just as bad as jail time for me”
That’s one hell of an assumption, though. Do you treat my consumption the consumption as having the same value to you as your own consumption? If so, can I borrow your credit card?
“Fiduciary duties don’t extend to unethical behaviour (at least not in this context).”
Why? I happen to think in this context, they do.
I am confused about this. A major part of the US plans which call for a tax like this is the establishment of an authority which could seize the shadow bank which was going insolvent. Authority to wipe out the shareholders and fire the management. The tax is simply a mechanism to pay for the costs of doing that.
I am mildly supportive of the idea that banks shouldn’t pay a new tax, since the existing regime permits and finances the seizure of bad banks. However, the shadow banks definitely need to pony up.
It’s not inappropriate that shadow banking customers ultimately pay the tax, since it is, in effect, deposit insurance. Which is a good thing. But it has to be matched with regulation. My cursory examination of the news reports did not see regulation addressed.
Good Economist link on your twitter feed SG. I could particularly relate to the last bits:
How much of the Canadian model can, or should, be exported? Critics of the Canadian banks reckon that their conservatism was the flip side of a cosy oligopoly. The big five were barred from merging and partly protected from foreign interlopers. They shared out a profitable domestic market and gave up competing on price. And keeping tabs on the banks is much easier when all are relatively small by international standards and are based within a few hundred yards of each other and of regulators in Toronto.
The result is that Canadians pay more for financial services than others and there is little innovation.
Yeah, me too. I’ve always thought of the Big Five as a cozy oligopoly. I’ve now revised my opinion to an indestructible, cozy oligopoly.