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Admati and Hellwig: global finance is not an Olympic competition

POSTED ON June 29th  - POSTED IN Blog, Financial Regulation, What is competitiveness?
Anat Admati of Stanford Graduate School of Business

Bankers’ New Clothes: co-author Anat Admati, of Stanford Graduate School of Business

(Updated with Krugman comments.) Two years ago Anat Admati and Martin Hellwig published a popular book about banking, The Bankers’ New Clothes, which Martin Wolf in the FT described as “the most important book to emerge from the [Global Financial] Crisis.”

The book pulls off the trick of explaining a lot of technical points about banking in highly accessible detail, and perhaps its most valuable contribution is to have explained so clearly why it is foolish to run banks with only small amounts of loss-absorbing equity. Partly because of the way bank equity is so misleadingly portrayed in the media and elsewhere – as a cost to a bank, and by mindless extrapolation to an economy as a whole – bankers have been able to get away with blunting urgent reforms.

How tax wars may affect UK small and big business

POSTED ON June 16th  - POSTED IN Blog, Tax

Updated with new IMF data, June 22, 2015; and with Philip Baker comments; June 29, 2015 

Update 2: from Reuters, Dec 22, 2015:

“Seven of the biggest investment banks operating in London paid little or no tax in Britain last year, despite reporting billions of dollars in profits, a Reuters analysis of corporate filings shows.”

How tax wars may affect UK small and big business

So-called “competition” between countries on tax (which some of us think is generally better known as “Tax Wars”) is a process that has nothing to do with what people normally understand competition to be. (To get a first sense of the differences, ponder the differences between a failed company and a failed state. Or look at this.)

The process produces a range of harms, which stem from basic operating principles. Capital can shift easily across borders, but workers generally can’t. So governments try to lure mobile capital by cutting taxes on it — then make up for the lost tax revenues by taxing ordinary people and workers more — since it’s far tougher for workers to rip their kids out of school and move when tax rates change.

The end result is that taxes on capital fall, and workers suffer higher taxes. Among other things, this increases inequality.

How much should the UK subsidise HSBC for a ‘competitive’ financial sector?

POSTED ON June 9th  - POSTED IN Blog, Financial Regulation, Tax
City-of-London-300x65

The UK Financial Centre: soon to evaporate in a puff of bank levies?

Here we go again. Look at this latest piece of financial sector lobbying, courtesy of Reuters, which normally strives to be a fair and balanced news organisation.

This requires quite some unpacking. To begin with:

“Britain is prepared to review a tax on banks to head off the threat that large multinational banks like HSBC could leave London’s financial centre and shift their operations overseas, the Sunday Times reported, citing industry sources.

Finance minister George Osborne is to lay the ground for such a review in a speech this week, by saying that the newly-elected Conservative government is committed to maintaining the competitiveness of banks, the paper reported.”

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