Banks and traders may face an unprecedented new international tax on finance under radical new plans being drawn up by the International Monetary Fund. IMF managing director, Dominique Strauss-Kahn (pictured left), said banks will be forced to pay into a new insurance fund. IMF managing director, Dominique Strauss-Kahn, has revealed that the Fund is constructing plans to create an insurance fund into which banks around the world may be forced to pay, to help "mitigate the risks they are creating". The plans echo a recent suggestion by Financial Services Authority chairman Lord Turner that he may consider levying a so-called Tobin tax on financial transactions in order to rid the system of excessive speculation. Although Mr. Strauss-Kahn said a simple Tobin tax, which its creator, Nobel laureate James Tobin, proposed should be charged on all foreign exchange transactions, would "not work for many technical reasons", he said the Fund was now working on alternative models. – Telegraph
Dominant Social Theme: Tax to save the world.
Free-Market Analysis: The IMF is being intensely active. First IMF leaders have announced the development of risk tools that will warn the world of an impending calamity. Now IMF executives are drawing up plans to levy what is basically an international banking tax. These moves come on the heels of an international movement to utilize IMF special drawing rights as a new kind of international currency.
What is staggering about all this is that the IMF throughout the latter half of the 20th century proved itself out as an incompetent, bullying and even corrupt agent of wealthy Western countries, companies and even individuals. There has been enough written about IMF malfeasance to likely fill a bookshelf a mile high.
The IMF was (is?) notorious for approaching countries that needed help and demanding that leaders of these nations cut spending (usually a good idea) – along with tax hikes and privatization of numerous essential commodities such as water and oil. The result was that the population suffered – especially from the higher taxes – while Western corporations, especially American ones, took ownership of rich resource companies formerly owned by the state.
It is surprising to watch the leaders of such countries flock to the IMF bandwagon as it proposes a flurry of new measures designed to make it the pre-eminent agency of an emergent global financial order. Here's some more from the article:
"Considering that the financial sector is creating a lot of systemic risks for the global economy it is fair that such a sector should pay some of its resources to help mitigate the risks they are creating themselves," he said. "Having some money to create a kind of fund for insurance or funding for low income countries – that is something we would like to consider."
The news will spark further concerns among banks and investors that they will soon fall victim to a second wave of regulation and charges as the full economic consequences of the financial crisis materialize. And in a sign of the Fund's determination to construct just such a charge, which was raised at the G20 summit in Pittsburgh by French president Nicolas Sarkozy and German chancellor Angela Merkel, Mr. Strauss-Kahn said he had asked his second-in-command, John Lipsky, to prepare a report about the plans.
Mr. Lipsky, himself a former banker, said: "It is right to think about [the costs of a crisis] being borne by the financial sector more broadly."
Although the Fund was unclear about how such a tax would be constructed or how much it would raise, Oxfam policy advisor Max Lawson said a financial transaction tax of a mere 0.005% on currency transactions would, by way of illustration, raise at least $30bn a year.
This is a lamentable development in our opinion. Banks don't cause systemic crises in the 21st century – central banks cause them. By conflating banking with central banking, IMF executives are using misleading terms. If these individuals would be anywhere as near persuasive about doing away with central banking as they are about private sector imprudence, the world would indeed be a better safer place.
A gold and silver market based standard is the solution to excessive risk taking and its consequences. Without interminable money flows, and their subsequent booms and busts, developed and developing countries would be much better off and their citizens less prone to ruin. Isn't that what the good people at the IMF really want?