When it comes to finance, political leaders usually veer between being clueless and downright idiotic. They also appear to be extremely gullible when listening to bankers. Germany’s electioneering Chancellor, Angela Merkel, ticked all the above boxes stating her desire for improved and more extensive financial regulation ahead of this weekend’s G20 meeting. While her desire for a safer financial system is logical, her proposals will further protect the already cosseted banking industry and repel competition which (whisper it softly) might actually serve consumers? Amongst several threads of current financial regulation, two are significant, for very different reasons. The “Pittsburgh Principles” (G20 summit 2009) are now being resolved through legislation. The end result, albeit with some unnecessary additions and, tediously ponderous drafting, will move the massive inter-bank Over The Counter (OTC) interest rate marketplace into what ought to be a safer framework going forward. It doesn’t make a future AIG or Lehman impossible but the risk ought to be mitigated. Then there is Europe’s suicide note to the world of finance, the Financial Transaction tax (FTT). EU leaders clinging to their bankrupt social welfare model are desperate to play politics with both bankers and London’s success as the world’s largest international financial center. Frustratingly for Mrs. Merkel, even the European Commission’s own economists deride FTT as a suicidal concept. The tax is an open invitation to investors to abandon the EU and head for Moscow, Singapore or, in fact, anywhere else. For the USA, an FTT is anathema (Kennedy’s Democrats damaged the nation’s markets when they tried a withholding tax in the 1960’s). A recent attempt at an FTT by Sweden ended in ignominious failure for Stockholm when the marketplace moved to London at the flick of a switch. Meanwhile France and Italy have unilaterally implemented an FTT and seen instant investment decline. Despite the evidence, the mediocrities who run Europe are in many cases still pushing to destroy Europe’s financial markets. The rest of the G20 is left watching in horror as a prolonged European recession will make a further impact on their respective economic growth. The current FTT was designed as a knee jerk to ‘punish’ banks and indeed provide the dangerous precedent of direct taxation to the Brussels’ unelected EU politburo. The irony is that such taxes are rarely paid by intermediaries such as banks. Rather FTT is levied on financial end users, e.g. those with the temerity to save for old age: an FTT will destroy pension saving, harming the innocent citizens who were already forced to bail out the banks through the stupidity of their governments. Just as banks have been cosseted by politicians of all persuasions in the US and Europe, so too the rallying cry for more regulation is simply another means to protect the banksters at all costs. The greatest lesson history will record about the 2008 financial crisis was that it marked the height of banker power. Already internet-based alternatives such as Peer to Peer (P2P), or social lending, crowd-funding, and Social Impact Bonds, not forgetting crypto-currencies such as Bitcoin, are cutting the banks out of their role as (incompetent, expensive and government subsidized) middlemen in the world of finance. Facing an unprecedented decline in banker power, European politicians are in the vanguard of protecting bankers from competition. Politicians like Mrs Merkel have focused on the competition to the banksters with attacks on “shadow banking” which she perceives as dangerous when the danger lies in maintaining the facade that the medieval concept of banking is the way ahead. The digital world remains an alien concept to the old-fashioned industrialist, Angela Merkel. “Shadow banking” is powering new solutions to promote and fund both business and social initiatives. Railing against it and protecting the banksters will only stifle economic growth, promote unemployment and prevent enterprise. It is laughable that while claiming they are so keen to reign in the worst banker excesses, Europe’s political classes will arrive in St Petersburg eager to sustain the mediocre monopoly banks’ hold on finance in an age of multiple digital alternatives. The G20 would be well advised to focus on stabilizing measures as agreed in Pittsburgh and ignore the economic dyslexia of western leaders who remain captive to the very banksters they claim to be seeking to regulate.
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