Transcript Folie 0 - Oxfam Deutschland

Financial Crises and the stabilizing
Potential of a general FTT
Stephan Schulmeister
Presentation at an Oxfam Workshop in Berlin on September 20, 2011
Systemic causes of the recent crisis
 Dynamic epicenter of the 2008 crisis:
 Simultaneous devaluation of stock, housing and
commodity wealth
 Coincidence of three "bear markets“
(as 1929-1933)





“Built up” during the preceding “bull markets” >
Long swings in asset prices > “trading as usual”
Essential feature of finance capitalism
Crisis = Beginning of the end of this regime
Bottom phase of long cycle
1
"Bulls" and "bears"
in the US stock market
Daily price of the S&P 500
100-days moving average
10/9/2007,
1565.15
3/24/2000,
1527.46
1600
1400
2/17/2011,
1340.43
S
S&P 500
1200
S
1000
L
L
800
10/7/2002,
785.28
3/9/2009,
676.53
600
400
1994
11/23/1994,
449.93
1996
1998
2000
2002
2
2004
2006
2008
2010
S&P 500 futures prices
July and August, 2000
1540
S
30-minutes price
15-period moving average (MAL)
1520
1500
S
1480
L
L
1460
L
1440
1420
3
Dynamics of the
dollar/euro exchange rate
4/22/2008,
1.601
Daily price
1.6
12/3/2009,
1.5081
50-day moving average (MAL)
1.5
2011/03/04,
1.3983
12/30/2004,
1.3623
1.4
1.3
2/18/2009,
1.2547
10/27/2008,
1.2446
1.2
11/14/2005,
1.1667
1.1
1.0
0.9
1/31/2002,
0.8594
10/26/2000,
0.8271
0.8
1999
2001
2003
2005
4
2007
2009
2011
5-minutes dollar/euro rate
June, 6-13, 2003
5-minut e price
1.19
35-period mov ing av erage (MAL)
6/9:10
9/13:10
13/21:55
11/13:45
1.18
13/12:35
1.17
6/14:15
9/6:55
11/1:50
1.16
5
Technical oil futures trading 2007- 2011
150
Daily price
15-day moving average (MAS)
140
60-day moving average (MAL)
130
120
110
S(1/25/2008)
$ per barrel
100
L(2/21/2008)
90
80
70
L(9/7/2007)
S(8/27/2007)
60
50
40
30
1/3/2007
7/3/2007
1/3/2008
7/3/2008
1/3/2009
6
7/3/2009
1/3/2010
7/3/2010
1/3/2011
Greece
18
2,200
16
1,900
14
1,600
12
1,300
10
1,000
8
700
6
400
4
100
7/2009
11/2009
3/2010
7/2010
7
11/2010
3/2011
7/2011
In %
Basic points
2,500
CDS premia (left scale)
Bond rates (right scale)
Portugal
1,200
14
CDS premia (left scale)
Bond rates (right scale)
13
1,000
12
11
10
9
600
8
7
400
6
5
200
4
3
0
7/2009
11/2009
3/2010
7/2010
11/2010
8
3/2011
7/2011
In %
Basic points
800
High-frequency flash trading
9:31:00,00 A.M.
INVESTOR
SUBMITS
ORDER
9:31:00,01 -9:31:00,03 A.M.
FAST TRADERS GET TO
PREVIEW ORDERS
9:31:00,30 A.M.
MUTUAL FUND ORDER EXECUTED
SHARE
PRICE
$21.02
9:31:00,01 -9:31:00,03 A.M.
TRADERS BUY
$21.01
$21.00
I
0.0
ELAPSED TIME
SECONDS
I
0.1
I
0.2
I
0.3
9
I
0.4
I
0.5
SECONDS
18.07.2015
Overall financial transactions
in the world economy
80
70
45
Total
Exchange-traded derivatives
Derivative markets
40
OTC derivatives
Foreign exchange (spot)
Spot markets
35
60
Stocks and bonds (spot)
30
World-GDP = 1
World-GDP = 1
50
40
30
25
20
15
20
10
10
5
0
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
10
Dollar exchange rate
and oil price dynamics
Effective dollar exchange rate1) (left scale)
140
100
Oil price in $ (OECD import price - right scale)
130
80
1986 = 100
120
110
60
100
40
90
80
20
70
60
0
1970
1975
1980
1985
1990
11
1995
2000
2005
2010
World market prices:
Crude oil, Gold
140
120
1400
Crude oil (left scale)
Gold (right scale)
1300
1200
1100
100
900
80
800
60
700
600
40
500
400
20
300
0
1/2000
200
1/2002
1/2004
1/2006
12
1/2008
1/2010
$ per ounce
$ per barrel
1000
Dollar/euro exchange rate and
purchasing power parity
PPP of tradables
Exchange rate $/€ (ECU)
1.6
1.5
Dollar per Euro/ECU
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
1970
1975
1980
1985
1990
13
1995
2000
2005
2010
Stock prices in Germany,
the UK and USA
400
DAX
FTSE 250
350
S&P 500
1995 = 100
300
250
200
150
100
50
1/90
1/93
1/96
1/99
1/02
14
1/05
1/08
1/11
Wealth of US private households
Financial wealth (stock related)
350
Real estate
In % des verfügbaren Einkommens
300
250
200
150
100
1991
1993
1995
1997
1999
2001
15
2003
2005
2007
2009
Asset prices
1921-1938
Commodity prices (left scale)
170
Stock prices (S&P 500; left scale)
110
US house prices (right scale)
150
105
130
100
1929 = 100
110
95
90
90
70
85
50
80
30
10
1q1921
75
1q1923
1q1925
1q1927
1q1929
16
1q1931
1q1933
1q1935
1q1937
Finance capitalism:
The long way to the crisis

1970s: Transition to unstable exchange rates >

Dollar decline, oil price shocks, recessions

1980s: High interest rate policy, financial
innovations >

Change in accumulation of non-financial
(big) business > unemployment & public debt



1990s: Savings policy against welfare state,
unequal distribution > weak consumption &
atypical employment plus boom of finance
2000s: After stock crash more finance
alchemy (CDOs, MBSs, CDSs, etc.) > 3 big bull
markets >
3 bear markets > crisis > austerity policy
17
Some conclusions
•
Growing discrepancy between real and
financial transactions
•
Speculation on derivatives exchanges grows
fastest.
•
Asset prices fluctuate in a sequence of „bulls“
and „bears“.
•
Due to the accumulation of short-term price
runs.
•
A FTT would affect specifically very short-term
transactions with high leverage >
•
Dampens long-term asset price fluctuations.
18
Concept of a general FTT
•
•
•
•
Tax base: (Notional) value of the traded asset
•
•
Case 1: Shares for 10.000 € > FTT (0.05%) = 2.50 €
•
Implementation through electronic settlement or
payment systems
All assets (spot and derivatives) treated equally
Three tax rates: 0,1%, 0,05%, 0,01%
Faster trading & higher leverage > higher tax
relative to cash requirement (margins, premia)
Case 2: Interest future, value 1 mill. €, margin
10.000 € (leverage = 100), FTT = 250 €
19
Effective reduction of trading
in % due to an FTT (2010 data)
Tax rate
Reduction
intransaction
volume
Low
Medium
High
0.10%
0.05%
0.01%
Spot transaction on exchanges
3.8
7.0
12.0
2.4
3.8
6.8
1.4
2.8
3.8
Derivatives on exchanges
Low
Medium
High
69.2
79.2
89.2
59.2
69.2
83.8
19.2
29.2
39.2
All transactions
Low
Medium
High
68.6
78.5
88.4
58.7
68.6
83.3
20
19.4
29.2
39.1
Hypothetical FTT revenues 2010 at a tax
rate of 0.05%/medium trading reduction
Europe
In %
In
of GDP Bill. $
Germany
In %
In
of GDP Bill. $
France
In %
United Kingdom
In
of GDP Bill. $
In %
In
of GDP
Bill. $
Spot transactions
on exchanges
0.09
15.6
0.04
1.2
0.02
0.6
0.18
4.1
on exchanges
0.71
122.3
0.63
20.9
0.00
0.0
3.28
74.0
OTC transactions
1.00
173.1
0.18
5.9
0.50
12.9
5.13
115.8
All transactions
1.80
310.9
0.84
27.9
0.52
13.5
8.59
193.9
Derivatives transactions
21
Centralized FTT implementation I

FTT is collected at settlement/”territorial principle”

Debtor is the settling institution

Exchanges : Electronic platforms




OTC markets: Central Counterparty Platforms
(CCPs)
All important countries in a trading time zone
participate, e. g., EU27
Mandatory clearance of OTC transactions via
CCPs
“Standard Classification of Financial Transactions”
(SCFT)
22
Centralized FTT implementation II

Distribution of revenues from exchange
transactions:
Home country of exchange
 Country of origin of transactions
 Supranational institutions/projects (EU and/or ODA)


Distribution of revenues from OTC transactions:
Country of origin of transactions
 Supranational institutions/projects (EU and/or ODA)


Centralized FTT implementation ideal, in EU
only feasible if also the UK participates
23
Decentralized FTT implementation I


FTT is deducted by banks (and brokerage
firms)
“Personal principle”: Debtor is the resident of
an FTT country

Customer or proprietary trading

Example: Germany introduces an FTT

Tax base: Transactions of German residents

At home (~15% of Eurex transactions)

Abroad, e. g., at London market place
24
Decentralized FTT implementation II

No discrimination of German exchanges >

85% of transactions would not be taxed

Against tax evasion:
FTT substitution levy (FTTSL) on transfers abroad
 E.g., equivalent of 40 “round trips” i.e., 2%


OTC transactions: A bank is always involved >

Tax deduction at/by banks


Decentralized approach: Pragmatic, accounts
for
Political and institutional differences
25
Objections to an FTT I






FTT raises capital costs like a tax on future
dividends
Hampers arbitrage and price discovery
Most trading is not driven by speculation but by
risk management (“hot potato”)
Derivatives should/could not be taxed
Would increase hedging costs in an
incalculable manner
Example: The lower an options premium
relative to the notional value, the higher the
“effective tax rate”
26
Objections to an FTT II





FTT does not help against misvaluation of
collateralized debt obligations (CDOs)
The same holds for misallocation of risk in the
CDS market
FTT induces a huge relocation to tax
havens/offshore markets
Many hedge funds as forerunners
Uneven distribution of FTT revenues, in
particular within the EU
27
Comparison to FATs






FATs = Tax on income of financial institutions
independent from which activities they stem
FTT: Tax on transactions (activities)
independent from who carries them out
“Boring banking” versus FABs
FABs and hedge funds can shift profits easier to
non-FATs-countries than smaller banks
Trading by non-financial corporations and
amateurs remain tax-free
Tax base: FTT ~ 100 * GDP/FATs ~0,04 GDP
28
Final remarks






Coincidence of short-term trending, long-term
swings, speeding-up of trading, transactions
volume and trading profits of FABs >
Excessive liquidity = destabilizing overtrading
FTT would specifically dampen (ultra)fast
transactions unrelated to fundamentals
Cognitive dissonance > FTT as “provocation”
Crisis in economy and in economics > chance
for learning > reconsidering the dominant
paradigm > dislearning
Next crisis might help
29
Building up the potential
for the next crash?
150
Crude oil (left scale)
1700
S&P 500 (right scale)
1600
120
1500
1400
1300
In $
1200
60
1100
1000
30
900
800
0
1/03
700
1/04
1/05
1/06
1/07
1/08
1/09
30
1/10
1/11
1/12
1/13
1995 = 100
90