Re-Define, a think tank run by a one time TJN colleague, Sony Kapoor, has issued a new paper on financial transaction taxes. If I’m honest it makes claims for itself that the return does not quite fulfil. I think Taxing Banks tackles the issues of incidence better, for example, but I acknowledge my bias.
That said Sony adds useful data on volume trading in many financial markets:
· High frequency traders now account for 70% of US equity market trading volume and account for between 30%-40% of the trading volume at the London Stock Exchange
· High frequency traders reportedly account for 50% of US future market volume, 25% of foreign exchange volume are becoming increasingly important in options markets
· Banks account for only 13% of the trading volume at the Chicago Mercantile Exchange one of the largest and most diversified exchanges in the world trading in commodity, equity, energy, forex, interest rate, metals, real estate and weather products. Much of the balance is attributable to hedge funds.
· Hedge funds represent more than 30% of the volume in high yield debt, 90% in convertible bonds, almost 90% of distressed debt and emerging market debt
· Hedge funds are the dominant players in the credit default swap market accounting for more than 60% of market volume.
· Hedge funds are responsible for between 55% and 60% of transactions in leveraged loans
Sources are in the paper.
Yes I know pensions funds now invest in hedge funds. But this type of volume trading is pure gambling: that’s it. Is that how we want our pensions to be provided? And is the cost of destabilisation of society worth it? My answer is “clearly not”.
If, as I predict, at least 25% of activity disappears as a result of a financial transaction taxes that might be considered very good news indeed.
Richard Murphy Pensions, Transaction Taxes
FT Alphaville » Pensions pile into UK property.
Pension funds and other institutional investors committed the most money to the UK commercial property sector last quarter, despite fears of a further drop in values this year. Institutional property funds raised more than £3.2bn last quarter, dwarfing the previous peak of £1.7bn in the 2006 boom.
Doesn’t that make you feel good to know your future is in good hands? That your hard earned has been trusted to people who buy when things are going down? Whose only interest is in emulating bankers? Probably because they’re owned by a bank.
Pension fund reform is long overdue.
We need it now. Because for a start you’ll have no idea if it is your pension fund doing this, or not. And when it comes to transparency and accountability that is pretty staggering.
Richard Murphy Pensions
My latest column on Forbes has the above title. The core of the argument is this:
We’ve neglected a fundamental contract between generations. Here’s how it should work: One generation, whilst still working, must create sufficient capital prosperity that in retirement they can sell to the next generation. In return, that second generation gives up part of their income to ensure that the old have the funds they need to survive. This is a long-term investment cycle.
One generation needs to leave the schools, highways, communication and defense infrastructures in good shape so that the next generation doesn’t have a backlog of investment to undertake while also looking after the old. In the commercial sphere enough technical and production capacity must have been created before the generation that helped make it has passed away. Without a deal that’s fair to both sides, the next generation won’t be contracting with the previous one, they’ll just be subsidizing it.
Right now I’m not convinced we’re in anything like that fair position.
And I do, of course elaborate.
Richard Murphy Economics, Pensions
Britain must back Obama’s stand against the money bullies | Polly Toynbee | Comment is free | The Guardian .
The great unasked question is the incidence of bank and other financial institution profits - who is losing to ensure bankers profit in other words. This is much, much more important than any question on the incidence of taxes paid by banks.
I was discussing this with Polly Toynbee this week:
Richard Murphy points out that the London Stock Exchange churns vast numbers of shares daily to the dealers’ short-term benefit, while Warren Buffett makes higher profits sitting on his shares long term.
In 2008 the London stock exchange turned over 1.43 times its entire value. On average a share was owned for 255 days. And yet the overall movement in the make up of the exchange and portfolios was small.
So why the churn? Certainly not for the real benefit of ultimate owners, of that you can be sure.
Richard Murphy Banking, Pensions
I was recently asked to write for Forbes on fairly regular basis. My first column, dealing with the consequences of the US pension deficit, is here.
I wrote it for this blog this morning, and it got waylaid into Forbes as the day progressed.
There are worse things that could happen to a blog, I guess.
Richard Murphy Blogging, Economics, Pensions
Our pension funds still invest 60% or more of their funds in shares. This is now utterly illogical. This summary, from the FT, shows overall US share returns by decade since the 1920s:
This is not chance: this is reality. Markets have run out of steam. They have no more value to add unless and until more people have access to more wealth in the world – something markets themselves cannot deliver and which those who run them resist. Put simply – those with wealth have found out there is a limit to how many new white goods, cars, music, and IT you need. And most of the rest are poor and can’t now afford houses, let alone anything else. In that case markets can’t expand.
So, if pensions are to pay there is no point in investing more in shares in what people don’t want. There is only a need to invest in what people do want: a Green New Deal for a start.
The need for pension investment reform has never been more urgent – as I’ve been arguing for some time now.
Richard Murphy Economics, Pensions
Aviva remains upbeat despite 25% drop in UK sales | Business | guardian.co.uk .
A loss of confidence in the economy among older customers helped knock UK sales at life assurer Aviva by 25%, according to the company’s third-quarter management statement.
Customers close to retirement delayed purchasing annuities, while pension savers either reduced or stopped their monthly payments, hitting the company’s core pensions and annuity businesses over the first three months of the year.
Annuities is esaily explained by low interest rates.
Pension sales are explained by ordinary investrors knowing what fund managers seem quite unable to comprehend: equity markets are a foolish way to save for pensions.
We need a Green New Deal and related bonds that people can understand to deliver the pension product this country really needs.
Richard Murphy Economics, Green New Deal, Pensions
Pensions Company Aviva join call for cut to higher rate pension tax relief | ToUChstone blog: A public policy blog from the TUC.
The TUC recently pointed out that pension tax relief for the top 3% or so of UK earners costs about £9bn a year.
Now insurance company Aviva has called for the abolition of higher rate tax relief with the money saved to provide tax relief of 30% for all pensions savings.
Nigel Stanley at the TUC noted this though:
The Times report has a tremendous “They Just Don’t Get It” to finish however:
Tom McPhail of Hargreaves Lansdown, the financial adviser, said: “The proposal to realign the tax relief will not be at all popular with higher rate taxpayers, who must be increasingly feeling as if they are being forced to bear the entire weight of the Government’s economic woes on their backs.”
I rather think those who have lost their jobs might have something to say about that.
Too true.
Richard Murphy Economics, Ethics, Pensions, TUC
Are these funds fit for purpose? | Money | The Guardian .
Fifteen years ago Guardian Money reader Michael Rundell started saving in a pension scheme with Scottish Life. In September 1994, the FTSE 100 was just above 3000. He paid into the plan every month, investing £70,000 in total. This month, with the FTSE above 5000, he asked Scottish Life for the value of his fund. He was stunned by the reply. Despite the share index rising some 60% over the period, Scottish Life had turned the £70,000 into … just under £70,000.
“What a splendid wheeze this pension business is,” says Rundell. “There was me thinking the fund was a mechanism for maximising my retirement income, when it’s really a job-creation scheme for people who – judging by their performance as fund managers – would be otherwise unemployable. Would someone explain how it can be legal for these people to make a good living out of my savings while doing absolutely nothing for me?”
This is the reality of our financial services sector: those bonuses and large salaries are all stolen from out future incomes to fund the current excessive lifestyles of a tiny minority today.
The sooner we wake up to this reality and reform pensions and the whole financial services sector the better.
Promoting People’s Pensions would be a start.
Richard Murphy Economics, Pensions
Get it while you can | Expert comment | Hargreaves Lansdown.
Is this just sales hype by a pension broker? Or do they really think the TUC will get its way?
Richard Murphy Pensions, TUC
