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.
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Richard,
I agree that the question about the churn is a good one. However, I think it will tell you more about the sources of profits for money managers than for banks.
If you knew a thing or two about investment banking and capital markets, you would be aware that banks have generally very small holdings of equities, and whatever proprietary trading they engage in is small in comparison to the entire “stock” of outstanding shares. It can explain at best only a relatively small portion of the “churn”.
Equities are mainly held by institutional investors, predominantly money managers acting for pension funds and/or insurance companies but, which in the case of the UK are c. 40% domestic and c. 60% international.
The real question is why these guys (especially the local ones) are such active traders. a good place to start looking is “kickback” on trading commissions.
Many small traders are swing trader. Many people like myself take advantage of bad days in the market (like last week) to buy in. We then wait months, weeks, or if very lucky, days, for the stock to recover. Once it hits a certain profit level, say 20%, we sell and wait for the process to repeat.
In most cases I am holding the stock for much shorter than a year. I should not have to pay extra tax for this type of investing as I already am paying a higher capital gains tax for short-term ownership.
Not sure I agree with this analysis. I remember once looking into a hedge fund that made around 60,000 trades a day and rarely held a stock other than intra-day. It doesn’t take many entities like that to skew the figures.
The reality is that money is made by selling at a higher price than you buy. The time between buying and selling is irrelevant.
The other reality is that most fund managers are absolute shysters. Anyone who has read The Black Swan or Fooled by Randomness will appreciate that there is no statistical difference between a very good fund manager and a very lucky one. Which is why, despite the presence of a whole industry committed to preaching the opposite, there is no real correlation between past and future performance.
But Edouard is right – this is nothing to do with bankers (other than those banks that run funds, but frankly, you would have to be barmy to invest in one of them).
@Fred Fry
Of course you should be paying higher taxes
You’re trading
That’s not a capital gain
@mad foetus
Find me a bank that does not run or advise those who run funds – you’ll have problems
Please don’t talk nonsense
This has everything to do with banks
Stop dissembling
@Edouard (London Expat)
Have you noticed banks own and sell vast amounts of life assurance and pensions and very often own the companies whose products they sell
Of course not all
But they create the culture of abuse in the whole sector that leads to this
Your pretence of innocence for the banks based on dubious interpretation of the facts smacks as ever of your own self delusion
Richard,
I am sorry, but I cannot make sense of your post.
Banks do not “own” or “sell” vast amounts of life “assurance” (I suppose you mean insurance) or pensions.
As far as I know in the UK, this market is dominated by large (mostly) domestic insurance companies.
I do not doubt for a minute that this sector has its issues, but I really do not see the relationship with the level of “churn” on the stock exchange or any role that banks play in this.
Cheap rant!
Edouard
Do you really think we can take seriously a comment from a person who does not know the difference between assurance and insurance
Life assurance is not assurance – you cannot insure against the inevitable and we all die
You can only assure against it happening at an unexpected time
You really do not know very much about finance at all, do you?
For which reason you return to the banned list
@Richard Murphy
Richard,
Re. Fred Fry’s “trading”, I’m afraid that you might want to look up the 1979 case of Salt v Chamberlain, no chance of arguing this is trading per UK tax law… good job too, when his random gambling eventually leads him to lose the farm, we don’t want him claiming income losses against his day job do we?
Makes you nostalgic for the days of schedule D case VII (which I am too young to remember of course!)
Richard
c’mon – Edouard knows a great deal about finance – he is simply @ the other end of the political spectrum from you – so to ban an intelligent debater merely reflects negatively on you.
Just received Tax Havens book – look forward to digesting over half term hols.
best
eugene
@eugene
Wrong logic
You assume I have time to waste on him
I don’t
And he is just that – a time waster
Eugene
I tried to buy the book last week but the UK distributors listed had no stock yet and weren’t sure when it was due in. Did you order it directly from the UK distributors ?
“Find me a bank that does not run or advise those who run funds – you’ll have problems”
Agreed, but there are vast numbers of funds and discretionary investment managers who do not use banks for anything other than providing basic banking facilities.
Your case, in this thread, is that banks make their profits through short term trading on stock markets at the expense of long term holders. I am merely making the factual point that the benefit of the majority of this short term trading is not the banks but the funds, only a small minority of which are bank owned.
For several years I actively traded on the stock market. I stopped because it was clear to me the whole business was riddled with insider dealing and corruption and it was hard to compete with those in the know. It is an area that could and should be cleaned up. But its not the banks that are to blame (or at least, not entirely and not in the way your article suggests).
@ Rupert
ordered it direct from Cornell University Press ( would add link if knew how to!)
have read intro only so far which unsurprisingly is slanted anti OFC.
However references are comprehensive so I think body of book will be an interesting and informative read.
There you are Richard a little free promotion – and you want to see me destitute and job-less!