The captain of the universe, known as Captain Copycat, runs an investment fund called Copycat Partners LLP, registered in the IFSC but run out of a swanky office in St James in London.
He is having a taxing week.
Copycat Partners’ investment strategy is to copy what the next lad does and thus make money.
When the market is going up, Captain Copycat buys assets and rides the wave. Copycat’s behaviour obviously reinforces the upward market momentum.
In contrast, when the market is going down Captain Copycat sells everything aggressively, using simple gambling tools known as ‘put options’.
This in turn pushes the market down further.
For this carry-on, Captain Copycat pays himself very well. Why shouldn’t he? After all, he has been successful for some time. He is ‘short’ the European banks, but then again who isn’t?
If there’s truth in last week’s rumours that the Swiss National Bank borrowed dollars from the Federal Reserve in order to plug a hole in a large domestic bank, Captain Copycat figures that the next phase of the European banking crisis will be much closer to the core banks than to the Mickey Mouse outfits in Dublin or Athens.
After all, with the governments intent on bailing out the banks, it’s only a matter of time before the little guy – the taxpayer – comes to the rescue, and then the market will turn and he will start buying again.
Speaking of tax, Captain Copycat pays very little.
On Friday afternoon, from the comfort of his first-class seat on a Cathay Pacific flight, he feels reasonably comfortable as he heads out to see his Asian investors – even after a week like this.
He flicks through the movies, what will he watch before his lunch? Why should Captain Copycat worry? This is all playing out as it always does.
The crisis is nothing more than a re-run of previous ones.
The Fed will do the same; in fact this week the Fed announced it would keep rates as low as necessary. Obama won’t tax the rich, as the Republicans and the Tea Party are keeping him in check.
The Chinese still refuse to let their currency rise, which means that all the Chinese money is recycled out into the world economy, rather than in China.
Where do you think all the money for Copycat Partners comes from? As long as the Chinese keep this policy up, there will always be money for Captain Copycat.
As he sips his class of Bollinger, he muses that the world economy, and particularly the financial market liquidity, is a bit like a champagne pyramid, similar to the one he paid for in his tent at Royal Ascot.
The more champagne you pour in at the top, the more the stuff trickles down to the glasses below and because his fund, Copycat Partners, is like one of the glasses, as long as the Chinese are providing liquidity at the top, his glass will always be full.
As for the Europeans, Captain Copycat is a little bit more worried, because of their moves this week to resurrect a tax on financial flows in Europe. They couldn’t upset the apple cart, could they? This is the so-called Tobin tax (named after Nobel Laureate economist James Tobin).
According to the Financial Times, the volume of financial transactions in Europe in 2010 was 115 times the European Union’s €12,300 billion gross domestic product. This is Captain Copycat’s bread and butter. If the Europeans levied a tax at a rate of 0.05 per cent, then – even taking account of the reduction in trading activity that would follow the introduction of such a tax – the EU could raise €215 billion annually by taxing exchange-traded and over-the-counter transactions.
As he stretches out to snooze, this prospect niggles at Captain Copycat.
Surely the world will bring the Europeans to their senses and keep to Plan A, underwriting him and his class, keeping the liquidity pyramid flowing, giving any bill to the poor and allowing the market to rectify things?
Of course people like Captain Copycat should be taxed by the EU.I t should be clear that the ‘business as usual’ policy can’t go on. The French and Germans are right to put the Tobin tax back on the table, but they are wrong to stop there.
It should be clear to everyone now that the present global policy is not working.
There is Plenty of liquidity around the world, but this has not translated to spending or investment, because people are scared.
So the economies of the US, British and Germany are weakening.
While the Fed can go for a third bout of quantitative easing it won’t work, because the money is getting stuck in the banks and is only finding its way into the hands of the likes of Captain Copycat rather than real entrepreneurs.
Likewise in Europe, the ECB is keeping rates low, but activity is drying up.
The correct response to low growth is not austerity, because everyone (apart from the dingbats who believe the voodoo economics of the expansionary fiscal contraction) knows that austerity will make things worse.
The western world is facing a classic liquidity trap, where easy money is not translating to spending because we are faced with zombie households whose balance sheet is destroyed by too much debt and falling house prices. So, like it or not, the state has to lead the recovery by investing hugely in people and projects.
But the snag is that the markets are worried about default, so you can’t borrow more when the people you want to borrow from are worried that you won’t pay debt. So what do you do?
Well, we have got to raise tax and, whether you like it or not, raise taxes on the very rich. A Tobin tax on financial transactions might be the first step, and from there an increase in other taxes.
But don’t take my word for it; listen to what the world’s greatest investor, Warren Buffett, was saying during the week. Interviewed by Charlie Rose and writing in the New York Times, Buffett again called for the mega-rich like himself to be taxed more.
‘‘For those making more than $1 million — there were 236,883 of them in 2009 in the US – I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains.
And for those who make $10 million or more – there were 8,274 in 2009 – I would suggest an additional increase in rate.
I think it’s important that whatever is done restores to a degree people’s faith in the fact that their government can work,” he wrote.
Buffett – the poster boy for the likes of Captain Copycat – realises that a tax system has to be fair and moral. Otherwise you undermine government.
Unlike Captain Copycat, Buffett is wise. He knows that the mega-rich can’t hide. Change is coming and Buffett senses it as he has done for years.
It’s interesting that in the time of crisis in America, the mega-rich are showing leadership and solidarity by saying, ‘‘Tax me more’’, whereas in Ireland at a time of crisis, the mega-rich remain as tax exiles!
Is Bono reading this ?
Yipeee my daughter got her cao points for maths in UL today ……this is no longer a taxing matter for me .
Only because you’re stuck in a fixed exchange rate or a fixed exchange rate mentality.
Otherwise the extra policy space is obvious – the government needs to increase the deficit to purchase the real resources (primarily people) the private sector doesn’t want to engage.
And it can do that by spending or cutting taxes.
There is nothing wrong with the rich getting rich as long as the poor get richer too and narrow the income gap.
Whether or not there is to be a Tobin tax in the EU or not will depend on the core Europeans, not the peripherals like Enda Kenny or DMcW or any of the usual posters on this blogroll. We are like what Alaskans or Hawaiians or folks from Montana are in the USA – way out on the periphery looking in. The EU flag, the EU anthem, the EU parliament and the EU Commission are all becoming one European federal government apparatus. 70% of Irish study French for the leaving cert, but almost nobody speaks French. Best start improving our… Read more »
Well, as efforts to get Bono, the Malteser, the Three Amigos, and our Consul of Monaco have proven…. It is not a simple matter by any manner of means. Of course bailing out the rich and then taxing them is kind of absurd. It would be much simpler, and much less corrupting to bail them out in the first place !!! But that is not an option. We are living in the aftermath of the Gordon Brown doctrine. “….we saved the world” (but murdered the taxpayers for a generation). Every Western government avoided the Icelandic route (the said former Brit… Read more »
Think that article is timely and needs to be followed up with other eminent economic authorities. Only then, when governments see there’s a momentum for the rich paying their way, will we be able to progress any debt restructuring. Right now, the political authorities are stuck in idealogical mode (banks cannot fail, austerity is the only course etc etc) and are following a policy line that the blind man can see is going to end in ruin …..after a succession of crises. We have to end what I recall David quoting sometime ago where “we privatise gains and publicise losses”,… Read more »
Finland, The Netherlands and Austria have expressed severe reservations about the Greek Bailout. They want collateral. According to Modern EU bailout theory, taxpayers are not entitled to collateral – only banks are entitled to collateral. This is an embarrassment for Merkel. The solution for the banks, would be if the media were to undermine their efforts. Either such an initiative is shoved through – or else the deal is off. Time for the media to rescue the banks (again) – by making sure that the taxpayers rescue the banks. Hey, Mr. Madoff – is the EU a ponzi – scheme… Read more »
Thanks for article, some interesting things to think over, adds a further dimension to the fraud at the top, and the disgrace that is politicians telling the poorest of the poor in the respective societies that they have to take the pain and not those who have created this unholy mess. Critical sentence: “Europeans levied a tax at a rate of 0.05 per cent, then — even taking account of the reduction in trading activity that would follow the introduction of such a tax — the EU could raise €215 billion annually by taxing exchange-traded and over-the-counter transactions.” While Sarkozy… Read more »
Excellent article and I hope that the rich will get taxed. I agree that Buffet is wise but only because the current economic crisis is squeezing out the middle class, aka, the paying and taxing class. Without consumers and tax payers economies can no longer function. As it stands there are super rich and super poor and more and more of us are joining the super poor. The wealth has to be distributed more fairly. Oh and a great novel that epitimoses the individual in CopyCat Partners is ‘A week in December’ by Sebastian Faulks.
We should all pay 5 basis points on every transaction our pension fund enters into. That doesn’t sound like taxing the rich.
good lord its come to this. So we are presented with an appalling character that we mentally transfer to all wealthy, that somehow they dont deserve it and we need to take it. Let me ask you this mr williams, 236,883 earning more than 1 million in the US: how much will that bring into a US treasury that borrowed 14 trillion (and soon to be 16 trillion) and with over 100 trillion in unfunded liabilities? so rather then build our way out, we are now blaming and encouraging envy and resentment. We are now reduced to class warfare to… Read more »
what a load of bull. How many rich people in the US want to be taxed more? I hope Michael O’Leary does move abroad if they raise taxes, good for him. Politicians should listen to expert economists (not insiders) and get on with it.
David,
Brilliant. So, the economy is now rigged up to reward the unproductive side and punish the productive side.
As Adam Smith said, two merchants at the bar will conspire. Hence the need for proper government regulation.
Today the government no loner functions for the merits of a productive economy. And, a conspiracy of gigantic proportions reigns.
Criminal banking mafia system sucking in the wealth out of the pockets of the regular working man reducing the majority into a feudal high tech idiotocracy servicing the profits of the corpocracy.
Secret funds from the Fed for banks
http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html
Their should certainly be more taxes raised from finance/banks to pay for their role in the crisis and so the tobin tax is a step in the right direction. Norway and Sweden tax much more than us, up to 70% highest rate. I would support those kind of taxes. Abba left Sweden cause of that, the country didn’t diassapear. Europe should have an FDIC insurance system like the States where banks pay into a common fund which then goes to refund depositors of bankrupt banks. As we can see from the link above the Fed can just print trillions of… Read more »
In the article David quote’s from in relation to Warren Buffet, Mr. Buffet laments the fact that he pays less tax as a percentage of his income than lesser paid employees of his company. He then says he should be taxed more because he can afford to pay more. Why does he have to wait to be taxed more? When he is completing his tax return he can always increase the tax figure he wishes to pay. If he feels that strongly about this issue why wait to be compelled to pay more tax, just go ahead and do it.… Read more »
Some interesting commentary in this, food for thought.
Capitalism is the Crisis
http://www.youtube.com/watch?v=fYFw3O–2R0
This tax will legitimise Captain Copycat’s operations. Captain Copycat is a pirate; a buccaneer who uses leveraged virtual financial instruments – “simple gambling tools” as David calls them – to extract wealth from the real physical economy; the economy we all live in and depend upon for life and livelihood. These pirates have been permitted to set-up their dens in privileged tax havens like the IFSC and plunder the trade routes plied by real merchants and investors — those involved in the production and distribution of real commodities and services to the peoples of the world. They are not part… Read more »
What are the long term economic consequences of the accumulation of unsustainable assumptions, a persistent intellectual decline, and the media driven dumbing down process, in the past decades, on Western society ?
http://www.marketoracle.co.uk/Article30034.html
The author makes no effort to be popular.
And now in Ireland, record numbers of students fail ordinary level maths (and in all likelihood the exams are easier than they were ten, fifteen years ago).
Strangely enough, a significant part of Irish GDP is based on Captain Copycat……Las Vegas on the Liffey and all of that…..
If any economic activity is to be taxed, all economic activity should be taxed. The fact that there has not been a Tobin tax in existence for the last decade, while capital moved out of industry & into financial rackets, is proof that our politicians have been asleep at the wheel. There is no argument to be made against it regarding how much it will raise, the tax system must be fair & be seen to be fair, otherwise it falls into disrepute. Similarly, Tax Exile status should be abolished. The idea dates back to the end of the 1700’s… Read more »
Many years ago I wrote an email to Charlie McCreepy advocating the tobin tax. Oh and Trev Seargant, who wrote me a lovely email in response expressing support (shame what happened there). Some time afterwards I got an extraordinarily long email from one of McCreepys REAL decision makers castigating the tax and giving what to me seemed an extremely professional response to my exhortations. You must remember that the net rate proposed by proponents is TINY – 0.5% or less. Because of the scale of transactions this would turn in a huge amount. It is horrific to see such greed… Read more »
subscribe.
There is nothing wrong with Tax, it can have negative and positive consequences. It is a fruitless exercise to apply penal tax levies on wealth generators as they simply move their wealth to a more favourable tax regime. Whilst Michael O’Leary, abrasive in manner driven by the need to stimulate keep his company in the pblic eye, speaks a lot of sense. He has his finger on the markets pulse proven by the performance of Ryanair which is more to do with management than luck. Do we really want to tax him and his sort out of the country. However.… Read more »
Taxing the rich in a fair and equitable manner is of course necessary and right. But taxing the rich is not going to solve this crisis. I remember Cowen being asked in a TV interview when he was Minister for Finance why he would not tax the rich; he replied that not taxing them is “best international practice”. What he really meant is he couldn’t. Ireland is hostage to the rich – the global elite – through an international system that bankrolls our political classes…as well as those of all other nations. The USA is the most obviously corrupted system;… Read more »
Subscribe
David, “Obama won’t tax the rich, as the Republicans and the Tea Party are keeping him in check.” It seems like you are asserting that the republicans in general ( and the tea party in particular ) have scared the democrats off increasing taxes. This simply hasn’t any factual basis. The democratic party has never increased taxes or even talked about it — not it’s presidents nor its contenders — and that includes Obama, Bill and Hillary and goes back as far as Ford and therefore even precedes the Regan neo-liberal period. Increases in taxes are as unpalatable to them… Read more »
What is TAX ?
This is a new defining moment in Irish Tax Law .No one seems to ask .Under the current philosophy and definition of Irish Tax Laws ‘austerity’ does not appear .
Lenihan and Austerity are entwined as simese twins and the Irish taxpayers shown revoke that provocation into law and do it Now.
The Rich ! What is Rich and what is fair and equitable .Now thats a seperate equation to discuss .
Enjoyable article, if rather populist and middle of the road opaque call to tax the rich. Max Keiser on tranquilisers:) Yep, the super rich have a problem, what to do with their Finance. Its toxic housing bubble pyramid has collapsed in the US and Ireland; the OTC and exchange traded derivative associated scams built on it have yet to be unravelled. People’s pockets and Government’s pockets have been picked again. In the 80’s under Greenspan the game of deregulated exchange traded OTC derivatives was invented and the super rich made a pile of dough. The effect of this has been… Read more »
David,
Not only should we tax the rich, we should tax the asset-rich folks too, a class of people which includes farmers and property landlords.
The extremist asset-stripping taxation policies which some have suggested we should apply to ‘the rich’ would only further decimate our middle and entrepreneurial classes. Especially family businesses and farms. As a nation we need to encourage them; not penalise them. We also need to understand their real value to our nation. Their value to our nation lies in their entrepreneurial spirit and their ability to create and lead enterprises that generate productive activity that benefits whole communities and regions. Their value does not lie in raiding their personal pay-checks or assets. Those assets, although owned by them, benefit entire communities.… Read more »
I think David’s article starts out well. It illustrates the reality of the piratical parasitical speculators that are at war with our nations and our civilisation.
But then it veers off into the notion that we can allow this craziness to continue — if we tax it.
Not a good suggestion in my opinion.
The obvious thing to do with pirates is shut them down; not legitimise them by demanding a miniscule tax on their plundering.
Shut then down. Let them create legitimate businesses if they can; but no more gambling on our real markets.
This was a good read but it is typically populist, disingenuous and incomplete as it leaves so many questions unanswered and answers none in particular The rich don’t pay tax, never have and probably never will. At least the smart ones with sharp accountants don’t. Tax is a filthy word and it has been made so by 40 years of right wing selfish ideology. There is no such things as society etc etc etc and I ain’t paying tax to fund dole ‘scroungers’ etc. The usual language of the right wing. It is tax money that pays to fix Granny’s… Read more »
“Tax the Rich” is just a euphemism for class envy and class warfare. In the USA the problem is spending, not revenues (aka “taxes”). If you seriously want to fix the debt problems of the US (& Europe) then you need to cut “entitlements” and actually teach the kids something which makes them employable in the global economy. The West has created a class of citizenry who are stupid, lazy, violent and parasitical. Witness the London rioters. Maybe we just need to write this generation off (reinstitute national service and make them work for their dole ??) and start again.… Read more »
Shows the American like Buffet & latest reports that the 16 French super Rich including L’Oreal and the head of oil major Total, urged the government to tax them more to help solve the country’s financial problems.French and American elites are are starting to folow the French motto Liberté, égalité, fraternité. It shows up the rich in Ireland as being total financial traitors with the previous and present government like U2 and others well known individuals who gained financially but put nothing back into the society from which they claim to be from.
The farmers who did not buy bank shares with their Celtic tiger land rezoning windfall cash are now buying back their agricultural land for 10% of what they sold it for in the first place.
Who wouldn’t be a farmer.
Back in place for the next round.
Still no proper tax on windfall land sales.
Nothing ever changes.
[…] are available on itunes (just search for mslaw) and at mslaw.libsyn.com Video Rating: 5 / 5 Erin Arvedlund first wrote about Bernie Madoff for Barrons in 2001 and published her book, Too Good…" […]