Financial Reform (No) Progress Report

Politicians, regulators and industry representatives so far do not disappoint our (low) expectations. The main idea that seems to be gathering support is (surprise, surprise!) the introduction of more taxes. As usual the proceeds of the muted taxes are not going to be earmarked and will in due course be diverted to 'socially' worthy causes. 

One regulator behind each banker!

That is the ultimate destination of the effort to create regulation for a stable banking and financial system. It is the logic of central planning (and regulation is nothing else) that the rulebooks have to be more and more detailed to cover every eventuality. In order to be effective more and more decisions will have to be supervised in minute detail by an ever-rising army of regulators. Banking professionals may love this as the bureaucrat/regulator takes all responsibility for decisions from their shoulders as each and every decision would have to be approved. A useful side-effect may be the contribution this would make to the growning lack of employment opportunities in many Western countries as it would entail a doubling of employment in the financial service sector.

USA: desperate search to increase tax revenue

It is ironic that in a week when the helpless US Treasury Secretary Tim Geithner pens a letter complaining about presumed unfair treatment of US alternative investment funds in the EU the US passes a law ('Foreign Tax Compliance Act') that forces all non-US financial institutions to report their dealings with US citizens. Against the background of a dysfunctional Congress and an administration that is spending money like a drunken sailor this desperate measure should not come as a surprise. The underlying philosophy is that a citizens' money really belongs to the state and it is up to the politicians to spend it. We do not expect the authorities to give a clear 'Njet' to this effort to extend the reach of US legislation one step further into other sovereign countries but it will do nothing to make it any easier for the US to fund its deficit in the future. Already some institutions have decided not to have any financial dealings in or with the US and as the next step may well be that the USA tries to help themselves to the wealth of non-US citizens we would advise investors to sponsor fund managers that take precautions for that eventuality.