Articles by Avinash Persaud

Where to invest? Those with cash or charged with investing other peoples’ savings have had a serious headache over the past two years. The world is a deeply uncertain place right now.

The euro's salvation lies in a little less Europe in fi scal and regulatory policy, not more.


Taxing the Financial Sector Avinash Persaud On Wednesday, 28 September, the European Commission (EC) proposed a European Union (EU)-wide 0.1% tax on bond and equity transactions and 0.01% on derivative transactions between financial firms to support European countries in crisis. This is not very dissimilar to the taxation in India on share transactions, but Cassandras in Europe and elsewhere will shout that it is another crazy idea from European leaders that will presage financial Armageddon, or at the very least, destroy liquidity, tax consumers not bankers and hinder the extension of finance to the poor and needy. In truth, this tax is more feasible than many would have us think, and like all taxes can be set well or badly and if set well, could bring several benefits. India too should widen its financial transactions tax (FTT) to include fixed-income and derivative instruments. Bankers would like us to think that you have to be a little crazy to support financial transactions taxes yet it is an idea with excellent pedigree. John Maynard Keynes proposed it in General Theory no less. Nobel laureate James Tobin followed suit in 1971 amid the wreckage of the Bretton Woods system of pegged but adjustable exchange rates. In 2009, the chairman of the United Kingdom

As India officials look at the international debate on "too-bigto- fail" issues they should reflect on the more general problem that while there is now universal familiarity with the words systemic risks, systemic resilience and macro-prudential action, there is precious little agreement on their meaning. To make the financial system safe we need to shift the focus away from an obsession with the component parts, and focus more on the system as a whole and how we can make it work as a system that transfers risk from places with limited capacity for those risks to other places with greater capacity.

That complex financial derivatives lay at the root of the financial crisis is a seductive but wrong idea. When liabilities are complex assets cannot be simple, otherwise we will have a mismatch between the two. The problem is not with the nature of derivatives but of the incentives. Financial regulators need to concentrate on incentives that reduce the build-up of lending in a boom, irrespective of the precise instrument of leverage.