Pennies and Dimes and the 1%

No sooner had we written about the new electronic money in Canada, the MintChip, than we read of new technology with a similar purpose being introduced in the UK. 

It’s called PayTag, and The Telegraph reports that Barclaycard Visa (just reported a GDP2 billion first quater profit) is reputedly introducing the contactless payments.  Effectively a sticker on the back of your mobile phone that is waved over a reader device.  

There is an argument that this non cash form of payment helps identify the participants in the black economy, and contribute to the tax take.  True, but as we wrote in the above blog, it is pennies and dimes.  And a loss of privacy.  And more profits to the banks as they take a slice of every, ever smaller, transaction.  And Martin Vander Weyer in his Telegraph article argues that Britain’s should rise up to save the tenner.

However, I am going to return to my point in the previous Pennies and Dimes blog.  Stop regulating the little guy and regulate the 1% on their over the counter (OTC) derivatives.  This is where the real – very very large profits and losses occur.  And where danger lurks everyday with just the accidental push of a button.  They should be put onto an exchange, where they can for a start be known – eg the size of this market.  Who are the main players.  What concentration risk exists (think AIG in the GFC).  And tax every single one of them.  Evan 10 basis points (0.10%) would be a winner.  

And now via zerohedge to put some numbers on that market. 

I strongly recommend that you have a look at the visual presentation by Demonocracy of the global derivatives market – called Derivatives:  The Unregulated Global Casino for Banks.  This graphics and the detail is superb. 

It argues that 9 large banks (designated Too Big to Fail, and thus WILL be bailed out) hold US$228.72 trillion exposure in derivatives, ~ 3 times the world’s entire economy.  Here is the list: 

Bank New York                                  US$  1.375 trillion

State Street                                         US$  1.390 trillion

Morgan Stanley                                   US$  1.722 trillion

Wells Fargo                                         US$  3.332 trillion

HSBC                                                 US$  1.321 trillion

Goldman Sachs                                   US$44.192 trillion

Bank of America                                 US$50.135 trillion

Citibank                                              US$52.102 trillion

JP Morgan Chase                                US$70.151 trillion

Reported elsewhere, all up the unregulated derivative market is ~US$707,000,000,000,000.  That’s correct, US$707 trillion.  Now just imagine if this market suffers a one percent (1%) loss; that would be US$7,070,000,000,000.  Seven trillion dollars.  Who would pay for that?  Well you of course, we paid for the last loss.

But the point is, whilst we are penny and diming the people of the world with MintChip and Paytag, this market remains unregulated.  And profits untaxed for all we know.  Despite the global financial crisis, and in the face of acknowledgement from regulators that maybe it should be.

A 10 basis point tax on these (completely pointless) transactions, would generate US$700 billion.  More actually, because they trade in nanoseconds, and taxing every transaction would pay off the debts of all the countries currently in strife.  

So next time you use your MintChip or PayTag think on this.  And send a letter to your local pollie demanding that these transactions be regulated and traded on an exchange and taxed.  And maybe put the funds from the taxation into a World Bank fund (or IMF) to bail out the banks next time the fail.  Save us having to pay for it. 

This is the only “real” trickle down policy that would work for everybody.