Interview to prof. Leonardo Becchetti
By prof Alfonso Marino, Editor in Chief di La Sinistra Rivista quarterly in cooperation with Monthly Review – to prof. Leonardo Becchetti.
How did the TTF, what is your goal?
The goal is to reform a financial system which privatizes gains and socializes losses creating sequential financial crises which have dramatic distributive effects. There is widespread awareness in the public opinion that some redistribution needs to be done the other way round We are aware that the FTT is not the only measure needed but it is nonetheless important and its approval would be an indication of a shift in bargaining power between the lobbies of the too-big-too-fail banks and, on the other sides, governments and civil society. Speculative trades (including high frequency and flash trades) may be proxied, even though imperfectly by one characteristic: the speed of transactions. What the FTT definitely hits is exactly high speed transaction. The very small tax rate we propose (0.05 per cent) has negligible effect on long term buy-and-hold strategies but makes high frequency trading (based on many low return transactions repeated in short time) unprofitable. Since we are aware that the FTT is not everything we also campaign for other three things: i) separation between commercial and investment banking on the line of the Glass-Steagall act; ii) regulation of OTC derivatives and iii) fight against tax evasion/elusion at international level.
All these proposals are related to each other. The FTT may increase the relative price of speculative versus lending activities for financial institutions which are inclined toward the former due to their profit maximization goal. This contributes to avoid the mix between commercial and speculative banking, a goal which we pursue also with the separation proposal. Regulation of OTC derivatives may make the FTT on derivatives more effective and more easy to collect.
Why Britain, the City of London, the heart of global finance is opposed to the regulation or supervision of finance?
Because we propose to extend the FTT also on derivatives and the City gets most of its profits from derivative trading. The argument against they raised against hte tax was simply ridiculous. They said that it was impossible to apply it if not at world level if we want to avoid the risk of massive capital flights. If this were a right argument they should have been happy of a tax applied in continental Europe which could shift transaction volumes on their financial market. The argument was ridiculous since United Kingdom is at the moment the country with the highest FTT, the Stamp Duty which taxes with a 0.5% rate any trade on UK stocks (but only on them and not on derivatives). The true rationale came out later when they unofficially said that a FTT would have been like a tax on cheese for France. Financial transactions are their main product but the real issue is whether such product in these quantities (volumes of transactions) is useful or not for the real economy and the rest of the world
After years of action, what is the balance of your activities?
The public opinion was skeptical about the possibilities of our success. After all the discussion on FTT is there since long time with almost no results. But the global financial crisis gave a great acceleration due to the responsibilities of the financial sector for the crisis in the eyes of governments and public opinion. In a few years we saw the introduction of the FTT in Italy and France and the start of the process for the creation of an FTT at EU level. On May 23rd, 2012 the EU Parliament voted in favour of the FTT (487 out of 685 votes). At that time the Eurobarometer showed that 66 percent of the Europeans were in favour of the tax. Since not all EU members are favorable to it, on 12 October 2012 a subset of 11 member states started the so-called “enhanced cooperation” procedure (requiring a minimum of 9 member states) toward its enactment. It is important to say that we are not satisfied with many points of the FTTs approved in Italy and France while the EU project is much closer to the proposal of our campaign. The main problem of the first two FTTs is that they fail to hit high frequency trading since they tax only end of the day holdings. Hence whoever starts and closes a position before the end of the day is not taxed. As well taxation on derivatives is not in the French FTT and is very light in the Italian one.
Why listening to the political governments is weak in the control of global finance?
As I said in the beginning we are aware that our strategies has four goals and the FTT is one of them. Hence we acknowledge that it is not the magic wand. Still it is very important. In these years we collected many declarations of government officials and even famous actors of financial markets such as Warren Buffet and George Soros in favour of the tax.
They thought that manage it but the feeling is that they are managed, do you agree? Why the big fishes (see Lehman Brothers) finance do not pay even after the deep disasters caused by their actions and decisions?
Because they have enormous bargaining power. The Liikanen report (the most important report of EU experts on the situation of the financial system) reminds us that too big to fail banks are larger in terms of total assets than the GDP of the countries in which they originated (this is the case of Banco Santander with Spain, Royal Bank of Scotland with United Kindgom, ING with the Netherlands and many other). What do you think is the balance of powers when the CEO of these banks meets a regulator or a government officials ? In the film “Inside the Job” we have a very careful reconstruction of soft and hard methods that these banks used to corrupt regulators and academicians to ease regulatory constraints in the pre-global crisis era which led to the abolition of the Glass-Steagall Act.
Are still not taxed derivatives and do not hit the high-frequency trading, gone are the tax havens : the idea that speculation, its speed are essential to accumulate wealth for a few and not distribute it how can it be changed?
I think that a crucial issue in the FTT debate against its detractors is to clarify what is the goal we aim at. If we judge the effect of the FTT in a reductionist perspective from the point of financial market efficiency, merely conceived as maximization of transaction speed or transaction volumes or it is clear that the FTT reduces it. However our goal is the common good or the service that the financial system may provide to the real economy. A good analogy is with road circulation. The goal of road rules is not that of maximizing speed even though if we drive at higher speed we can reduce distances and save time. The limit to it is safety and this is why we have traffic lights, roundabouts and very strict rules on car safety for us and for our children.
 Leonardo Becchetti, professor of Economics at the Faculty of Economics, University of Rome “Tor Vergata”, Chairman of the Ethics Committee of Banca Popolare Etica, president of the Christian Life Community -Student Missionary League and member of the Executive Committee of Econometica, is the new campaign spokesman ZeroZeroCinque.