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Op-Ed

Banking Has to Become Boring Again

Lex Rieffel

Editor’s Note: Lex Rieffel responds to John Dizard’s opinion piece, “Tobin tax will only benefit shady fixers,” in a Letter to the Editor.

Sir, John Dizard makes the classic argument against the European financial transaction tax (Tobin tax) due to go into effect at the beginning of 2014, cleverly linking it to the fresh warning from the Institute of International Finance about the “Balkanisation” of the global economy (“Tobin tax will reinforce position of banks it seeks to challenge”, April 20). But Mr Dizard focuses on the short-term impact and misses the larger context.

While US banks are likely to benefit in the short term, past experience suggests that their eager financial engineers and clever lawyers will invent a new set of instruments that in due course trigger another financial crisis.

The point is that ordinary citizens around the world will not be able to sleep soundly until banking once again becomes boring. Given the choice between Balkanisation and more taxpayer-funded bailouts, isn’t Balkanisation the more rational option?

The argument that financial sector freedom is necessary for economic growth rests on an assumption that gross domestic product growth is the solution for all problems. Surely we have seen enough in the past few decades to question this assumption.

If the solution instead is smart investment, both by the public sector and the private sector, then bankers are among the last we would want deciding which investments to finance.

Banks are backward-looking intermediaries, inclined to invest in the last good idea. That is actually a more useful function than the alternative, which is rushing like lemmings over a cliff.

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