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Aug 05 2013

Why the Cayman Islands is more powerful than France

Economist Dean Baker points out that speculation by the big banks and investment houses is the cause of much of our financial woes and that a financial speculation tax would be well worth implementing as a means of curbing that practice. He explains why such a tax is needed.

The basic argument for such taxes is that we have a vast amount of high-speed trading that serves no productive purpose. Much of this trading uses sophisticated computers to get ahead of major orders and siphon off much of the profits for themselves. It’s a high-tech version of insider trading.

The point of a financial speculation tax is to discourage this sort of rapid trading. Since this trading involves buying and selling stock or derivatives in a fraction of second, even a very modest tax would provide a large disincentive. Such a tax would have almost no impact on normal investors.

In short, this tax seems like a win-win proposition. It raises lots of money for the government, while making the financial markets more efficient and possibly less volatile.

But then comes the key point.

Everyone comes out ahead except Wall Street.

This tax would be a huge deal for the big Wall Street banks, which is why they are using everything in their arsenal to try to stop it.

He says that one argument advanced by opponents is that such a tax would be futile because these entities would simply shift their actions to other nations such as the Cayman Islands that are beyond the reach of the US government.

But is the US government really that helpless to counter such a move? Baker says that the Snowden episode shows that this is not the case, since the US was able to get even powerful allies such as France to bend to its will to stop Snowden from getting to Latin America by getting them to close their airspace for the Bolivian president’s plane.

Clearly when something matters to the United States government, it is willing to go to extraordinary lengths to get what it wants. And even relatively powerful countries like France quickly bow to its wishes, even when it means breaking with well-established international protocols.

Now let’s get back to Edward Snowden’s efforts to get asylum. Apparently there is a lot that the United States can and will do to prevent sovereign countries from granting him asylum. Does anyone really believe that if the United States used just a fraction of the same power to persuade the Cayman Islands or some other country not to set itself up as a tax haven, that it would be met with a stonewall?

This is absurd. If countries are allowed to act as tax havens against a financial speculation tax or any other measure it is because the administration in Washington is content to let them act as tax havens. When it actually wants something to happen, the Obama administration, like its predecessors, is prepared to do a full Snowden. And in nearly every case, it will get what it wants.

Recall that the US actually invaded the tiny island of Grenada on the basis of a much flimsier pretext. The reason that the Cayman Islands fear no such threat from the US is because the wealthy oligarchs love that little country because of all the benefits it gives them and they are not going to let the US government do anything about it.

Wall Street owns the US. The rest of us are just allowed to live here.

4 comments

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  1. 1
    Pen

    It’s particularly true that European governments might “bend to US will’ on this one since we are facing the identical problem and having the same debates.

  2. 2
    Félix Desrochers-Guérin

    As Mark Blyth put it:

    How many divisions does the Cayman Islands have?

    The rest of the video is well worth watching as well.

  3. 3
    Chiroptera

    Baker says that the Snowden episode shows that this is not the case, since the US was able to get even powerful allies such as France to bend to its will to stop Snowden from getting to Latin America by getting them to close their airspace for the Bolivian president’s plane.

    Although I think the main point of the article is basically sound, I’m not convinced that the European governments were unwillingly bent to the US government’s will. I still believe that the European governments themselves don’t much like whistleblowers and have their own concerns about how the precedent of protecting Snowden would have impacted their own security apparatus.

  4. 4
    Marcus Ranum

    Wall Street owns the US. The rest of us are just allowed to live here.

    All those lawns aren’t going to mow themselves, are they?

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