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‘We failed very, very badly’

‘We failed very, very badly’

Richard Cooper, Professor of International Economics at Harvard, on what went wrong, why it was necessary, and whether the much-touted bank tax could ever work.

June 24, 2010 4:46 by

Economic crises aren’t always avoidable, and a few of them are downright necessary. The key is to manage the fallout properly, according to Richard Cooper, the Maurits C. Boas Professor of International Economics at Harvard. Besides participating in the recent summit of the World Economic Forum in Qatar, Professor Cooper has served as chairman of both the National Intelligence Council and the Federal Reserve Bank of Boston. He was also the Under-Secretary of State for Economic Affairs in the Carter administration. He spoke to Jay Akasie, editor of TRENDS Magazine.

How viable is the proposal for taxing the banks and what impact would that have on the industry?

That depends entirely on the banks. Taxes have many, many possibilities. I can imagine a tax that’s extremely onerous and one that’s hardly noticed. So I think details are all important. I know people are worried about the competitiveness of banks, and it’s something that no one country could do alone. Several countries acting in consort – if they were really serious about it – they could make it stick as long as it includes the major countries. It may involve blackballing countries that do not enforce the tax or try to exploit the tax. So I think the details are all important – the levels of the tax, who implements the tax, and how it is implemented. I think there’s a bigger issue, and that is: What exactly is the tax for? What is the purpose of the tax? And if it’s to raise revenues to deal with future contingent financial crisis in which banks have to be rescued, then there’s a whole serious issue about who holds the revenues and how are they shared. Maybe the tax is, in contrast, designed to reduce inter-country bank flows. First, that calls for a different kind of tax; and secondly, I think one has to think very clearly about what exactly it is one is trying to do. I’m not in favor of a punitive tax just because the banks are on the defensive at the moment. The mood that governments are in at the moment makes a tax much more viable than it would have been five years ago. But it’s going to require a lot of discussion and clarity of purpose.

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