Daily Archives: April 21, 2010

James Politi

The Federal Reserve sent $47.4bn of its 2009 profits to the US Treasury, a record payment that highlights how the US central bank was able to turn its massive intervention to rescue the financial system into a successful investment.

In annual results released on Wednesday, the Fed said earnings increased 50 per cent last year to $53.4bn, driven mainly by profits incurred from interest revenues on the extensive portfolio of mortgage-backed securities (MBS) it bought to prop up the stricken housing market. Read more

Should we feel sorry for the International Monetary Fund? Quite often the answer is yes. The Fund gets passed an international hot potato to write a report about because countries cannot agree; it then writes an equivocal report; and then gets it in the neck when – surprise, surprise – countries do not like the findings.

On the international tax on banks two of these three features apply. The Fund was asked by the Group of 20 to investigate how to make banks contribute to the taxpayer support they enjoyed when there was no consensus at all last September; and countries such as Canada and Japan hate the Fund’s report. But in this instance, the Fund did not write an equivocal report. The leadership of the IMF are fully signed up to the principle of an international tax on banks and have been staunch advocates of taxing banks for some time.

As the report says:

“Expecting taxpayers to support the sector during bad times while allowing owners, managers, and/or creditors of financial institutions to enjoy the full gains of good times misallocates resources and undermines long-term growth. The unfairness is not only objectionable, but may also jeopardize the political ability to provide needed government support to the financial sector in the future.”

The big question is whether a new tax on banks (or two new taxes as the IMF is proposing) will ever happen. Read more

In this week of UK economic data, there should be no surprise that the figures are mixed. Even so, politicians today will be having some difficulty explaining that 33,000 fewer people were out of work and claiming benefits (the claimant count) while the unemployment rate rose to 8 per cent, a quarterly rise of 43,000.

The answer is that these changes are well within the margins of error on the labour force survey and unemployment rose because a good month of sample data (November) fell out of the headline three-month comparison, as this chart shows and as was easily predictable before the figures came outRead more