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Deuling & Co
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Joseph Deuling, LL.B
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Miller St. Lumby – 250-547-8827
Wildcraft Forest
October 17, 2013
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As confidence in the global economy crashes
it casts a dark shadow on local economies. Uncertainty plagues investment decisions and often venture capital for local businesses becomes harder to capture. In rural areas these problems are compounded even further because they often are seen as the more remote part of a bigger economy.
In BC, our provincial government is now moving to cut back on services because of the loss of the HST as a revenue generator, and in nearly every corner of the globe governments are struggling as they attempt to cover widening deficits.
As local politicians head to the Union of BC Municipalities Convention, they can be found murmuring certain fears that they may be walking on egg shells around provincial cabinet ministers teetering on an election. Local governments are dependent on the whims of the province and the Feds for bumping up local government revenues with special project grants – it is a dependency that none of us should be proud of and one that is in serious need of reform
At the core of it all is money – and the lack of it.
Globally and locally we are now mired in a deficit debate, and questions of where money will come from to pay off the giant losses garnered by our capitalist system.
There is an answer that has been left on the sidelines but poised to emerge on the playing field – its’ the notion of a financial transaction tax (FTT). A financial transaction tax can be defined as a tax placed on a specific type (or types) of financial transaction for a specific purpose. It is not a taxing of a financial institution itself. Instead, it is charged only on the specific transactions that are designated as taxable.
Across the globe, most of our stock transactions come out of a computer. They offer nothing of value to the public, enhance risk and feed a desire for more dangerous bets that could (and often do) cause financial crashes. Really, today’s popular culture of buying and selling stock is more about gambling than it is about constructing enterprise.
It should be no surprise that when government leaders like Canadian finance minister Jim Flaherty complain that corporations are holding onto large amounts of cash instead of reinvesting to create jobs; that what those companies are doing with their cash is playing “short” on the stock market where they make more money gambling on fluctuations in the market than they do running their business.
Financial blogger David Dayen writes, “As a society, even if we had no need for more revenue, we would do well to limit this growing financialization in the economy, and that goes hand-in-hand with limiting stock transactions. And one great way to use market forces to reach that goal is through a small tax on each transaction.”
In January of this year CNN Money explained.
“The Center for Economic and Policy Research (CEPR), a left leaning group, said Monday that a tax on trades of stocks, options, futures and other financial instruments could generate $150 billion this year, or over 1% of U.S. gross domestic product.
While the idea of taxing financial transactions is not new, it has gained some traction overseas in the wake of the global financial crisis. French President Nicolas Sarkozy, said a financial transaction tax is one of his top priorities as leader of the Group of 20 nations this year, according to press reports.
The CEPR study looks at a 0.25% tax on stock trades in the United Kingdom and estimates that an equivalent tax in the United States could raise $40 billion a year for the Treasury.
“This is not hypothetical,” said Dean Baker, co-director at CEPR and author of the report, in a statement. “The UK has used an FST to collect large amounts of revenue,” he said, adding that the International Monetary fund “is currently advocating the tax in recognition of the enormous amount of waste and rents in the financial sector.”
The tax has been successfully implemented in Britain and without a mass exodus from the stock markets in the UK. The common argument presented from the business community to a proposed financial transactions tax is that stock market transactions will fly away to other countries.
Finanacial Blogger David Dayen sums the issue up well.
First of all, given the harm which the financial industry has caused the US economy, my first response would be “Do you need help finding a ticket?” But second, Baker shows here that the non-hypothetical example shows that a financial transaction tax does not lead to business flight.
As a result, individual investors who make a handful of trades a year will not even feel a tax like this, but hedge funds and investment banks who use algorithms and the like will feel it enough to potentially limit their risky trades. And if not, they’ll provide the government with a healthy source of revenue to cover the damage to individuals in the event their risk leads to another crash.
If you want a rejoinder to this constant talk of cutting spending and fixing the deficit, you could do worse than a financial transaction tax – something that raises a lot of revenue and discourages behavior that society should reject anyway.
In the coming months, talk if a financial transaction tax will emerge front and centre in the media and with it will come misinformation and no doubt a sinister point a view that accuses proponents of the idea of yet another tax grab that will affect ordinary people.
But before that judgment is made we would be wise to understand what goes on behind the scenes when a financial transaction is made.
North Okanagan resident Darcy-Craig Milligan is a well-known economist in Canada who has lectured for many years about the truth around how money is created and how banking should be reformed.
He is now a soothsayer of sorts and we should be taking notice, in his article Breaking the Chains of Debt, he talks in detail about the Depository Trust and Clearing Corporation (DTCC) and how this private corporation touches our lives and wallets everyday without us knowing. They will be at the centre of any move to implement a financial transaction tax and no doubt they will not like such a scheme because it will place the company and their major clients in full public view.
Milligan asks us to name the most powerful “private company” in the world?
One might be surprised at the variety of answers received. Some will stumble over the word ‘private’ and go on to name public companies like Exxon, General Motors, Wal-Mart, Microsoft, or Halliburton. Others, knowing that a privately held company is one whose shares are not quoted on the Stock Market may name Bechtel, Cargill, Carlyle or Parsons. If they have joined up all the dots and understand that private companies are most often owned by individuals and families then they might add names like Rothschild, Rockefeller, Morgan, Kuhn Loeb or Lazards as owners.
But the majority of respondents will probably shrug and wait for you to provide the answer, which is….none of the above.
In 2010, Fortune 500 shows the largest publicly-quoted company as Wal-Mart with revenue of around $420 billion. Forbe’s list of the top 200 privately-owned companies in 2010 shows Cargill as having the largest revenue stream. They sell agricultural and industrial products in 61 different countries, with over $100 billion in annual revenue.
According to Milligan, no mention is made, however, of the DTCC, a company with shares closely held by private banks and brokers which has an annual revenue of upwards of an almost unbelievable quadrillion (a million billion) dollars.
It’s a staggering figure since the Gross Domestic Product for the entire world is only about $56 trillion.
Any kind of detailed breakdown of this over-all revenue figure is a closely guarded secret, recent and accurate data is almost impossible to gather, but DTCC’s 2002 Annual Accounts Highlights showed that of the $917 trillion dollars in DTCC transactions that year, $540 trillion were government securities, representing massive interest-bearing debts incurred at taxpayers’ expense by federal, provincial/state and municipal governments.
Before DTCC was formed, brokers on Wall Street physically exchanged certificates, employing hundreds of messengers to carry certificates and cheques. With volumes approaching 10 to 12 million shares a day, the paperwork became enormous. To deal with this large volume, the exchanges closed every Wednesday, and trading hours were shortened other days of the week.
This increased volume of transactions led the New York Stock Exchange (NYSE) to establish the Central Certificate Service (CSS) in 1968. The CSS kept track of the total number of shares held by NYSE members. This led to the development of the Banking and Securities Industry Committee (BASIC), and finally the development of DTCC.
With a process called “netting”, all trades in a single security could be netted down to one daily obligation. Instead of tens of thousands of cheques being written hourly, a single net money figure was paid too or received from a bank’s broker or from other bank intermediary’s which represented totals from the entire day’s trading. As a result, as much as 97% of all obligations were ‘netted out’ of the system and by 2002 required no exchange of payment – just DTCC keeping track of everything and managing the flow of every transaction – and in the process collecting a fee for service on each one.
In other words invisible transfers from your bank to another. Millions upon millions of them globally, each registering a ca-ching on DTCC’s cash register.
In 1999, DTCC’s first year of operation, it turned over an astonishing $70 trillion. In 2000 this doubled to $140 trillion; and in 2001 transactions in money markets and securities settlements, foreign exchange dealings, and processing mutual funds amounted to more than $360 trillion.
By 2002, the cashless society emerged in full swing as debit cards and ATM’s began to replace cash and bank tellers and more and more people began playing the stock market from home and trading online. DTCC’s clearance and settlement processes were turning over $10 trillion every three days – an amount equal to the entire Gross National Product of the United States.
“The figures are far beyond the comprehension of most us since it would take 32 million years to count to a quadrillion from zero, one second at a time. But by 2006, the growing diversity of financial services and the increasingly centralized nature of global finance will have pushed DTCC’s projected turnover to well beyond $1.5 quadrillion. It will be made up almost entirely of electronic debt-money produced by private banks at virtually no cost, but lent out at compounding interest rates”, according to Milligan.
“That would be enough money to cover the world’s entire land mass of 57 million square miles with $100 bills, if such physical money actually existed. In reality, it’s little more than a ‘blip-on-a-chip’ in the world’s greatest electronic gambling casino”.
DTCC’s official raison d’être is to provide clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter credit derivatives. Its depository provides custody and asset servicing for more than two million securities from the United States and 100 other countries and territories. In addition, DTCC is the leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks worldwide.
There’s now evidence that world depository members of DTCC, like Canada’s, Canadian Depository Securities (CDS), are collateralizing funds to acquire major interests in a broad spectrum of industrial/commercial/natural resource companies, from Australia and Peru to Sweden and Africa.
“It’s this bottomless purse that is driving the global acquisition of public companies under the clever guise of privatization” according to Milligan.
“Consumers play into it innocently enough. If you’ve ever borrowed money for a mortgage or car loan, arranged an insurance policy, negotiated a line of credit– or if you’ve invested in stocks, bonds, derivatives, commodities, futures, swaps or any one of an infinite range of financial ‘instruments’ – you’ll know that there are always documents involved. It’s these documents that provide the vehicle for you to agree to hand over a percentage of your transaction to DTCC either directly or indirectly”.
It’s the volume premise that drives big profits within a global economy. If you can capture a penny from half the people on the planet everyday, automatically, they might not notice, but its big revenues for you.
CDS is described as Canada’s “national securities depository, clearance and settlement hub”. We think of such financial infrastructure as being the work of Government, perhaps a regulatory body that works on our behalf.
We are very wrong.
As a private corporation like DTCC, CDS is not required to comply with the reporting and governance requirements imposed on public companies, and it certainly isn’t a regulatory body of any kind. Statistics from CDS – whose shares, like DTCC’s, are closely held by private banks and investment companies - are sketchy at best and allow no direct comparison with DTCC “due to differences in systems and processes”.
In other words, they might as well tell us - it’s none of your business what our corporation does.
But in fact, every transaction monitored by CDS has a bit of your money inside of it, and a bit of that money will end up in DTCC’s coffers. Basically the ca-ching of the cash register rings twice, a cash drawer opens and a few cents or dollars disappears out of your account.
And you thought it was all going to your bank.
So how big is the ca-ching?
CDS settles over 15 million cross-border transactions with the U.S. annually within its custodial relationship with the DTCC.
According to Milligan, the total value of Canadian securities traded through DTCC in 2004 – both private and government – was in the region of a staggering $86 trillion ($86,000,000,000,000); allowing for two trades in each transaction, one in and one out. That amounts to a realistic 8.6% of DTCC’s global business.
Multiply the fact that DTCC’s private bankers are fully engaged in the United States and have taken over foreign investment services in more than 100 nations world-wide including the UK and China not to mention affiliations. It’s pretty obvious how their revenue streams can become staggering in a hurry.
Milligan outlines that the process of monetary control has a long history, but in the past 40 years privately owned ‘merchant’ banks have established an unparalleled “network of connectivity” between banks, broker/dealers, mutual funds, major insurance carriers, financial intermediaries and every level of government both domestic and foreign.
Ask Milligan, how pervasive is their involvement?
“Well, when DTCC decided to promote mutual funds and then ‘derivatives’ these were ‘hyped’ by every brokerage firm around the world and their subsequent poor performance destroyed millions of people’s savings while making billions for the “insiders”. When in 2003 DTCC launched an aggressive promotion for life insurance we were deluged with TV ads and promotions that continue unabated to this day, to the immense profit of the “merchants of fear”. Today, many a badly needed project fails to launch simply because the exorbitant cost of insurance makes it non-viable”.
The Canadian Bankers Association (CBA) might not agree with Milligan’s assessment, perhaps they would describe DTCC as providing convenience like ABM providers do, which would warrant a “convenience fee”.
According to Raymond J. Protti, President and Chief Executive Officer of the CBA, “Convenience fees are just that – a small fee charged to consumers who want to benefit from the convenience of using an ABM when and where they want to. It’s the consumer’s choice and every time they do a transaction at a machine not owned by their bank, they are given the option of paying the fee or canceling the transaction”.
Protti suggests that all these little transaction fees are “very transparent” and that critics “show a clear lack of understanding of how a competitive marketplace operates to the benefit of consumers and how these fees are charged”.
I guess it’s a choice as to whether we believe Mr. Protti and our banks - or not?
The core question that all of us should be asking is – when a financial transaction tax is implemented how do we keep those revenues away from the political interests of the corporate elite and big government?
Most certainly FTT revenues could reduce deficits and remove the burden of tax from ordinary people and communities – but in order to have that happen we need to make a strong case.
Just who is making that case for us?
And if we can answer that - just who will be listening?
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We are now living in a cashless society – and it’s a mess.
We’re told that it will cost us a great deal of money to bail ourselves out of a tanked economy. Governments talk “cuts” and threaten tax increases on ordinary people, but in reality there are alternatives. We can raise money by taxing stock transactions and perhaps electronic transfers between banks and big corporations – who are really the one’s that got us into this mess in the first place.
But to understand the reality of how our cashless society works we need to understand more about the biggest corporation in the world and its hunger for more money.
honey
it’s the
money
When will we stop missing our chance to reinvent reality?
By Don Elzer
