The US Senate has started to debate the Financial Reform bill. This bill proposes the most sweeping changes to US (and, therefore, global) financial markets regulatory practices since the Great Depression of the 1930s.

So one might think this an extremely important bill, right? So all the Senators have read it? Dream on!

The bill presented to the Senate is 1,300 pages long. How many people will read all of it? And even those few souls who do manage to read all the way through, will they really digest it, thoroughly, all of it? Of course they won’t.

So here we have what is possibly the most important piece of legislation relating to financial services for decades, and nobody fully understands it. Isn’t that frightening?

Perhaps in clauses hundreds of pages apart there are disparities that will keep lawyers employed for years.

In addition to its length, another problem is the breadth of the subject matter. Whilst all of the bill relates to financial markets in the broadest sense of the word, there are sections that are barely related to each other. A key risk here is that concessions and watering-down will be agreed in one section in order to gain support for a completely unrelated section. So, for example, the agreement to the derivatives section might affect regulation of deposits, or comments on naked insurance might impact international wire safeguards. These are just possible examples, the Vox Sapiens team hasn’t read the bill.

The US has an opportunity to show real leadership to the world here. It should cut the bill up into smaller sections that allow proper understanding of the consequences of each clause.

As Tolstoy said: “There is no greatness where there is not simplicity.” Is there greatness in this bill?

Let us hope that debating this bill doesn’t encourage many Senators to snore so that others can fleece us.

Greece uses the same currency as Germany. But Greek government bonds yield almost four per cent more than German government bonds, an all time record for the eurozone.

This is telling us something; really telling us something. The bond market is pricing in a high possibility of default by the Greek state.

Until recently, the market perceived barely any difference in credit risk between different European Union countries. The yields on bonds were pretty similar between countries – so low that some commentators suggested the differences should be greater. But the perceived wisdom was that the risk of default by an alleged profligate state (predominantly those with a mediterranean coastline) was very low, and that even if a default was imminent the other austere and prudent states would step in to help their prodigal sibling.

But Herr Brüderle, the German Economics Minister, put an end to those thoughts. First acknowledging, in a speech to German Members of Parliament (more similar to Representatives than to Senators), that “some euro states are showing dangerous weakness. This may have fatal effects on all states in the eurozone,” he then went on to add that “there should not be a collective bailout for lopsided developments at national level.”

There is likely to be plenty of coverage of the “will they, won’t they” predictions over the next few days. But say they won’t, and Greece defaults. What are the implications? Vox Sapiens will be following this closely and answering the question.

As a footnote, it is likely that the Ouzu crisis will appear as just a small ripple compared to the Shochu crisis. But that’s another post.

During the last few days many of the large Investment Banks have announced staff bonuses. And in many cases these have been at, or near, record levels. This has led to public outcrys.

As a response, some governments have announced special taxes on these bonuses. And the triumverate of governments, central banks, and financial services industry regulators have all railed against the bonuses.

But why are the bonuses so high? Who should be the real target of the outrage?

Well unless you are a shareholder in one of these Investment Banks, it should not be the bankers. Bankers’ bonuses are just a transfer of wealth from Investment Bank owners (shareholders) to employees (bankers). Other than a miniscule drip-down effect introduced by higher earnings and dividends, there is no impact on the economy. And like all employees, all that the bankers are doing is getting as much out of their employers as they can do. This behaviour affects the average man in the street far more when sports stars do it (leading to higher and higher prices for admission tickets and replica kits) than when bankers do it.

But what allows bankers to demand such hefty bonuses? Extraordinarily high bank profits.

Just a year after virtual doomsday, and a blood-splattered Wall Street, Investment Banks are making hefty profits again. Why?

Because making profits in the last few months has been easier than taking candy from a baby.

Firstly, interest rates have been kept exceptionally low – near-zero in many developed economies. As a result, banks have been able to borrow costless money. And have banks suffered the same credit squeeze as other business? Not the big ones, not on your life. They have had money thrown at them in order to prime the pumps of the world’s economies (a task in which they failed, but that’s the subject of another post).

And secondly, banks have been handed “get out of jail free” cards on their bets that went wrong. Banks have been able to sell their toxic assets at prices higher than they could get in the market (i.e. more than they are worth, the difference in price being risk-free profit).

And who have been responsible for creating these über-benign conditions? Our good friends the governments, central banks and regulators.

No wonder they are so keen to keep the attention on the bankers’ bonuses – it deflects attention from the banking profits that they have helped create – the real transfer of wealth from the average Joe to the large Investment Bank. Joe Taxpayer forks out to support the banking system, and in return finds the recovering banking system taking more money. Do you think Joe Taxpayer might get a wee bit angry if he realized? So better that he didn’t, eh?

Dr Dieter Zetsche, CEO of Daimler AG (that produces Mercedes-Benz and Smart) is reported in Automotive News to have said of electric cars being on the immediate horizon that “we are at that tipping point now.”

Really? I disagree for several reasons. …

Insufficient range

How far can an electric vehicle travel between charges? About 80 km (50 miles)? That’s less than an hour on the open road, and a bit more in slower-moving urban areas. For many people that is not enough for the daily round-trip commute to work. So if you want a quick journey to visit the relatives who live just 170 km (105 miles) away (less than two hours down the freeway/motorway/autobahn), that means two charges on the journey there and two on the way back. Is that practical. A resounding NO.

No charging infrastructure

So we need to stop on the freeway every 80 km (50 miles).

Existing gas/petrol/filling stations are not equipped with charging mechanisms. How long will it take to roll out a complete infrastructure upgrade? A partial upgrade is no use – what do I do if I need to charge my vehicle every 80 km and the upgraded charging stations are located 100 km apart?

And I’m not sure that every freeway has filling stations every 80 km. So new buildings are also required, or signposted diversions into local charging stations are needed. How long will it take to build these new stations? And how economic will the business model become after the new stations cannibalize the non-fuel sales from the existing stations?

An alternative charging/refuelling process is required

How long does it take to refill a vehicle with gas/petrol/diesel? A couple of minutes?

How long does it take to recharge an electric vehicles’s battery pack? Much more than two minutes. Hours. Although I have heard that technology is advancing and super-fast charging techniques are being honed. Thankfully the existing filling stations tend to be hooked into the high-power grids that can deliver, say, 100 amps at 440 volts. But this sort of high-speed charging will never be possible for home-based use.

An alternative approach would be removable battery packs. You pull up at a charging station, underneath a hoist, and your existing battery pack is lifted out and a new pack is lowered in.

There are health and safety issues here to be overcome – but if we can allow people to squirt highly flammable liquids out of nozzles on pressurised hoses, then I doubt we will be stumped by an acceptable approach to lifting battery packs.

And another issue is to ensure that new packs are not removed and replaced by old ones, leaving the system overly expensive whilst the people responsible find themselves with high quality and readily saleable goods to quietly slip over the border into a different country.

The Tata Nano is likely to change the lives of an immense number of families in the developing world, with the possibility that the Indian car market will increase by 65%, according to Standard and Poor’s Indian arm, CRISIL (source India Times). And much has been written about Ratan Tata’s dream of migrating Indian families from two wheels to four.

But how about the developed world? I believe that it will be disruptive here too – by fundamentally altering the tax applied to private vehicles.

Car ownership patterns

The Tata Nano promises to bring a fundamental change to car ownership in the developing world. It is cheap enough to appeal to a new group of car owners for whom no other car is affordable. However, I believe that the Nano is also cheap enough to be affordable as a second, or third, or even fourth car, for developed world families. And it comes with the benefits of new car warranties, rather than the potential cost of breakdowns that accompany used cars that can be found at the same price.

The basic model, the Nano BSII, sells in Delhi, India for about 115,000 Rupees (about 2,400 US dollars), and for between 5% and 10% more in most other Indian cities (source Tatamotors.com). Expectations are that the “Nano Europa” prices in the developed world (meaning mainly Europe, rather than North America) will be a little more than double this – so a westerner will be able to buy one for about 6,000 US dollars (about 4,500 Euros). And the Nano is very economical to run, with the extremely good fuel economy that one might expect from a car that only weighs the same as a Formula One Grand Prix car (including driver).

How many developed world households will replace public transport usage by an additional car at this price? How many parents will be able to provide their eighteen-year-old child (17 in UK, Ireland, Poland) with a Nano so that the child no longer needs to ride the bus to school/college/university, or catch a lift with the parent?

A surge in vehicle ownership

And what will be the effect of all of these additional cars?

Well there have been several comments on the web about the potential gridlock that the anticipated traffic volume surge will create. And also many comments about the environmental effect of the additional exhaust gases, for example:

• The New Scientist Environment Blog
• The Independent (a UK newspaper)

But there has been previous little commentary on how governments will react, particularly regarding fiscal matters.

Welcome the “Nano Tax”

I believe that the time is ripe for an “additional car tax” or “Nano Tax” as it could be called. I think that governments might seize the opportunity to portray green credentials and formulate a new approach to vehicle taxation. And the additional income will be most welcome as a contribution towards paying down the public debt mountains that the recession has given western economies.

For governments this is almost a “must win, can’t lose” story:

• too many additional cars on the road, outpacing road building programmes, will lead to congestion for everybody – so people will support measures that reduce the number of “other drivers”
• governments need to meet the requirements of the Kyoto Protocol – and the notable absentees from the list of signatories, USA and Australia, are not the most attractive markets for Nanos and other ultra-cheap but very small cars, due to their low population densities and requirements to travel long distances
• a tax on additional vehicles does not penalise the poorer families that can only afford one car – in fact left-wing governments could portray this as a redistributive tax if the tax for the primary car was reduced

Forms that the Nano Tax may take

A substantial amount of mathematical modelling would be required to predict the impact of the Nano and how vehicle tax changes might alter the impact. Would a 30% increase in tax be required to avoid a 10% increase in the number of vehicles on the average European highway? I don’t know. My gut tells me that Europe’s citizens will be quite inelastic to changes in the tax charge when offered such a radical reduction in the cost of vehicle ownership. Thus I expect that a major increase in vehicle tax will be required to halt the increase in vehicle ownership, and that governments will need to reduce the tax on the primary vehicle in order that the overall vehicle tax revenue doesn’t increase so much that the governments are accused of profiteering.

And so where will the increase in tax fall hardest? The upper working class and the lower middle class. These groups, already comprising a large number of two-car families, and dependent upon two cars, will not have the disposable income to handle a radical change in second-car tax policy. The lower working class will probably benefit, if the tax on the first car is reduced, due to the low rate of second vehicle ownership. And the upper middle class and upper class have enough disposable income to absorb the additional tax.

So if you are in these social classes, enjoy your second car while you can. In 2011 or 2012 you might find it becoming a luxury that you have to live without.