Free Markets, Free People


Oh, by all means – tax the banks

And yes, if you’re wondering, I’m being highly facetious with the title.

But that’s the growing consensus among our political leadership – at least that brand of it which believes such taxes are actually paid by the institutions themselves.  And you have to love the reasoning:

The U.S. and European governments are moving toward a consensus on taxing large banks to cover the cost of any future bailouts rather than asking taxpayers to foot the bill, as happened regularly in past banking crises.

The tax proposals vary. Germany and Sweden would use the money to fund a “resolution authority” that would use the money to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed.

What’s wrong with that, you say? Well anyone – if you’re going to be bailed out and you know it, where the aversion to risk come from? Why not play with other people’s money a little more if there’s no death penalty for doing so? If you are a assured a fail-safe position, why not go for broke?

It seems to provide a perverse incentive to do exactly what you don’t want to see happen.

Our leadership is split on how they should approach it. I bet it doesn’t take you much time to figure out what part of the leadership sides with France’s concept and which would like to see an ongoing tax fund. You’re right, the administration wants to see assessments made after the fact and the Congress prefers a slush fund they can plunder an ongoing fund established (Unsurprisingly Ezra Klein of juicebox mafia fame finds this the most satisfying solution of the two).

Either way, it’s going to cost you money.

And instead of leaving the banks with the threat of punishment by the market for stupid risks (failure), they’ll collect money from you in the form of higher fees and other costs and pass them on to the government so it can subsidize their bad behavior and then wonder why its regulations didn’t work.

Oh, wait, we’ve already wondered about that, haven’t we? I know, let’s make even more regulations.

The core problem? It, like health care, remains unaddressed.

~McQ

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15 Responses to Oh, by all means – tax the banks

  • I wonder what happens when there is no one left for the Democrats to demonize?  Will they turn on themsleves?

    Or the citizenry?

  • “It seems to provide a perverse incentive to do exactly what you don’t want to see happen.”
    Quinn’s First Law: “Liberalism always generates the exact opposite of its stated intent.”

  • No No, ask Dr. Erb, he’ll tell you that companies don’t pass their costs on to the consumers, you dense righties just don’t understand how this works.  The money comes from…from….companies!

  • Well, you saw the Drudge headline right?

    “Obama to mount Spring Offensive- will take on banks, energy and schools”

    That’s all he has, that’s all he knows. Demonize, demonize, demonize. Whip up a fake populist frenzy as a flimsy pretext to tax, regulate, take over, destroy.

    • There is a law of diminishing returns in this strategy.  The more he demonizes, the more people come to despise him.  The energy companies may not care if he demonizes banks, but they care when he demonizes them. He pretty much took care of the doctors with the tonsils comment.   The wider his net, the more people he pisses off.  If we give this guy enough time, he will eventually piss everybody off.
      It just seems to be happening faster than predicted.  We are only 14 months into his presidency.

  • Any monies taken should be put into a “death box” .. it’s called a “death box” because in order to take money out if it somebody has to die (i.e. politicians, bankers, etc.) in response.  I propose the use of “extended waterboarding” to accomplish the task .. with “extended waterboarding”not only do you feel you are drowning but in fact you are and do.
    This concept will create a real sense of “risk aversion.”

  • Singaporean and Hong Kong banks are going to be very happy.

  • wow, at this rate, Dale could have his dog run for president and the dog would have possibly the greatest landslide in history

  • The problem with just letting the banks go bankrupt if they fail is that management is paid a lot of money regardless and may still act extremely stupidly. TBTF means we are still on the hook.
    Investment banks should be required to be limited partnerships where the partners’ personal wealth can be wiped out, and commercial banks should not be allowed to do their own trading. (Volcker Rule.) Not sure how to shrink them after that though, to where they can fail.

  • I am not so sure, it seems that these proposals have some merit. I like it a lot better than having a tarp.
    As for perverse incentives, I don’t buy it. Banks that got bailed out saw huge loss to the people running the banks and to the shareholders.  There were some well publicized pre-arranged pay offs. But those were not from the institutions that were forced to merge or sell assets. There will always be plenty of incentive to run your institution well.
    The problem comes from the nature of speculative bubbles. You ask how can intelligent men not see that they are putting their company at risk?  But that is the nature of a bubble, it all seems so safe and the profits so good at the time.  I don’t know of any feasible way to deal with that except to have very tough lending restraints that would hamper the economy.

    • “Banks that got bailed out saw huge loss to the people running the banks and to the shareholders.”

      Shareholders don’t make the decisions anymore. As for the  ones who do, I suppose that only getting more money than they can spend in one lifetime rather than more than they can spend in five lifetimes really hurts. How painful it must be to be unable to afford a $6,000 shower curtain.

  • Germany and Sweden would use the money to fund a “resolution authority” that would use the money to shut troubled banks whose failure would put the broader economy at risk. Others, such as France, would assess the fee after a crisis passed.

    I would like to believe that these governments are motivated by genuinely altruistic motives, but I smell a socialist / statist rat.  First of all, this seems a naked grab for money and power in the name of preventing another financial meltdown (does anybody believe that any funds collected will just sit in a “lock box”, or will they be spent on various pet programs and all that will be left in the box is a handful of worthless IOU’s?).  Second of all, it is based on an unspoken belief that the government knows better than the banks how to run their businesses.  I don’t know about government officials in other countries, but I wouldn’t trust that bunch of yahoos in Washington or Raleigh to manage a lemonade stand, much less run the banking system.  Indeed, the recent financial meltdown can be in large part traced to GOVERNMENT actions and decisions; the banks are not solely to blame.

    kyle8The problem comes from the nature of speculative bubbles. You ask how can intelligent men not see that they are putting their company at risk?  But that is the nature of a bubble, it all seems so safe and the profits so good at the time.  I don’t know of any feasible way to deal with that except to have very tough lending restraints that would hamper the economy.

    It’s not just bubbles: it’s any sort of speculation or extension of credit.  If Bob loans $10 to his friend Joe, he’s taking a risk that Joe won’t pay him back.  The safest action, therefore, is to not loan the money.  That’s fine on a personal level (assuming Bob doesn’t mind being known as a tightwad), but large economies don’t function without credit.  The governments seem intent on minimizing risk to the point that they will make banking and lending so difficult and unprofitable that nobody will do it.  Business will grind to a halt and, with it, all our livelihoods.

  • How about just not bailing anyone out? Then you don’t need a tax to build up a bailout fund, which you know would not exist as the tax money would used for anything but its purported purpose.

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