The government introduced new legislation to tax all “big banks” 0.15% of their assets to recoup about $120 billion in TARP money. What’s interesting is that the government is also taxing banks who did not receive TARP money, while conveniently leaving out AIG and the auto industry!
Three Takeaways From Asymmetric Regulation:
1) Because the government is imposing a tax on assets for all big banks, they are encouraging all banks to take excessive risk and accept hand outs in the future. If a non-bailed out bank is getting punished, why not join in on the fun too? Friends at government-owned Citibank all went down to the Rose Bowl using free $500 face value company tickets ($1,000+ in the after market) with tax payer’s blessings. Meanwhile another friend who works at a non-TARP bank can’t spend more than $100 for a client dinner total, without having to get approval. Message to friend: tell your bosses to party it up if Citibank is having a great time!
2) AIG is exempt from new taxation because AIG is 80% owned by the government. If the government punishes AIG, they are punishing themselves. Federal government employees are raking it in, and I’ve spent about one hour so far learning how be a $170,000 a year Department of Transportation employee if my blogging career doesn’t make it in three years. So exciting to have such a lucrative back up! Back off people, the job is mine!
3) The auto industry, which has paid back absolutely nothing, and is the biggest contributor of the $120 billion in tax payer losses is protected because the rank and file auto worker is deemed more precious than the rank and file finance worker. I’m all for helping out hard working people who had nothing to do with the collapse. But, what did your local TARP bank teller do? Nothing, just like the factory man at GM had nothing to do with the latest horrible design and corporate strategy of the 2010 Buick LaCrosse. Remember when GM executives flew in their private jets to the Congressional hearings? We need to support private jets for auto execs like we need to support higher taxes for more pork spending.
CONCLUSION
The past 24 months has shown you that you must look out for yourself first. When Armageddon hits, nobody else fights for you, because they are fighting for their own survival. Furthermore, if there is a government hand out, be it through home loan forgiveness or TARP money, take it and run. The government will spread out the cost to everyone so don’t be the one left paying for something without getting anything in return. Take advantage of the system, because the system will always take advantage of you.
Readers, do you believe the US autoworker is more precious than the US financial services worker? If so, why?
Do worker unions, like the United Autos Worker union play a big part in lobbying the government to take care of certain people over others? Is this fair? Would creating a Financial Services Workers Union help this group of people?
Do you think Congress will pass Obama’s tax proposal into law?
What government bailout money have you benefited from?
Keigu,
Sam Samurai – “Slicing Through Money’s Mysteries”
It would be naive of us to think these banks won’t pass on these charges to their customers. That’s how it works in New Zealand. :(
I sure don’t like when the government picks favorites!
Neither are better. Both should haven’t gotten squat!
Yes I believe our government is dumb enough to create this into law. It will increase loan rates, decrease fixed investments, and increase bank fees. Or at least that’s the excuse. Don’t forget about the proposed FDIC pre-payment.
I’ve gotten squat from the government and don’t plan on getting anything. The only thing I’m qualified for is for some some tax deductions.
.-= Investor Junkie´s last blog ..Weekend Reading for January 16, 2010 =-.
Yeah the biggest problem I have w/ this crap is that the auto companies contributed to TARP losses yet will not be hit to recover those losses.
No matter where people stand, people need to realize that every government action results in a negative consequence somewhere else. Pick a winner over here, somebody over there loses. Best solution is for the Feds to stay out of it completely.
.-= 20smoney´s last blog ..Waiting For The Depression… =-.
You don’t back up your claim that it is unconstitutional… You should either back up your assertion or remove it from the title.
Penalizing everyone for the mistakes of some will not encourage fiscal resposibility and accountability. What’s also interesting to note (in the article you linked to) is that the goal is apparently to prevent future excesses, and not to punish past behavior. If anything, it’s just punishing you for being big.
What’s stopping them from penalizing only those who spent TARP funds irresponsibly and recouping the portions spent in excess?
.-= thriftygal´s last blog ..Realigning your financial dreams =-.
I agree that the tax is punitive in nature and a bad way to legislate tax policy.
I understand your reasoning when you said that this tax will encourage banks to accept hand outs in the future. However, the entire point of the tax is to stop the excessive risk taking that enabled this economic mess in the first place and required government intervention, “hand outs”, to fix. If the tax does what it’s supposed to do, no one will get a “hand out” in the future, because there will be no economic mess of this magnitude for a government bail out to be required.
The bail out was meant to mollify damage to the financial system that would cripple the economy of the world. It would have been a lot worse for everyone if we let AIG and Citi fail. Even though our economy is not in great shape right now, the assumption is that it would have been a lot worse had the government had not stepped in.
There’s already a moral hazard among banks that believe that they’re “too big to fail”. I think some of the main issues concerning the financial system right now is how to curb excessive risk taking and how to avoid the “too big to fail” problem.
A lot of banks have been changing their compensation structure to better align the interests of employees and the long-term value of the firm. For example, restricted stock bonuses are awarded at some banks are vested over 3 or 5 years as a way to discourage short-term risky deals. It seems like this tax is another way to try and curb risky behavior.
I’m not sure that it’s the right thing to do but it has its merits.
.-= Mike´s last blog ..Getting Rich: How I Make an Extra $1,000 Every Month Freelancing (and you can too!) =-.
@thriftygal
You’re right. They are punishing banks for being big. That’s one of the goals of the tax.
They want to have less banks that are “too big to fail.” Banks that are too large and fail can effectively ravage a financial system because of their critical roles in the world economy. These are banks like Citigroup and institutions like AIG. For example, if AIG defaulted on their obligations, all of AIG’s counterparties would have to take losses depending on how large their exposure to AIG was. For those counterparties that have a lot of exposure to AIG, they’ll take huge losses and will most likely default on their obligations. That process repeats and becomes a ripple effect that could cause the failure of a financial system.
If each and every financial institution were tiny, the failure of one institution would not have any significant impact on the financial institution as a whole. The concern here is that smaller institutions don’t have economies of scale or scope, become less competitive and are less convenient for consumers. It’s a balancing act.
One of the biggest concerns that people who are responsible for “fixing” the financial system now is how to address that “too big to fail” problem. So, you’re absolutely right. This is a penalty for being big.
.-= Mike´s last blog ..Getting Rich: How I Make an Extra $1,000 Every Month Freelancing (and you can too!) =-.
I haven’t had the “good fortune” to benefit from the bailout money yet. If I purchase a house this year, I may receive a tax credit. But that’s only if they extend that baby for the next year.
As part of a union myself, there are good and bad things about them. They help guarantee strong wages (though teachers are possibly the worst paid profession for their amount of education), but they have contracts to keep on poor preforming employees. It’s a catch-22.
So would I take the money and run, maybe? We’re all going to have to pay for this craziness in the long run, now aren’t we?!
.-= Little House´s last blog ..LA Gets Stuck in the Rain… =-.
…do you believe the US autoworker is more precious than the US financial services worker? If so, why? – Autoworkers produce a product while the financial services worker provides services, and while you can argue a lot of those services are unnecessary I can always buy a used car but I can’t buy used services. In my book that ranks them a bit higher.
Do worker unions, like the United Autos Worker union play a big part in lobbying the government to take care of certain people over others? Is this fair? Would creating a Financial Services Workers Union help this group of people? I think they lobby too much, and I think lobbying in general is unfair. Government needs to be more transparent and we need to abolish all these quid pro quo deals between lobbyists and legislators. I think the UAW’s days are numbered and they’re partly responsible for the mess the auto industry is in. More unions will only exacerbate the problem.
Do you think Congress will pass Obama’s tax proposal into law? God I hope not. But that would be change, and change is good, right?
What government bailout money have you benefited from? Nada. Zip. Zilch. Zero. Nothing. Not one red penny (not sure what that is but it sounds good). If anything I’ll probably be worse off as a result of the trickle down effect of the bail out plans.
Great article, don’t know how you keep coming up with such great topics :-)
.-= David @ MBA briefs´s last blog ..How to analyze stocks like a pro – part 5 =-.
Why do you have to pick on the little guy. The autoworker is not the one to blame, it’s the crony unions that have done it. The bailout wasn’t for the “car company” it was for the unions. The health care bill is just one more example.
Outside of the unions I believe we should value those who produce more than those who serve. Financial services simply moves paper while manufacturing produces real wealth.
.-= LeanLifeCoach´s last blog ..The Book That Changed My World =-.
First of all, you can’t squeeze blood out of a turnip. You ask why AIG and the auto-industry are not going to be taxed, and it is because there is nothing really there _to_ tax. The banking industry, on the other hand, is all over itself giving out new record bonuses, less than a year after they _should_have_ gone bankrupt. So, you can squeeze blood out of the banking industry, and a lot of it.
And I say: damn straight, tax them hard!
If they do not pay the money back, then you are really saying that every taxpayer is “eating” the $120billion loss. I seriously doubt that the $120billion was used to help me, so why should I pay it off? Tax the banks to recoup the losses, which will in turn pass the costs down to bondholders, customers, shareholder, whomever — those were the people that were ‘bailed-out’ and hence should pay anyway,.
This is just more of the same from Washington elites. Protect your own and punish everyone else. It’s the same thing as with the health care bill. They know it isn’t a good bill, so what do they do? They exclude themselves and the folks in the union from having to participate in parts of it. If you’re one of us you won’t have to pay as much. With the bank taxes, why would they punish the companies that were more responsible and that didn’t take TARP money? Because they want to have more control over these companies and if they can’t get it by getting them to take TARP money, they’ll get it by levying taxes to help pay for all the companies that did take TARP money. *sigh. Not sure what we can do to reverse this trend – once certain groups start getting money or favoritism in some way – it’s hard to get it reversed.
.-= Peter´s last blog ..Blueprint For How To Make Money With A Blog: Advice From Successful Bloggers =-.
@BG
Two comments to your rant:
– The banks paid paid TARP; AIG and auto did not. Why punish people who followed the govt rules? The auto companies are done, stick a fork in them. Mark my words we’ll have another Amtrak and will be paying for them for many years to come.
– Oh you will be paying it back one way or another. Unless you put your money under your mattress you’ll pay for it. Do you think when the banks are taxed that you will not be affected by this? By increased bank fees, decreased savings rates and increased loans rates? Since this would affect the top 50 banks, your only cover is maybe local banks and credit unions.
.-= Investor Junkie´s last blog ..Weekend Reading for January 16, 2010 =-.
@LeanLifeCoach
Lean – Not picking on the little guy from UAW at all “I’m all for helping out hard working people who had nothing to do with the collapse. But, what did your local TARP bank teller do? Nothing, just like the factory man at GM had nothing to do with the latest horrible design and corporate strategy of the 2010 Buick LaCrosse.”
@Peter
Very well said Peter. I don’t understand either. I’d be ineresting in reading more about the health care bill, and what you discussed regarding excluding themselves and the union.
@BG
Why not just tax the heck out of big banks that were irresponsible and took TARP? If there’s nothing for the gov’t to tax at AIG and the auto industry, should the AIG and the auto industry continue to exist?
@David @ MBA briefs
Disagree on the financial services worker providing little to no value. At the very basic level, Credit is the lifeline of making dreams happen (loans, mortgages). Regarding good topics, so long as humans exist, there will always be plenty of great things to discuss!
@Little House
I’m perplexed as to why the Teachers Union can’t influence more to RAISE teacher’s wages. Teachers are in the top tier of valuable workers in my mind, hence their wages should be more commensurate.
@Mike
Why not just tax the TARP banks then? Why punish other banks? Taxing all banks encourages more risk taking in the future.
The tax system should be fair and just… What is happening? This is crazy!
Again, I’m going to stick to my assertion that change isn’t always good for the country. Too bad we are just realizing this now.
Who is the government making policies for? Certain not us…
.-= Money Reasons´s last blog ..The Three Little Pigs, Pig #2 =-.
@admin
As ThriftyGal mentioned, “the goal is apparently to prevent future excesses, and not to punish past behavior.”
.-= Mike´s last blog ..Getting Rich: How I Make an Extra $1,000 Every Month Freelancing (and you can too!) =-.
@Mike
Note to government. Good luck with that!
.-= Investor Junkie´s last blog ..Weekend Reading for January 16, 2010 =-.
@Investor Junkie
I have disagreed with the bailouts from day 1. These mismanaged corporations should not even exist today (Goldman Sachs, AIG, etc, etc) if it wasn’t for the government cherry picking lead by ex-Goldman CEO, and newly appointed Treasury Secretary, Henry “the hank” Paulson — we wouldn’t even be discussing recouping lost taxpayer monies. I can’t believe this @$$hole, that had a _major_ part in the causing of this crisis (as CEO of Goldman Sachs and leader in collateralized debt obligations CDOs) was allowed to use MY TAXPAYER money to enrichen his already stupidly rich buddies.
WAKE THE HELL UP!
And you want me, main street, to just eat this loss that only benefited wall street?
Tax the damn banks, and tax them into oblivion as far as I’m concerned because they shouldn’t even exist today anyhow.
@BG
Ah I get your logic. The goal of the government though is not kill their prey, only neuter it. What good if a bank is dead if it generates zero taxes for the government?
.-= Investor Junkie´s last blog ..Weekend Reading for January 16, 2010 =-.
@BG
I was hoping to get some free NBA finals tickets from Citibank since I helped bail them out as well! BG, I’m all for massive taxation on certain banks, but not all banks. Why punish the responsible?
@Investor Junkie
Good reasoning!
170k dep’t of transportation employee… when will we wake up?
It’s all about capital allocation. We are allocating precious capital to non-economically viable places (i.e. GM / Amtrak). If government were not taking this capital from the citizens and allocating it according to political means, this capital would be naturally allocated towards economically driven places for the sake of growth and profit (not votes).
I hate to say it but this is going to all come crashing down…. eventually… Gosh, I hate being the pessimist all the time!
.-= 20smoney´s last blog ..Five Things I Have Learned From Haiti =-.
@admin
I probably wasn’t very clear – my point was you can resell a product but you can’t resell a service, which in my mind makes the financial services worker MORE important. Somebody could counter my argument and say a lot of those services are unnecessary (repackaged toxic assets, anyone?) but I think that’s the exception, not the rule. If the Big 3 automakers went out of business tomorrow it wouldn’t be the end of the world, but it would be a different story if something similar happened in the financial sector. I don’t think they need a union though, and I personally think the day when unions were absolutely necessary are long gone. They were a necessity in Henry Ford’s day when workers were treated worse than livestock but now I think they’ve become a liability.
.-= David @ MBA briefs´s last blog ..How to analyze stocks like a pro – part 5 =-.
@20smoney
We have a system, where executives are keeping corporate profits, and the taxpayers pay for any losses. We have successfully privatized gains, and socialized losses.
It’s time to burn the place down and start over.
Agree with BG, the system is a mess. The bondholders and stockholders should have taken the losses, that’s part of the risk/reward of investing. Now I’m helping pay for their investments, but don’t get the benefits if the companies turn it around.
Also, the taxing idea is silly, of course the banks will jack up fees to pay for it. But this is Congress we’re talking about, it’s the easy solution and when their lemming constituents hear the “big bad banks” are being taxed it gives them something to talk about with their drinking buddies.
GM & Chrysler are about dead anyway, there’s nothing to recover from them. My guess is Ford will be the last of the big 3 standing and Jeep will be sold off or spun off since it has some history.
Let the banks fail.
Let the car companies fail.
Let Joe the Plumber fail.
On the flip side, let anyone succeed who wants to succeed by their own ingenuity by not punishing them with absurdly high taxes.
It’s a sad day when a bunch of semi crooked or outright crooked lawyers with zero business experience (AKA our government) are making decisions that will effectively control such a large percentage of our economy.
.-= Credit Card Chaser´s last blog ..Are Credit Card Companies Evil if They Don’t Waive Fees on Haiti Donations? =-.
I honestly don’t have much to add but I thought I would comment to say I agree with you. This tax shouldn’t go through Congress and it hits banks that did not take bailout cash. They shouldn’t have been given the bailout cash in the first place, but now that they do they need to remain competitive and I can tell you that I wouldn’t want to work for a company who is being targeted by the government.
.-= David@noisecake´s last blog ..BRIT Awards: Best Album In Past 30 Years Nominees =-.
I think we call all say the common theme today is: Less govt = more gooder.
To err is human, but to really mess things up requires government. ;-)
.-= Investor Junkie´s last blog ..Weekend Reading for January 16, 2010 =-.
@Investor Junkie
“Less govt = more gooder”
Well said. The gov’t isn’t a well oiled machine, regardless of which party is in charge. What angers me even more when the media doesn’t report about the situation, as it is. I couldn’t stand fox when Bush was in office and now I can’t stand CNN when the Big O is running things.
@admin
Want to get angry? Read the list of proposed taxes Obama has put forth! Its staggering the amount they want to suck from everyone, to support a bill that the American people DO NOT WANT.
.-= Evan´s last blog ..All of Obama’s Proposed Taxes Listed (well not All because there are just too many)! =-.
@Credit Card Chaser
“Let Joe the Plumber fail.”
Anybody who actually believes that a _plumber_ could afford to purchase a business that profits $250k a year is either:
1) a congressman / running for president
2) a home mortgage originator
3) on crack
Joe the Plumber shouldn’t even get a chance to fail! We should have regulations to prevent completely dumb / absurd risk taking, and requiring, at least the banking industry, to strictly adhere to time-tested conservative financial product offerings only. Obviously the banking industry has not come up with anything of value in the past 80 years, so it’s time to cut off the “innovation” in this area and spend capital on more worthwhile areas — hell, even nationalize the industry to prevent any attempts to “innovate” in the industry and fsck us all over.
Is there any other industry that has the ability to completely destroy society / wealth as we know it? Even a nuclear power plant melt-down would have cost less than what the ‘banking industry’ cost the US taxpayer.
Actually, it was the equivalent of 186 Nuclear Power Plant meltdowns…
@BG
It’s actually not unbelievable at all that a plumber that owns their own business could afford to purchase a business that profits $250k a year. Yes, not any old plumber with an employee mindset but a plumber that has an employer mindset and manages a number of other plumbers and owns his own company is very believable.
As for your ridiculous comment that “Joe the Plumber shouldn’t even get a chance to fail” I would advise you to first take at least an Introduction to Business Principles course at your local community college or a Finance 101 course so you can understand that there is always risk and a risk/return relationship with any form of business venture.
To attempt to stifle all risk as you propose (and even worse stifle the risk by a 3rd party like the government and take away Joe the Plumber’s right to attempt to make a success of himself, succeed or fail, is even “wronger” :) ) is pretty close to impossible and actually a major detriment to the economy and society as a whole in the long term.
You are actually exactly backwards in your thinking about risk and innovation but I would agree with you if you would reword your argument to make the case that there should be better safeguards in place to prevent the risking of other people’s money and to better promote transparency.
Also, you do realize that it was the Federal government that decided that it was a good idea to waste all of the taxpayer’s money on bailing out all of the banks that should have been left to their own devices to go bankrupt right? Absent the government’s intervention then not a dime of taxpayer money would have been wasted and a lot of the mess that is still being allowed to go on would have likely already been corrected by now due to natural free market forces (bad company makes bad risky bets = should go out of business NOT get propped up by the government to continue doing bad business practices).
OR of course we could just trust the government to control everything for us because we all know that they have our best interests at heart and are so competent at everything they do :)
.-= Credit Card Chaser´s last blog ..Are Credit Card Companies Evil if They Don’t Waive Fees on Haiti Donations? =-.
@David @ MBA briefs
Ah, gotcha. Thanks for clarifying. The service business is what makes this economy tick.
@Evan
Read your article. Aren’t you for taxing everybody out the wazoo, so long as it doesn’t affect you? I know I am! Higher taxes for all!
@20smoney
$170,000 is a great income for a DOT employee, not to mention job security, and a likely pension, which is what is really important. If you can’t beat them, join em!
@Kevin M
You bring up a good point. Why shouldn’t the shareholder pay for the burden? Shareholders have a right to not own the shares if they dislike where things are going. However, if you are a rank and file finance worker, it’s not that easy to just quit your job, esp in a downturn, and esp if you have people to provide for.
Do worker unions, like the United Autos Worker union play a big part in lobbying the government to take care of certain people over others? I believe the unions use to have a much larger voice in the govenment through lobbying. Their numbers continue to decline and the with that will go the much needed union dues to pay for it. Yes, they did get the goverenment to fund the bailout but I don’t believe they did it on their own. Is this fair? No, but special interests do it all the time. Frankly it makes me sick to see how policies and bailouts are sold to the highest vote getter. Would creating a Financial Services Workers Union help this group of people? As long as the group can provide the votes needed to help our whoever is in office, yes.
Do you think Congress will pass Obama’s tax proposal into law? Of course they will, people still hold the banks at fault for the down turn. Members of congress will want to back the bill to remain in the good graces of their districts (if that’s at all possible anymore).
What government bailout money have you benefited from? Ok, I confess. I work at bailed out company (automotive). I have benefited because I still have a job. Do I agree that my fellow taxpayers should be called upon to fund my job, no. I believe in the free market and that the company with the best products should come out on top. Do I believe that our country has set up some huge trade imbalances that have hurt the big 3 for many years? Yes. Do I believe that we (big 3) need to prove that we are better? Yes, and I’m working my hardest to help my company do just that.
I’m a believer that Big government is not the answer. There will ALWAYS be a group that will be excluded. Big government just breeds more lobbiest.
.-= Jeff´s last blog ..Debt Free Christmas 2010 =-.
@Credit Card Chaser
Well said. Why CAN’T an entreprenurial plumber start his own plumbing empire and make hundreds of thousands of dollars? This is America!
@Jeff
Yo Jeff, thanks for your thoughts. Well said, and good insight given your experience in the auto industry. As I write,
“But, what did your local TARP bank teller do? Nothing, just like the factory man at GM had nothing to do with the latest horrible design and corporate strategy of the 2010 Buick LaCrosse.”
Hence, I’m not against the industry commoner at all. The industry commoner are victims of misguided C–level execs who need a new vision.
I wouldn’t be too sure about the bill passing now that the Mass. Senate race is likely to be won by a Republican. Will be interesting.
What I meant was that no bank should be allowed to even _lend_ a simple “plumber”, who isn’t even a licensed plumber, enough cash to purchase a business that supposedly profits $250k a year.
You realize we had banks creating zero-down mortgages for purchasing $1 million houses to people we later found out only earn $40k a year? This is the type of failure that I’m saying we should not even be allowing to happen (American dream be damned).
Banks should be required to only take _acceptable_ levels of risk. All others should seek private capital (suckers) to fund their ridiculous endeavors.
@BG
I completely disagree. A bank should be able to lend to anyone as much or as little as they would like to without having the government or any other 3rd party tell them what is “an acceptable level of risk”.
Now where we can both agree, and where the problem really lies, is when there is dishonesty and a lack of transparency all around.
The borrower lies about their income, the broker lies about the income verification on the application, the bank lies about their balance sheet to the rating agencies, the rating agencies lie to the investors about the level of due diligence that they have given to determine the risk, the investors lie to the government and say they shouldn’t be held responsible for their own bad investments, and then the government lies to the taxpayer and says that by them taking over everything they will make it all better.
They way to solve the problem is to require 100% honest and upfront disclosure about every step of the process and then people and banks can choose to do whatever they wish to without the government coming in and strong arming people into acting a certain way.
.-= Credit Card Chaser´s last blog ..Are Credit Card Companies Evil if They Don’t Waive Fees on Haiti Donations? =-.
Government is corrupt, corporations are corrupt, and unions are corrupt. Something has to give. I’m waiting for the revolution.
yeah, things are messed up and we’re going to have to fight harder to avoid bank fees.
@Credit Card Chaser
I don’t think there was dishonesty here (for the most part) — the mortgage ‘products’ that the banks were pushing were ‘No Documentation’ loans, especially in the bubble states of CA and FL.
As for the statement that banks should be allowed to take whatever risks they want without oversight — I would only agree with that statement if, and only if, these banks are also allowed to fail on their own. Since we have established precedent that the US government is going to be bailing out the companies on their bad gambles (at least cherry-picked banks will be bailed out), then we need to protect the taxpayers by forcing banks to not take on unacceptable levels of risk.
I’ve said it before, and I’ll say it again, you can’t have capitalism if mismanaged companies are not allowed to fail. We are not allowing ‘too big to fail’ banks to die, therefore this is no longer capitalism and the rules have changed.
Forcing the bailed out industries (banking representing 70% of all TARP funds) to pay back every penny of taxpayer losses, could undo this mess and get us bank onto the road of capitalism.
FYI — there are some inaccuracies in the numbers. AIG (along with the banks) are required to pay the tax, and it is only the auto-industry that is not required to pay the tax. The auto-industry only represents 17% of the spent TARP money.
These taxes are partly a sort of stick, I agree, and only bankers really care about them because bankers only care about their income, as a rule. It’s not a surprise, perhaps, that those most motivated by money should congregate in the most money-driven arena but it has unintended consequences.
Also, as we’ve discussed many times bankers are completely incapable of seeing how their behaviour and practices caused the crisis (rather than preventing it – what happened to ‘as safe as the bank’?) , that they have just ridden the liquidity issued to solve the crisis to huge profits, and that getting rich on the back of both with personal bonuses offends everyone else.
Finally, these taxes drain some of the excess profitability out of banking that enables those bonuses. In time, regulation will probably do the job too.
Still, good controversial post Sam — all helps with the Alexa ranking eh? ;)
It was not a case of picking favorites at all. The bail out was needed. It’s not a case of better it’s about saving the economy and jobs.
Did someone send Obama a link to this post? He just came out saying that he OPPOSES the Big Bank Obama tax, saying it’s unfair to punish banks who paid back TARP!
(Sorry, just to clarify my unclear first paragraph, I mean other people understand taxes have gone up to pay for the deficits run up in the downturn or whatever. They realize there is a price to be paid for things. Bankers, who are the most culpable, in my experience are the most outraged at the price to be paid, irrespective of whether it’s targeting them or not).
@The Genius
Huh? He’s the one that started the idea. Maybe it’s related to loosing the Senate seat in MA. Maybe this means he’ll move left of center, like Clinton did.
If that is the case, then banks should be nationalized, ala Ireland. This way profits are not privatized for the few, while the losses are spread out for all.
@BG
I agree with this statement of yours “I’ve said it before, and I’ll say it again, you can’t have capitalism if mismanaged companies are not allowed to fail. We are not allowing ‘too big to fail’ banks to die, therefore this is no longer capitalism and the rules have changed.”
@Monevator
Bankers have lost an equal fortune in this downturn. Look at the share prices of many banks where much of their wealth is tied.
I guess the post is controversial, but it’s my honest opinion. As for the Alexa ranking, I need all the help I can get!
@The Genius
Nice! Send a link. I guess given The Samurai Fund is a $100 million shareholder of BRK-A, maybe Warren read the post, and is fighting for capitalism and honesty!
Here it is folks! Warren read our post, and is in agreement and Opposes Obama Bank Fee!
Buffett Opposes Obama Bank Fee, Likens Plan to Taxing Congress
January 20, 2010, 01:09 PM EST More From Businessweek
By Andrew Frye, Betty Liu and Jamie McGee
Jan. 20 (Bloomberg) — Warren Buffett opposes President Barack Obama’s proposed levy on financial institutions because firms including Goldman Sachs Group Inc. and Wells Fargo & Co. already repaid bailout funds.
“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”
“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” Buffett said. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”
“Most of the banks didn’t need to be saved,” Buffett said. “Including Wells Fargo.”
@admin
So…if the tax is killed, then that means the taxpayer is on the hook for the lost upteen gajillion dollars.
I don’t see how this can be interpreted in any other way, except as welfare for the banks. Distribution of wealth indeed. As for the Freddie/Fannie comment — those are quasi-government agencies, so the taxpayer should rightfully be on the hook for their losses.
And that statement about “Most of the banks didn’t need to be saved”?!?! Is he trying to rewrite history or what? As far as I remember, Congress was told by the _bankers_themselves_ (and Buffett) that we absolutely had to have this bailout — the we MUST PASS THIS PLAN. That this was an “Economic Pearl Harbor”. Unbelievable.
My respect for him just dropped a few notches.
BG – It’s true, some banks such as Wells Fargo absolutely did not need it. Hank and Ben forced the 7 banks to all take it, so as to not single out the weak banks (BOA, Citi), and thereby cause a bank run.
Let’s not kill the tax, let’s tax the banks who took TARP, or who are still owned by the gov’t (Citi), and NOT the banks who didn’t take gov’t money! Why is this so bad?
@admin
As far as I can tell, the tax only applies to banks with assets valued at over $50b. This would not apply to the credit union down the street.
The tax is targeting, specifically, the ‘too big to fail’ banks that presumably were the recipients of TARP. I haven’t seen a list of banks affected, and compared that to whether or not they needed to be bailed out. Regardless, TARP is losing money — I’m guessing by bailout-out institutions that were just beyond saving. The surviving members of that industry, together, need to pay it back IMO.
Listening to the Warren Buffett of today, it’s like we didn’t even need bailouts at all. Such a massive shift from the Warren Buffett a couple of years ago. It sure sounds like it was Warren Buffett that needed to be bailed-out, and now he doesn’t want to pay his part back (through his holdings).
This entire deal stank from the beginning, and is starting to stink worse. Main Street couldn’t have gotten screwed any worse.
Warren said: “I don’t see any reason why they should be paying a special tax” — my answer to him is that I can give him 85 THOUSAND MILLION ($85b) reasons why they should have to pay a special tax.
BG – And yet you gave BOAML, Citi, and Wells Fargo 60 thousand million ($60b) last Nov/Dec 2009 when they raised money from you to pay you back (TARP), so they can pay themselves bonuses. Please explain yourself as it is inconsistent. Not all big banks with assets over $50b took TARP either.
@admin
I’m don’t think I’m being inconsistent (not trying to be). I’m just looking at the big picture here. The taxpayer is down $85b for TARP money used to supposedly bailout banks (not counting autos) that you (or Warren) are now arguing didn’t even need it.
Either way, taxpayers need to be made whole — _someone_ needs to repay the lost $85b.
From the article: “So far, the Treasury has given $247 billion to more than 700 banks. Of that, $162 billion has been repaid ”
Let me be real clear here: If the banking industry needed the taxpayer to step in to save their ass, then the banking industry (together, what’s left of it) needs to pay it bank now that their ass has been saved. I don’t care if the banks want to work this out between themselves who should pay what — but they (the industry) need to pay it back.
I’ll even amend that. Any banks that went before Congress AGAINST the bailouts and TARP in general (before the legislation was passed), should be immune to any taxes or fees to recoup those losses — even if they were forced by Bernanke to take the funds (I think BB&T would fit this bill).
Absolutely. I may be a couple days late on this one, but its the first thing I noticed.
@fredct
Not sure whats going on, but that was supposed to be a reply to ‘spiteface’, saying that you did not defend your assertion that its “unconstitutional”.
Fredct – Isn’t it obvious that discriminating against innocent people is unconstitutional?
@admin
Discriminating based on what? Private businesses do price discrimination all the time… child discount, senior discounts, early bird discounts, saturday-stay-over discounts, business fares, group rates, frequent user discounts, online purchase discounts, etc… all of these are discrimination based on certain criteria, which benefit some and disadvantage other ‘innocent people’.
Other than description based upon certain protected criteria (race, gender, etc), no, discrimination is not illegal. You probably are exposed to it multiple times per day, all completely legal.
Fredct – It’s too obvious that taxing banks which didn’t take TARP is unconstitutional for me to argue with you. Feel free to write your own post to argue why you think it is OK. Would love to read it!
@admin
Things aren’t unconstitutional because you don’t like them. They’re unconstitutional for a specific reason. The idea of something being ‘too obvious to argue with you’ is oxymoronic.
Legal-wise it would be nothing more or less than a fee on banks with assets above a certain level (from what I understand of it). Care to provide a reason why that would be unconstitutional? If you can’t provide an explanation or defense of your assertion, then you shouldn’t make it.
Fredct – The great thing about having my own site is that I can say whatever I want, just like you’re free to go visit elsewhere if you disagree. Would love to hear your rebuttal. 750 words would be a great! thnx
@admin
I love the idea that I have to dispute an argument you’ve never made. If you want to have an actual discussion of the matter by explaining your rationale, I’d be happy to.
In the meantime all I can say is that its no different than any other tax or fee that may be levied. The others have stood the constitutional test for decades, and there’s no reason I am aware of that this idea wouldn’t also.
@admin
P.S. yes, its your site, you can say whatever you want. Its your constitutional right (speaking of) to free speech. But refusing to explain your statements nonethless exposes the apparent lack of truth behind them.
@fredct
Love the debate! Fredct, if you don’t have to dispute an argument FS never made, why the hell do you care? Are you the guy on message boards who point out spelling errors and generally annoy people?
Why don’t you contribute to the discussion about bank taxation? You’re a curious fellow.
@The Genius
Genius, I care because I want others who made read this to understand that FS’s stated opinion is entirely undefended and shouldn’t just be taken at face value. I don’t give a darn about small accidents like grammar and spelling. I do care that someone trying to criticize proposed policy as unconstitutional be able to explain themselves.
If you’re asking me what I would do with the banks, what I feel would be the best policy would be to break up the ultra large banks. Bank that gets so large that the irresponsibility of a few executives can put a national economy at risk is just not safe for the American people. But I’m (admittedly) not sure about the legality of that, and from a pramatic perspective, I don’t think it’ll happen. Short of that, I have no issue of the policy of taxing ultra-large banks to discourage their formation and keep more competition in the markets.
I think it’s a sad reflection of our country’s socialist shift & fiscal irresponsibility over the last decade.
NOTHING should be to big to fail. Piecemeal out the failed assets and let those who actually HAVE been fiscally responsible be the winners. Any gov’t injections should be tied to infrastructure investment or as a match to encourage citizens to pay for their own stuff.
Check out the 2-part “MyMoneyMinute Stimulus Plan” I wrote last year and let me know where you agree:
Part 1: https://bit.ly/aTGmrE
Part 2: https://bit.ly/dAoXxO
@Jason @ MyMoneyMinute
It’s not that the banks are too big to fail, it’s that they are too big to be bailed out…
I agree with fredct, there is nothing unconstitutional about having a targeted tax — government does it all the time. Tax the things they do not want you to be/do, and give tax breaks on the things they want you to be/do.
If the tax is targeting banks with assets over $50b, then that is the government saying we don’t like banks to have assets over $50b. This is just like the insanely high tax on cigarettes — government doesn’t want you to smoke.
government won’t create jobs (other than federal jobs) and won’t fix our economy. they won’t fix our problems they ARE the problem. I’m still waiting for Americans to “get” this.