Too Big To Fail Tax
If you want less of something, tax it.
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Yesterday, the news broke about a tax on the large banks — it was ostensibly designed to close the deficit. Instead, I’d like to rename it the Too Big Too Fail Tax (TBTFT).
What I found interesting about the tax is the somewhat misleading way it has been premised — namely, that it is payback for all of the Non-TARP subsidies the banks have been enjoying at the expense of the taxpayers. Further, went the MSM narrative, such a tax at a time of populist outrage over big bonuses is a slick political move calculated to assuage the angry masses.
I am not sure how clever the Obama brain trust is — so far, the answer has been “Not very” — but there is an opportunity here for a third basis for this tax. Let’s call it the TBTF tax.
A brief explaination:
So far, we have learned that Wall Street has become impervious to regulation. Our Parliament of Whores is bought and paid for, well greased by the Street’s lobbyists. Wrap your lips around this big purple legislation and suck. Even the most benign regulation — i.e., a basic disclosure of mortgage costs relative to a plain vanilla, 30 year fixed — has been thwarted.
When lobbying prevents even the most simple of consumer disclosure legislation, you have a broken political system. Such failures can only occur when a democracy has been lost — when corporations own Congress, when the will of the electorate is ignored, when money has utterly corrupted the political process. Have no doubt about this: Our experiment in Democracy is nearly over; we have morphed into a Corporatocracy – a government by and for large corporate interests. Let’s pray it is only temporary.
Pushing regulation through the front door may have become impossible due to this corruption; However, a TBTF tax can be passed because it raises money to close the deficit. It will be difficult to vote against, given all the undirected anger against banks and wall street during big bonus time.
And, here’s the interesting part: It could potentially do more than reduce the deficit — if it goes far enough, it could actually solve the TBTF problem. Exempt small regional banks with under $25 billion in deposits. Make the tax progressive so it become increasingly larger as deposits become greater. $25-$50 billion in deposits is one fee (Let’s say 0.1%, that’s $25 million on $25 billion in assets). Have it scale to the point where its punitive — 1% on a trillion dollars in deposits.
The goal here isn’t to raise money — its to force the TBTF banks to become smaller — to break up the Citigroups and the Bank of Americas. This tax will restore competition to the banking industry.
These jumbo firms are the ones that can and will bankrupt the FDIC; They are the ones that put the entire system at risk. The bailouts reduced competition for them, and allowed a concentration of power that has been unprecedented.
Penalize them.
It could in theory appeal to both parties out of a sense of self-preservation: The GOP recently rediscovered the evils of Deficit Spending (now that they don’t control the White House); Democrats (excepting Clinton) tend to be big tax & spenders, and have usually paid mere lip service against the deficits. But a TBTF Tax could have bi-partisan appeal.
If we as taxpayers are on the hook for past and future excesses of bankers, we have the right to a) protect ourselves and 2) exact a payment, both after the fact and in anticipation of the next crisis.
Despite the theatrics we are likely to see today from the Financial Crisis Inquiry Commission hearing, there is a possible solution. If our broken Congress cannot regulate the Too-Big-To-Fail banks, at the very least, we can tax the hell out of them.
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January 13th, 2010 at 8:01 am
You go girl!
January 13th, 2010 at 8:03 am
“If you want less of something, tax it …. Too Big Too Fail Tax” .. the Robinhood storyline .. I keep hearing this storyline – its Wall Street that turns straw into gold .. NOT – its the collective system working in sync
in sync means balance and not a concentration of power
I wanted to send a post via HuffPo but the signup and perceived waste of time of it all .. “Fed Regional Bank Structure .. get it strong again and not so NY centered .. with some kind of PayGo Balance across lines to center peoples minds on paying for what you can produce in territory” …..
many years ago I also had that same concept on pollution storage and management .. but that also went over like a lead balloon
January 13th, 2010 at 8:05 am
There is a giant pile of shit out there — I’m still looking for the pony . . .
January 13th, 2010 at 8:08 am
Seems like there is plenty of the financial services industry that we could use less of. I heard the argument that we had to tax the middle class this morning, I still have yet to understand how much revenue you are going to get out of families making 30K, half of which is health care.
But I’m not a financial genius like the ones that have Wrecked the country, I’m sure they have some idea on how to do it.
I’m sure the Tea Bagger Geniuses, are right on top of it.
January 13th, 2010 at 8:09 am
Our esteemed host writes “…We have morphed (hopefully temporarily) into a Corporatocracy — a government by and for large corporate interests…” But we have been a practicing corporatism for roughly two hundred annum…
http://en.wikipedia.org/wiki/Corporatism
… with the most recent example the labor unions (yes Virginia, it’s not just corporations under Corporatism) insisting that they shouldn’t “pay for health care…”
http://politicalticker.blogs.cnn.com/2010/01/12/democrats-unions-struggle-to-reach-health-
care-consensus/
With some labor leaders claiming, ironically, “AFL-CIO President Richard Trumka warned Monday that Democrats risk losing critical union support in the upcoming midterm elections if they don’t drop the tax…”
So labor’s going to go GOP in ’10? …only in a corporatist system does that kind of howler any attention.
Yet “clout” for a minority interest – whether it’s labor, oil interests, financial institutions or bloggers – is how our system is designed. It’s down right Madisonian…
http://www.constitution.org/fed/federa51.htm
The Obama administration is clever, very clever. You simply have to evaluate them realistically. This is always difficult in politics, since there’s no control group … with the possible exception of other nations like Libya, Sri Lanka, Ghanna, George Bush’s America, etc… etc…
January 13th, 2010 at 8:17 am
‘at the very least, we can tax the hell out of them.’
Nice Daydream, Barry. Now, back to work…..
January 13th, 2010 at 8:28 am
And of course…
http://www.constitution.org/fed/federa10.htm
January 13th, 2010 at 8:38 am
I forget the name of the theory, yet, it goes something like this………….when a problem is not solved you add 50% of the total time it has been a problem for the next possible point of solution………..so, we’re at 15 months, we got 7.5 more months to go when a consensus might come, of course at that point, if it is not solved, you got 11 months to next point of possibility, then it would be 15 months……….
imho, ben hasn’t a clue on what to do, accept somewhere in the future, something will be done, like my sex life
January 13th, 2010 at 8:45 am
Something I’ve been wondering, along the lines of “TBTF”. Because I agree that there is systemic risk that rises the larger and more interdependent a bank becomes.
But first, on the right hand: when a bank contemplates lending money or when a purchaser of a loan lends money, they quantify as best they can what the risks associated with that loan might be. This is wise.
When the Fed lends money to an institution via the discount window, it does not. This seems unwise, as money will be lent wisely and foolishly, without regard. Remember, Barry, a large part of becoming Bailout Nation was the offer or implicit assurance that “you fuck it up, we’ll fix it”.
I realize that we might run up against monetary policy, but why doesn’t the US Government and/or the Fed increase the cost of borrowing for organizations that match a riskier profile? Say: purchasing items that were rated poorly or in a rubber stamp fashion, having too much debt to equity, over-leveraged, paying too much in compensation, wearing ugly suits – whatever it is that accurately and effectively increases the risk to the US taxpayer?
Why not use basic capitalist principles to regulate banks?
This is really a question, not an opinion disguised as a rhetorical question. Banks use judgment to minimize overall risk. Why not the US Government or the Fed?
January 13th, 2010 at 8:55 am
Barry: And just what is out there to stop these “TAXES” from being passed on directly to the people who use these banks? As far as I see it, it is yet one more shot at the American people to take what is rightfuly ours. BUT, if the tax on America is a tax on the banks and then passed on to the American people thats fine. It keeps big bad Barry Soreto from being viewed as the miser in the white house. He promised no taxes on the middle class. Whyt ax them, if you can get others to do your dirty work for you? Nice move – screw America but tell them I am doing it to punish the banks.
-John
~~~
BR: I disagree.
The smaller banks become more competitive — they attract more accounts vs the megabanks. Don’t like the higher fees at Giganto Trust? Move your account to Local Neighborhood & Co.
Whatt you are suggesting is that you can never penalize/fine/charge ANY company on the grounds that it just gets passed along to the consumer.
January 13th, 2010 at 9:01 am
I totally agree with BR on this. Not only will this placate the masses, but it might even work! No to mention, serve as a convenient excuse as the stock marlet becomes range bound, as it will remain for the next 5 yrs or so….
January 13th, 2010 at 9:02 am
curbyourrisk, good point.
Anyway, their practices screwed up the whole system, not just their size.
Maybe if they stopped creating “assets” out of everything under the sun, turning bullshit into gold, we could start talking about positives.
January 13th, 2010 at 9:06 am
curbyourrisk @ 8:55 NOT a good point.
what is out there to stop these “TAXES” from being passed on directly to the people who use these banks???
It’s called competition, and we haven’t had any in the banking industry in many years.
January 13th, 2010 at 9:09 am
Even taxes won’t solve the problem here. You are assuming that the banks are engaged in productive banking activities, that is, they are making money from the traditional banking method of taking in deposits and lending it out. Most of the banks’ income is coming from ‘proprietary trading’ that hardly creates any worthwhile economic activity that leads to economic growth. No factories are being built requiring inventory, transportation and lots of workers.
The banks are simply ‘borrowing’ money at 0% from the Fed and buying treasuries at some higher percent in the usual carry trade. Then the bankers are paid on a percent of REVENUE generated from cheap government money.
The problem is moral hazard. The government is printing up massive amounts of worthless dollars and funneling it in covert and overt ways to insolvent banks to give the impression that the domestic economy has not yet collapsed.
Had Allan Greenscam and the government not bailed out the savings and loans, Long Term Capital, the Dot.com and now the housing speculators with massive liquidity, massive government deficit, 40-year low interest rates and massive tax cuts for the wealthy, the U.S. would hardly been in its current financial Ponzi/debt pyramid scheme that has imploded. The speculators grew accustomed to making risky bets knowing the government would bail them out.
Even the mark-to-market accounting rules were changed to permit insolvent banks to pretend that they are still a going-concern, in a yet another fraud to hide the imploded domestic economy.
All of this is now irrelevant in the grand scheme of things as there are no economic theories/miracles left to try. The U.S. has tried them all and all of them failed to reverse its economic decline. The government, consumers and businesses can NO longer absorb any more debt.
We already knew that the carcass of America’s “benevolent” empire was decaying in the sands of Iraq and Afghanistan with the vultures circling above picking at the putrid remains of flesh and bones.
Then we received the shocking news from the Far East this very week:
China had surpassed Germany as the world’s top exporter;
The automobile market in the China is now the largest;
China is now the biggest market for Internet users and China resumed its fast-paced economic growth.
But what are the ignorant media owners and the chattering classes feeding the functional illiterates in America?: A steady diet of the O’Brien/Leno saga, Cowell leaving American Idol and Clinton/Reid racist comments on Obama who has already extracted his revenge on the Clintons.
Obama now needs to go on a massive cost cutting exercise eliminating all forms of foreign aid, pointless foreign wars and all those useless foreign military bases that have impoverished Americans and now wasting our dwindling resources.
Second, all the insolvent banks and industrial companies propped up by TARP and other government spending efforts need to go bankrupt allowing the survivors to emerge.
Third, the Glass-Steagall act needs to be re-instituted.
Finally, there should be no more moral hazard that permitted the risky bank speculation in the first place.
This will be the first start in an economic recovery after a rather painful period.
January 13th, 2010 at 9:10 am
“Wrap your lips around this big purple legislation and suck.”
Poetry!
January 13th, 2010 at 9:10 am
I think passing costs to customers and losing market share to regional banks is the whole point of Barry’s proposal: shrink or die.
If the TBTF banks REALLY enjoy economies of scale, they should be able to absorb extra costs and remain competitive.
But the truth is that they also milk depositors for $40 billion a year in overdraft fees and ATM charges. Economies of scale my ass.
January 13th, 2010 at 9:22 am
“Our experiment in Democracy is nearly over; we have morphed into a Corporatocracy”
Well said!
January 13th, 2010 at 9:41 am
Curbyourrisk said:
“And just what is out there to stop these “TAXES” from being passed on directly to the people who use these banks?”
Hopefully nothing. The key words are “the people who use these banks”. Those people deserve to be soaked since they are enabling the TBTFs to retain their power by keeping their deposits with them. Once the deposits are gone, the government loses the fig leaf they’ve been using for funneling massive amounts of money to them. The people who use these banks are just as big an obstacle to throwing off the TBTF yoke of oppression as the banks themselves. Those people are the ones putting on their own manacles while shackling the rest of us as well.
January 13th, 2010 at 9:41 am
[...] even know what to add to this, so I’m going to run it verbatim. Barry Ritholtz over at The Big Picture absolutely strips the bark off Washington. The only thing I’d add — and it’s a sad [...]
January 13th, 2010 at 9:42 am
[...] view from Barry Ridholtz (medium): http://www.ritholtz.com/blog/2010/01/tbtf-tax/ And for the cynics [...]
January 13th, 2010 at 10:04 am
I’ll 2nd Carl H-
also- cognos- wherever you are- I just responded again to your ridiculous nonsense on a previous thread-
what bank pray tell do you work for?
January 13th, 2010 at 10:07 am
Great idea in concept… But good luck pushing it through the “Parliament of Whores”.
January 13th, 2010 at 10:12 am
My opinion is that banks being too big to fail or to succeed is only a front end to an even bigger problem which is that countries are too big to succeed or to regulate. In the modern world, with limited asymmetry of information and limited time required for people to optimize behavior in response to rules & regulations, I think these issues are only going to get worse.
January 13th, 2010 at 10:12 am
“When lobbying prevents even the most simple of consumer disclosure legislation, you have a broken political system. Such failures can only occur when a democracy has been lost — when corporations own Congress, when the will of the electorate is ignored, when money has utterly corrupted the political process. Have no doubt about this: Our experiment in Democracy is nearly over; we have morphed into a Corporatocracy — a government by and for large corporate interests. Let’s pray it is only temporary.”
While I and most people agree with this, I am not so sure how much difference taxation would make. When you look at that piece on how Goldman’s pays %1 tax or something like that, these folks always figure away around such things. And as to it being passed on to the customer just look at these shenanigans with the 50% UK tax on bonuses, all being absorbed globally by the the banks. What kind of shareholder puts up with that, only a pension fund no doubt?
If the people really cared about their tax money they would get their money out of these banks and into the well run local banks. That’s certainly one way to make these TBTF banks smaller.
January 13th, 2010 at 10:23 am
Two things:
1) Hurrah for b.r.’s post!
2) I am getting puzzled at the overwhelmed excitement at news like ‘china surpasses Germany as biggest exporter.’ Let me rephrase a couple of recent developments:
a) A country with 1.2 billion people just passed a country with 80 million people as the world’s largest exporter.
b) A country with 1.2 billion people recently passed a country with 80 million people in GDP.
When I rephrase these ‘amazing developments’ in this way to a class of students, at least, things seem a little different to them.
I realize China has made dramatic progress, from a horrible starting point, and is very big. But there is something odd about the amazement at these country-relative figures.
What people might be amazed at is that a country with just 80 million people was the world’s largest exporter for so long (and probably still makes more profit off of exports than any other country, given the low-profit nature of China’s exporting). They might also be amazed at how amazingly poor China was, and still is.
Also, I have considerable interest in the widely shared opinion that China’s official statistics are not to be trusted.
January 13th, 2010 at 10:24 am
Are we supposed to trust the PoW to construct a law that the corporate tax lawyers can’t run through?
Can we trust the IRS to go after these lawyers with the same zeal that it goes after single mothers claiming the EITC?
The people have done as much to squash democracy as our leaders. I’ve lost faith that the general public will use the Internet to find a different point of view with an eye toward thinking for themselves. Most people merely want their existing view reinforced; they don’t want to work at it. Are we to have faith that the populace will rely more on dispassionate analysis and less on our ideologies, all towards making our government accountable to the People and tilting back towards democracy? At this point, I’ll settle for shaping ideology with something other than the fear of the other side.
When I start seeing a few lobbyists’ (to say nothing of the people on your “blame” list) heads on plates, then I’ll know someone means business.
January 13th, 2010 at 10:43 am
Time to open up a dry cleaning business in the Caymans, ahead of the rush of all the bank HQ migrations out of the US
January 13th, 2010 at 11:04 am
“a) A country with 1.2 billion people just passed a country with 80 million people as the world’s largest exporter.”
“b) A country with 1.2 billion people recently passed a country with 80 million people in GDP.”
What really should have surprised you and your students is the Germany (while having to absorb East Germany) managed to surpass Britain, the industrial power prior to WWII, and the U.S. (practically the size of a continent) the industrial power post-WWII in exports even after being defeated in WWII with a sizable portion of its citizens fire bombed at the end and occupied by the U.S.to prevent its industrial rise.
HOW was it possible for Germany to lead in exports?
How did China manage to become the new industrial power in such a short space of time?
How can a low-wage service based economy dependent on debt fuel consumption provide a living wage for its citizens?
How did the U.S. economy become dependent on imports and various Ponzi/Debt/Financial scam?
Would Eastern Europe had been better off under German rule rather the resulting Communism?
I am always appalled that nothing is ever put in its proper historical perspective for American students. It explains why the entire country is intellectually bankrupt and produced so many functional illiterates who won’t be able to find a job unless they are fluent in CHINESE.
While the U.S. got useless military bases in Germany, Germany became an export powerhouse and has been surpassed by China. The story is repeated in Japan and elsewhere.
The lesson for your intellectually impoverished students is it is much better to have an industrial based economy rather than a service based economy that relies on debt consumption and a warfare state that produces nothing of value?
January 13th, 2010 at 11:42 am
NJlou its hard to argue with anything you’ve said. when one gets above the tree line and away from the boob tube and constant barrage of MSM streams and takes an objective look at what things have translated into success and failure for nations, its not pretty for the USA. for decades TPTB have been using sleight of hand chicanery to fool ourselves into feeling our prosperity is sustainable when in fact its smoke and mirrors via financial gimmickry/debt based bubble cycles. sad as a nation to have fought for and then had so much to throw it all away in so short a time.
January 13th, 2010 at 11:56 am
I would suggest raising a bank’s reserve requirements as their size gets larger at a rate that increases until it hits 100%. At the same time reduce their allowed leverage until it reaches 0.
January 13th, 2010 at 11:57 am
The trick is to levy it on size while the large banks will want it on profits and then arrange not to have any. Believe when you see it.
January 13th, 2010 at 12:01 pm
njlou-
good point
January 13th, 2010 at 12:02 pm
The financial system has gobbled up about 1/3 of our economy. For all of that we are getting little more than a huge sucking sound as the fruits of hard working people are harvested by people who sit all day and devise clever new ways to take money away from those who work for a living. Lets force the financial sector to do something useful, let them provide the vast majority of the money needed to run the government. Drop all taxes on income of less than 30K and put some firebrand taxes on financial activities to pick up the slack and pay down the debt. First of all there is no excuse for taxing capital gains at lesser rates than real productive work, its all income (inheritance, capital gains, etc) – tax it as income. The wast majority of transcactions in the financial system simply serve to transfer wealth from one gambler to another, put a tax on every finaincial transcaction. The ones that are directly harming real people (like commodities speculation) should be taxed at a particularly high rate (with deductions for companies who could demonstrate a clear business need for that particular type of transaction). Stop treating the vultures like anything else than the despicable vultures they are.
January 13th, 2010 at 12:17 pm
Wouldn’t it make more sense to charge a variable tax rate based on leverage ratio and then legislate specifically what’s included in that leverage calculation to include all off-balance-sheet entities?
End result would be that an entity levered at 30:1 pays a much higher insurance premium per $ of insured assets than an entity only levered at 10:1, thus creating a disincentive to overleverage for short-term gain?
The caveat would be that “Assets of Company A” may only include receivables from Company B, if Company B is insured as well. The reason that would be necessary is that Wall Street would undoubtedly try to create uninsured entity Company B (so they don’t have to pay the premiums to government) which would then issue high yield bonds which Company A would like to include in their Assets in order to lower their stated leverage ratios.
In short, in order to stop the domino effect (which is the key issue in the TBTF model), ALL subcomponents of the system must in turn be insured OR the system could still face collapse with one uninsured entity failure if it provides too much of the calculated asset value of Wall Street as a whole.
~~~
BR: Your hired!
January 13th, 2010 at 12:18 pm
The same lobbying power of the big banks that brought us to this point is going to be galvanized into action to avoid 1) meaningful taxes, 2) breakups, 3) bonus restrictions 4) meaningful financial reform and once this is accomplished they will continue to work shifting the mounting costs of foreclosures and commercial real estate losses on to the taxpayers.
We’ll get some populist eyewash but the real dirty work will continue to be done secretly behind closed doors because to paraphrase BB the truth is too scary for the public to know.
There won’t be any meaningful reform until we experience a complete financial collapse and I think hyperinflation is being positioned to obscure the true cause and effect of the Geithner/BB skullduggery
January 13th, 2010 at 12:19 pm
“Most of the banks’ income is coming from ‘proprietary trading’ that hardly creates any worthwhile economic activity that leads to economic growth”
I say we tax that at a rate of no less than 50%.
January 13th, 2010 at 12:23 pm
Note: I just started out the discussion looking at Deposits, but in addition to making TBTF part of the tax, you can also make “Too Risky” part of the tax progression.
The bigger and riskier a bank is, the more danger it presents to taxpayers, the greater the tax rate. Tax reductions are based on lower leverage, less derivative holdings, more capitalization, etc .
January 13th, 2010 at 12:28 pm
“What kind of shareholder puts up with that, only a pension fund no doubt?”
Yes and the next thing is to ban the use of any federal money on any business whose pension funds invest in companies that pay their leaders more than 1 million per year. Talk about supporting small business needs to be converted into action.
January 13th, 2010 at 12:34 pm
Man… lots of useless comments on this train. Someone said — “… would eastern europe have been better off under German rule?” This lacks so much perspective its sickening.
TBTF is a misplaced concern. BSC, LEH, FNM, FRE — none were TOO BIG! All failed! Even AIG, which really was TBTF, actually failed! Where is the concern?
Glass-Stegall is also a misplaced concern. BSC, LEH, FNM, FRE — none of these were combinations of I-banks and Comm-banks. All would’ve been exactly the same under GS rules. Silly.
TBTF is a misplaced concern #2. Small banks and mortgage brokers DID NOT DO WELL. Over 100 of the 150 bank failure were banks with <1B in assets. The FDIC reserve is depleted largely by small banks. Roughly speaking… small banks and large banks are equally poorly run.
Its funny bc the solution is SO SIMPLE – 20% down on all vanilla mortgages, 30% down on all exotics. Would've fixed the problem in 04-08. Will be very helpful going forward. I would rec some other minor stuff… like FNM/FRE should just be public entities like the Fed, better consumer regs and simple 1-pg disclosure forms, tax foreclosures.
~~~
BR: BSC, LEH, FNM, FRE were all HUGE!
Citi WAMU, B of A, Indy bank — all should have been under Glass Steagall.
As the saying goes, you are entitled to your own opinions, but not your own facts~! They are demonstrably false ~!
January 13th, 2010 at 12:34 pm
Our experiment in Democracy is nearly over; we have morphed into a Corporatocracy — a government by and for large corporate interests.
Some weighty rhetoric today, but very well said.
January 13th, 2010 at 12:38 pm
I can’t help but think that a TBTF tax (which is indeed what this is) is a completely roundabout way of dealing with this problem. Why god why can’t we just declare that nobody is too big to fail and be done with it. Instead we’re going to pile layer on stinking layer of regulation and taxation in a pathetic attempt to compensate for the existence of TBTF when it is completely within the government’s power to simply do away with it outright.
January 13th, 2010 at 12:40 pm
[...] administration mulls a “TBTF tax” to cover the cost of the TARP. (WashingtonPost also Big Picture, naked capitalism, Free exchange, Felix Salmon, The Balance [...]
January 13th, 2010 at 12:51 pm
Absolutely agree, the circular BS logic of these hypocrites is stunning. We need more, better regulation coming out of their mouths then paying the lobbyists or funding other indirect minions to stop or craft the very regulation they clam they need. How can anyone trust what these institutions say publicly whether under oath or not. Their strategy is to ‘shift the burden’ to the public in order to duck direct responsibility for their unethical behavior. This will allow them to always blame the regulators. As Dimon himself claimed, that these crisis happen every 7 or 8 years so why is anyone surprised. WTF does that tell you?
January 13th, 2010 at 1:07 pm
Geez, I wonder how Germany succeeds with al those terrible middle-class unions? Must be in spite of them.
January 13th, 2010 at 1:11 pm
I’m against more taxes, but if we have to have a new tax, this one is probably better than most.
Given that it is targeted at the big banks, the question is how they will respond in ways that don’t put them at a competitive disadvantage relative to the smaller banks (which, presumably, are not subject to the tax). They cannot simply “nickel and dime” their customers to a much greater extent than the small banks, and they cannot charge substantially higher interest rates (on loans) than the smaller banks, so I’ll be interested to see how they respond.
If the Republicans make big gains in November, I would expect to see much of the effect of this tax mitigated by new loopholes.
January 13th, 2010 at 1:27 pm
DeDude @ 12:19
What about the idea of each of the large banks setting up “shell corporations” in foreign countries, and then attributing all trading gains to those foreign subsidiaries? I’m not a tax expert, but that would seem to be a way to defer taxes on the gains.
January 13th, 2010 at 2:37 pm
A Democrat may tax & spend but a Republican will spend more and tax (the wealthiest) less. As Cheney noted, “Reagan proved that deficits don’t matter” (esp., he might have added, when in the pursuit of a military build-up [RR] or a war [W]).
As for a TBTF tax, get real.
January 13th, 2010 at 2:56 pm
“What about the idea of each of the large banks setting up “shell corporations” in foreign countries, and then attributing all trading gains to those foreign subsidiaries”
You either ban operating through foreign subsidiaries or you tax the foreign subsidiaries. Free trade and unregulated capital flow is just another scam to allow rich people to suck dry poor people. Even better prosecute that kind if sh!t for the taxfraud it is – then we can throw the bastards into a cell with someone named Brian who likes men :-)
January 13th, 2010 at 3:01 pm
@ ItalicBold @10:12 a.m.
“If the people really cared about their tax money they would get their money out of these banks and into the well run local banks. That’s certainly one way to make these TBTF banks smaller.”
Check out the Bill Maher youtube clip @
MoveYourMoney
“Real change is not going to come from Congress, it’s not going to come from the White House and it’s certainly not going to come from the lobbyists Wall Street hires to make sure their special interests keep beating out the public interest. We’ve got to do it ourselves, and moving your money is a great way to start.”
January 13th, 2010 at 3:09 pm
@cognos @12:34 p.m.
“The FDIC reserve is depleted largely by small banks” which by and large FDIC did not timely close thus causing much greater losses for the reserve.
January 13th, 2010 at 4:26 pm
[...] Links 1/13/2010 Posted by Steven Russolillo on January 13, 2010 Banks, China, Credit Crisis, Economy, Federal Reserve, Internet, Markets, Media, TARP, Washington – Obama’s bailout fees on TARP recipients should become a “too-big-to-fail” tax. [...]
January 13th, 2010 at 4:52 pm
DeDude,
No need to sugar-coat it.
January 13th, 2010 at 6:51 pm
I was thinking the other day about a new “steeply progressive” capital reserve requirement structure. Dependent upon the assets a bank controls, a higher capital ratio is required to offset the systemic risk of failure to the united states citizenry. Now THAT would be a negative feedback control mechanism that would seem to work. Then the banks would restrain themselves to organizing in a network of smaller entities in which no failure of one would be a systemic risk of the united states, as well as make for less risk in leverage and speculation. But no, they’re all to smart for that, so let’s do the opposite and let the I banks become regular banks.
January 13th, 2010 at 6:56 pm
It would probably have prevented some of the risky lending of late as well, and modulated the bubble we saw. If you know you have to maintain a steep capital ratio, you ain’t gonna approve the decision to lend Johnny Schmucko the money to buy a million dollar house on an ARM with Zero down and questionable credit. Tie the bonuses to risk management and maintaining the capital requirement rather than to procuring new “business,” but then again, if they slice and pack all the shit up into fancy new products and slough them off still, it probably wouldn’t matter.
January 13th, 2010 at 7:08 pm
DL; Definitely no need to sugar coat. The only reason these gready bastards are not in jail is that they bribed our lawmakers to make their frauds and svindling legal. Any financial manuver whose sole intend is to avoid paying taxes should be illegal and punished by mandatory jail sentences. Why should it only be the “little people” that pay taxes and go to jail if they don’t.
January 13th, 2010 at 7:09 pm
“The FDIC reserve is depleted largely by small banks”
Yes because the big one were not allowed to fall. If just a few of the big ones had been allowed to fall the FDIC would have been bankrupt. How about letting the stream of big boy talking points be interrupted with a little thinking, before you repeat them?
January 13th, 2010 at 7:27 pm
Quoting spiderman: “With great power, comes great responsibility”
Force those with larger balance sheets and control over greater amounts of the financial system to require greater responsibility in the capital ratios they must maintain.
January 13th, 2010 at 7:51 pm
Excluding Clinton from the “Tax and Spend Democrats” is ignoring history. It was Gringrich’s Contact for America and the Republican controlled Congress that should get credit.
“LET US NOT BE ENCUMBERED . . . BY THE MERE PRESENCE OF FACTS”
~~~
BR: Fine by me, if you want to assign credit for the balanced budget to the GOP Congress.
BTW, how much blame do you want to assign to the GOP Congress that controlled Congress from 1994-2006 for the credit boom and bust, the housing debacle, and the banking collapse ?
January 13th, 2010 at 7:54 pm
dwunkel thought of the progressive capital requirements too, it seems.
January 13th, 2010 at 8:16 pm
@Barry Ritholtz Says:
January 13th, 2010 at 8:05 am
There is a giant pile of shit out there — I’m still looking for the pony . . .
————
BR: I thought the “Pony” was the American Taxpayer, PIMCO and assorted Investment Banks, plus, Fannie, Freddie and Treasury…plus the MARKET RALLY from lows of March’09 pushed by all that Stimulus.
Hey…the Pony came…and he’s kind of a dull coated thing with some ground down teeth and maybe a going to “lame hoof” sold by swindlers, but he might turn out to be a Thoroughbred in the end….IF we WAIT long enough. Maybe that Pony can Morph?
Ya’ Think?
January 13th, 2010 at 11:05 pm
[...] Too Big To Fail Tax, by Barry Ritholtz [...]
January 13th, 2010 at 11:54 pm
This was my proposal. I think it is more comprehensive:
http://alephblog.com/2009/11/11/how-to-regulate-the-banks-and-other-financials/
January 14th, 2010 at 4:17 am
[...] Too Big Too Fail Tax Barry Ritholtz. Far from the first argument along these lines, but Barry, as always, is colorful [...]
January 14th, 2010 at 9:26 am
BR: I am offended… You told me I got my facts wrong. Hmm.
We seem to agree that BSC, LEH, FRE, FNM… were big. And they did fail, right? So what, exactly is the “Too Big to Fail” problem?
The whole loose talking about a TBTF problem assumes we have propped up C, BAC, even GS and other because they are TBTF… and that the TBTF problem was the reason we needed TARP, bailouts, etc.
This is all false. The reason we needed TARP and bailouts was bc — point of emphasis — EVERYTHING was failing. Hundred of small banks, big banks, commercial banks, and I-banks, and combination banks.
So having every big bank cut in half… really does nothing for that problem, right?
So having Glass-Steagall back… really does nothing for that problem, right?
January 14th, 2010 at 9:29 am
The European Perspective
If you really want to introduce a permanent taxation of size through the backdoor you should consider the side effects for the US banking system. We´ve seen in the UK how “smartly” international banks find ways around taxation (bonus tax avoided by a) higher base income and b) full compensation of bonus tax losses).
I fully agree with your cricism and also agree that a backdoor action is better than no action against arrogant Wall Street. But you simply should not forget that another supportive angle for a permanent solution is the pressure of European policy makers. Brussels, for instance, was much faster with its reform implementation than the US. Not that I agree with all of their over-ambitious actions, but they for sure are very open to work on a TBTF solution on a global scale and therefore for a more lasting outcome.
Hence, backdoor OK but not sufficient. Backdoor + international policy pressure on Wall Street and lobbyists could achieve a more lasting solution.
January 14th, 2010 at 11:03 am
[...] Too Big Too Fail Tax Barry Ritholtz. Far from the first argument along these lines, but Barry, as always, is colorful [...]
January 14th, 2010 at 12:10 pm
[...] Tax Jibber Jabber Stacy Summary: Barry Ritholtz on a Too-Big-To-Fail tax. Your [...]
January 14th, 2010 at 1:10 pm
“This is all false. The reason we needed TARP and bailouts was bc — point of emphasis — EVERYTHING was failing.”
We have had about 200 out of 8000 small banks failing. I think the wast majority of small banks have survived so far. So let me rephrase you: “EVERYTHING was failing” – This is all false …. and THAT is the truth.
January 14th, 2010 at 1:50 pm
Perhaps this levy should be applied to any organizations which grow through acquisition.
Many acquisitions fail over time , there is a financial incentive to merge for scale and access to lower cost financing, and the bigger firms can basically call the shots = but they often do an exceptionally bad job managing the actual businesses, so after a few years of hollowing out, there isn’t much left.
January 14th, 2010 at 2:21 pm
Or let me restate it this way: “For the small, we had some fall, we let them fall, and it wasn’t that bad at all”.
January 14th, 2010 at 3:56 pm
“Our experiment in Democracy is nearly over; we have morphed into a Corporatocracy – a government by and for large corporate interests.”
And for those who have a problem with Barry’s argument, get this: transparency International, the body who publish a Corruption Index (it’s an extensive standardized survey) shows that for 2009, the US has slided to the 19th rank among nations.
That’s right! 19th rank! Is this something we’re supposed to be proud of?
I do not think so!
The main reason invoked by the respondents is the amount of campaign contributions flowing into the coffers of the only American native criminal class (as per mark Twain) called Congress. Of course, that included the apparatus (I was about to write “The Komintern of the Politburo”) of both political parties and the President too BTW: short of 900 millions, you ain’t becoming the next president.
January 17th, 2010 at 2:31 pm
[...] for one support the Too Big To Fail Tax. It’s pretty much a no [...]
January 20th, 2010 at 11:30 am
[...] Too Big To Fail Tax (January 13th, 2010) [...]