More on the Obama bank tax

January 13, 2010

My pal John Carney takes a crack at it:

1) Let’s start with the idea that we’re going to tax banks based on “riskiness.” How on earth do we expect the government to assess this? The government has an absolutely awful track record when it comes to assessing risk. Before the crisis, regulators put in place mandatory capital requirements that they believed were “risk weighted.” The result was the massive over-indulgence in risky mortgage backed securities that almost destroyed the financial system. A risk tax would just result in new pressure for banks to adopt the regulatory view of risk. No thanks.

2) The other idea floating around is that the tax would be levied on “bank profits.” That means the government would wind up in the same position as shareholders pushing for short-term gains

3) More importantly, there is no indication that the government has a way of evaluating the proper size of banks. This means that a tax on size will likely encourage banks to be too big or too small.

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Until America gets over this silly populist fever, bad legislation will be forthcoming. Pray it doesn’t cause too much damage.

Posted by gotthardbahn | Report as abusive