Gelinas on the bank tax
The great Nicole Gelinas on the bank tax (I have Q&A coming up with her late, BTW):
Normally, when you tax something, you get less of it. And Obama & Co. will likely claim they want to tax the borrowings of too-big-to-fail banks to make them smaller. But the rule won’t work here: All imposing this fee will do is hammer home the idea in bondholders’ minds that the firms — reportedly the nation’s top 20 financial companies — are too big to fail, that the government will bail them out again the next time they screw up.
Will New York’s congressional delegation bite? They’ve fought other recent tax-the-banks ideas, rightly viewing them as damaging to the local economy. In December, Reps. Pete King (R-LI), Carolyn Maloney (D-Manhattan), Anthony Weiner (D-Brooklyn) and others wrote to Ways & Means Committee Chairman Charlie Rangel opposing any tax on financial transactions, squelching a proposal from out-of-state lawmakers. Sen. Chuck Schumer, too, made his opposition clear.
But the delegation might support this one. Obama can couch it as regulatory, not punitive, and most of our House delegation voted to “fix” financial regulations last month. Also, the president can say that the fee is temporary, until banks have cut their liabilities and repaid taxpayer bailout losses — and argue that the fee helps Wall Street by defusing public anger and forestalling a more draconian “fix.”
As for any bid to pitch the fee as “temporary”: The British last month announced a “one time” 50 percent tax on bonuses. But the opposition party won’t commit to removing it, should they win office — because Britain needs the money.
Kyle Bass, managing director of the hedge fund Hayman Advisors, testifying yesterday to the Financial Crisis Inquiry Commission, got at what real reform means, including: 1) limits on borrowing and 2) mandatory trading rules for financial instruments such as credit derivatives.
AIG used such derivatives to help bring the economy down, forcing its government bailout. “A key problem is the leverage,” Bass said — because with borrowing and trading limits, AIG could have bankrupted itself, but not everyone else.
Yet derivatives remain unregulated — and the bill the House passed last month to fix the problem was filled with loopholes. Meanwhile, the Senate is completely lost.