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Will Obama's tax go global?

Robert Peston | 08:38 UK time, Friday, 15 January 2010

President Obama's levy on bank leverage or wholesale funding - and the way he explicitly linked it to the "obscene" (his word) bonuses being paid by banks - has surprised European ministers, central bankers and regulators.

They note that it was America which was most reluctant to agree global rules on how bonuses should be paid in recent negotiations between the heads of the G20 leading economies.

What's more, although the US is implementing the new rules - ordaining that bonuses should be paid largely in shares, released to recipients in tranches over a few years and subject to clawback for poor future performance - it is doing so a year later than everyone else (so for next year's bonus round, not this one).

Maybe it was just the proximity of the bonus announcements which persuaded the president that he had to signal his displeasure with the magnificent size of bankers' rewards.

According to calculations by the Wall Street Journal, 38 big US banks and securities firms are likely to pay their employees a record $145bn for their performance in 2009.

That's almost a fifth higher than 2008's haul and even more than in the boom boom year of 2007.

Now not all of that is bonus. But bonuses are back - and big.

At just three leading investment banks, Goldman Sachs, JP Morgan and Morgan Stanley, aggregate bonuses will in aggregate nudge $30bn.

Phew.

That crisis in banking, when almost all banks were on the verge of collapse, was it just a dream?

President Obama probably doesn't have to worry about whether his bank levy is intellectually coherent: bashing bonus-bulging bankers probably won't alienate many US citizens.

That said, as I mentioned yesterday, there is a logic to the tax.

For those who complain that the big US banks have largely repaid the funds they received from taxpayers, with interest, there are two responses.

First that the massive costs of bailing out AIG were in large part the costs of protecting the banks from the huge losses they would have suffered if AIG had reneged on its enormous financial contracts with them.

So - arguably - it's reasonable that the banks should be asked to pay back what taxpayers have lost on AIG.

But perhaps more importantly, the taxpayers' guarantee to the biggest banks, that they won't be allowed to fail, is worth a great deal to them.

Why should they alone - of all the businesses and industries in the world - have that catastrophe insurance for free?

The logic of Obama's levy would probably be more compelling if this retrospective 12-year tax to raise just under $120bn were made permanent and were adopted by other countries.

Obama says he wants his money back for the cost of the last bailout. But arguably it is more important that banks pay an explicit fee for their protection by taxpayers against future failure.

As it happens, the International Monetary Fund has been asked by the G20 to examine how banks can best contribute to the costs of insuring them against failure.

There can be little doubt that it will have more confidence to make bolder recommendations in the wake of Obama's impost.

It will be fascinating to see how the British government reacts.

Ministers are doubtless mightily relieved that their one-off super-tax on bonuses no longer looks like a serious threat to the competitive position of the City of London.

America's taxation leapfrog provides both the Labour administration and Tory opposition with an interesting dilemma: at a time when the money is painfully tight for the public sector, they could whack yet another tax on the banks; or they could eschew such a move, to reinforce the City and financial services.

Oh dear, I see you smirking.

On the basis of the popular mood and the recent behaviour of politicians, any smart banker will bet huge that bank taxes are still firmly on a rising trend.

Comments

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  • Comment number 1.

    bankers are also part of the fabric of the respective lands we live in. I turned my nose up at a job in the banks 15 years ago and all this has developed way over my head. It was too dodgy to go near I felt I could see myself being set up for a fall even then.

    It is not possible to give beyond what you have there's no point in asking the least to give the most.

    But I can see some logic in the more substantial giving to the lesser. I saw the video with the sub prime houses falling apart and think ok well there have been lots of opportunities like that that I missed out on as well over the years.

    What I don't feel comfortable with is people saying you get no chance to correct mistakes. Some might say you have every opportunity but I don't like it when people are making up reasons to find fault.

    If politics are driven by the lowest common denominator then I suppose there will be trouble. As if there never has been!

  • Comment number 2.

    Thank you Robert for keeping the spotlight on the 'obscene' bonuses that many bankers consider as their birthright whilst the societies they have helped to empoverish fall apart. Obama was very clear in his speech yesterday announcing the bank tax that he considers the current Wall Street bonus culture as morally repugnant. We need serious structural and regulatory banking reform. Many of the details have been discussed again and again on the comments pages of your blog, most importantly to separate the retail and investment parts of banks again (bring back the Glass–Steagall Act of 1932 in the US and similar laws in other countries). For more resources and many more details exposing the very destructive impact of the badly malfunctioning global finance sector please visit:
    http://globalinsights.wordpress.com/

  • Comment number 3.

    Revenge is a dish best served cold.

    I bet Lloyd Blankfein of the Golden Squid is now kicking himself for not bothering to make the effort to get to Washington when Barry O called all the bankers in for a dressing down. (I think his excuse was that the wrong kind of snow was fallng on NYC runways that day & he couldn't get a flight).

    Regards,

  • Comment number 4.

    The majority of the comments on this blog are so puerile that it is a laugh. At least it gives the opportunity to ignorant people to air their most ludicrous theory and have the feeling they are about to change the world. So? Bonuses are being paid “normally”, a tax in the US will be imposed on large banks over 10 years…from next year…and it will pass as a cost to their customers. I am impressed!

  • Comment number 5.

    Anything which can focus a business on the true cost of doing business has to help to bring a sense of reality. The principle issue in the banking sector is that behind all the 'risk analysis' that is done by banking institutions there is/has been the knowledge that somehow 'it'll never come to the worst'. Which in itself results in risk mis-representation as opposed to real understanding.
    Somthing that re-inforces the understanding that there is a cost of failure and genuine value in 'real' growth/profitability can only help to normalise the banks' behaviour and re-introduce the concept of the free market.
    Recent events only go to show how far the banking sector has become a cartel (albeit a massive and perhaps informal one) and has managed to move away from competition and genuinely balanced risk taking.
    Gordon - Copenhagen

  • Comment number 6.

    RP wrote:

    "38 big US banks and securities firms are likely to pay their employees a record $145bn for their performance in 2009."

    "12-year tax to raise just under $120bn"

    Hmm, not much of a penalty is it? Shouldn't the US tax payer be aiming to get nearer $1Tn over the next 12 years?

  • Comment number 7.

    "Obama says he wants his money back for the cost of the last bailout. But arguably it is more important that banks pay an explicit fee for their protection by taxpayers against future failure."

    how about both?, payback of the taxpayers money and a fee based on lending ratios and risk to deter and insure against future crazy risk taking.



  • Comment number 8.

    $117 Billion 'Returned' to the US tax payer over 10 years, or whenever is convenient.
    $145 Billion distributed to a miniscule fraction of the global population in Feb 2010 for their 'performance'.

    If I were sat in the boardroom of an IB that looks pretty good 'deal' on unlimited taxpayer guarantees & liabilities & risk transferred to soverign balance sheets.

    It's not hard to guess where the next generation of political bourgeoisie will eminate from.

  • Comment number 9.

    British Government has already levied sufficiently expensive charges for its 'taxpayer gaurantees' of their assets. Gaurantees and shareholdings that have ensured their necessary survival and our eventual pay-backs. Which high charges and share issuances may have been why our Banks were so keen to avoid them, or to re-pay the charges early. Good. Governments should provide insurance cover, but not cheap insurance to any firm that takes reckless risks. Taxing financial institutions' bonus pools has a similar effect.
    It's flattery of a kind that the US is now adopting its own model of high charges too. Of course, it's a different (Democrat) President now and not the out-going Dubya who made last autumn's drama into such a major crisis for the world.
    Perhaps we are now able to return that flattering compliment by adopting the proposed financial transactions tax on derivative & similar trades to ensure that funds are accumulated to meet the cost of future dramas?

  • Comment number 10.

    Banker bashing, is a populist understandable reaction but a sideshow to the reall issue of government debts bulging to the point of collapse.

    Problem with making the Obama tax permanent is that will allow banks to keep behaving in a too big to fail fashion by explicitly guaranteeing them in the future and they will mis-price risk in a same reckless way and they won't have ot worry about the consequences. Giving the cash to the governments to spend or paying bankers (who pay taxes and spend in the real economy is pretty much a zero sum game.

    Reinstating Glass-Stegal sounds great (populist) but that wouldn't have made any difference -Bear Sterns, Lehmans, Morgan Stanley and Goldman are/were pure investments banks that needed to be bailed out to varying degrees.

    Increasing capital charges for the risks banks run and ensuring 'living wills' seem more sensibe ways to go. Taxing banks and bankers is a great spectator sport, but I think it will hurt recovery since costs will be passed on and the real ecomony will be starved of capital - like the protectionist measure of the depression era, they sound good at first until the full consequences are thought through.

  • Comment number 11.

    The bankers' 'hard earned' 2009 bonuses should be confiscated and sent to the quake victims in Haiti.

  • Comment number 12.

    I find myself wondering if Obama's tough stance (if indeed that is what it is) and the timing of Part 2 of Simon Schama's programme (BB2 yesterday evening) was genuine coincidence! I suppose it must have been. It will do the banking community no harm to be reminded that Obama and not a banker was elected president.

    If a few more or the world's elected took a tougher stance against the world's self - appointed then the banking community (a/k/a a cartel?) might just get the message that the rules have to change.

    Many years ago there was a television programme called "No Hiding Place". Let there be No Hiding Place for bankers.

  • Comment number 13.

    When Barings Bank went bust, the shareholders , many of whom were charities, lost all their money. However the bank's directors at the time retained their bonuses.

    This recent phenomenon is similar.
    The banker's behaviour, although legal in the narrow sense, is manifestly immoral.

    The Western governments have so far been supine in reforming this service industry. Unless they they do so promptly, I believe that serious civil unrest will ensue.

    I was at a technical meeting with one of our major banks last week and I observed the exultant and unrepentent mood amongst them based on the QE opportunities for huge profits.
    Somehow we must all stop worshipping the 'golden calf' and return to proper values in our society.

    After all,we cannot take it with us...

  • Comment number 14.

    this wont change one darn thing about banking
    the problem is that senior mgmt (rightly) believe they rely on rain-makers to make money, so they pay top whack for the very best.
    it's no different to Christiano Ronaldo going to Madrid, but with fat city folk
    what you need to do is look at where/why this perception exists, and remove it from the industry, either via tighter regulation of the products they excel in or better automation/information across the market to remove their competitive advantage

  • Comment number 15.

    Question: What figure should the UK 'collect'?

    If Obama only needs to collect 120bn USD (and that is the right figure, incidentally I think it is way too small) what is the corresponding UK figure?

    Some ideas towards an answer. (All figures in GBP)

    RBS/Lloyds 50bn, Northern Rock 50bn, Icesave etc 10bn = 110bn
    I think the eventual loss on RBS will be far higher as will the HBOS W/0 as the Treasury is being far too optimistic over the eventual repayment of the foreign loans in the case of RBS and the duff (non performing) mortgage loans I think the eventual total figure could be as high as 250bn (including the cost of financing the loans)

    Further consideration: this is looking back - we should consider he ongoing losses cause directly by not reorganising regulation and introducing proper controls.

    Perhaps we should ask each of the 4 remaining banks in the UK to each stump up 60bn for the past, and with 8 bn a year on going - unless and until they 'voluntarily' split themselves into 50 or more separate institutions. This structure of the further charge will 'encourage' the 'too big to fail' banks to split themselves into smaller we can 'let them fail' entities (of course with the proviso that they cannot re-merge!)

  • Comment number 16.

    Levy insurance to cover future bail out demands - forget it it will be just another form of taxation which does not mean it is bad. The point is that banking needs sorting out so that crash does not happen again. Glass - steagall - yes. a mixed economy with substantial public ownership - essential. Supervision not regulation. Shareholder rights and duties - definitely. Banking and money is just a means to an end. We cant eat it or live in it or drive it!

  • Comment number 17.

    I sincerely hope you all saw the Simon Schama documentary on Obama's America last night - if not then try to catch a repeat of use Iplayer.

    After watching it I am more convinced than ever that real change is coming.

    I don't mean that false change politicians are always banging on about, that's not really changing. I mean real, deep down fundamental change, brought on by the decimation of the poor. Some of the scenes last night in the US are more familiar in a third world country and the vivid images of the US 'ghost towns' caused by Wall street speculation is a constant reminder to those alreay organising themselves for the battle ahead.
    I know how bad it's been in the US for a while, but you would never know if you relied on the news produced here - because despite the worlds only superpower collapsing Economically and socially - the UK media don't seem to think this is important.

    Obama clearly has to decide - does he join the 'harvard rich' or does he join the cause of the working class he fought to defend in Chicago when he was younger. This is not a disagreement that can simply be 'talked through' as both sides have polarised needs. A contradiction exists and there will not be a way to smooth over it - and for the first time ever the US citizens are seriously questioning Capitalism, openly and without any regrets.

    ....for this to happen in the 'home of Capitalism' is truly amazing and all you capitalists who claim the system will survive may need to re-evaluate your position - especially as Obama seems to be choosing his side....

    The biggest nail coming up for Capitalism is when the world realises the Government can amass 1.3 Trillion Dollars to bail out the banks, but can only scrape together 164 Million Dollars for one of the worst humanitarian disasters in living memory. When they see that we can mobilise a whole army and use planes to destroy homes and lives in an instant, but that those same planes cannot be found when there is a real human need. Our society has developed more and more effecient ways of killing, but clearly hasn't made the same developments in saving lives - once again the 'cost of human life' is being evaluated by Capitalism all the time - and where profit is the goal, life is cheap.

    Voters don't like hypocrisy and these numbers stink of it.

  • Comment number 18.

    The ordinary folk of this world have a problem that seemingly can't be fixed i.e. Bankers. The Simon Schama programme last evening, part 2 of 2 reinforces that view. At 76 after a lifetime in the real world, manufacturing, I will not see much change but I hope my sons will. They are also in manufacturing.

  • Comment number 19.

    13. At 10:16am on 15 Jan 2010, pccd wrote:

    "I was at a technical meeting with one of our major banks last week and I observed the exultant and unrepentent mood amongst them based on the QE opportunities for huge profits. "

    ...and that will be their downfall - greedy to the end, but the consequences of that greed are being stored up as we speak. Who will protect these greed monkeys from the population.

    The politicans cannnot protect them with their twisty words - they have already discredited themselves.
    The law will not be able to protect them, for already we can see from a number of 'odd rulings', the sudden and unrequested imposition of a supreme (kangaroo) court and the stopping of just about everyone under the anti-terror laws - that the public is loosing confidence in the legal system (and you wonder why there are a record number of prisoners!!)

    The inability to see anything long term is the bankers achillies heel. Their profits may be made today, but the consequences for them are much further down the line - but they will come, and I don't believe a politican or judge will execute their sentence.

  • Comment number 20.

    This seems like a nice little smoke-screen devised by the President and US Treasury (aka Goldman Sachs aka Federal Reserve).

    1. The public are placated that the banks are being bashed for billions
    2. Confidence in the financial system can only be improved as the US Government is effectively confirming its backing of the banks
    3. The banks are still allowed to take massive wodges out of the real economy

    I can see a few problems however.
    1. The real economy is going to be further drained by financial services
    2. The public sector will increase further in size and indebtedness
    3. Asset bubbles will undoubtedly increase
    4. The fall-out, when it comes, will be greater

    Lets hope OESI doesn’t get carried away and copy his mate Obama on this one. Don’t hold your breath!

  • Comment number 21.

    Should have mentioned that my eldest son had tried local government and banking but could not stand the sheer idleness and boredom so he joined the real world.

  • Comment number 22.

    14. At 10:24am on 15 Jan 2010, rexreason wrote:

    "it's no different to Christiano Ronaldo going to Madrid"

    I disagree - fans make the choice to buy a ticket, or a replica shirt etc. thereby supporting Ronaldo financially and making him an asset.

    Unfortunately when it comes to credit most people don't have that choice - hence the reason why the bankers can (and will) reort to blackmailing the country.

    Now I call that treason.

  • Comment number 23.

    #17. writingsonthewall wrote:

    "I sincerely hope you all saw the Simon Schama documentary"

    yup -

    However, I think Brown/Cameron don't have the backbone to do anything (nor does Obama) particularly when anything will 'hurt' the short term benefits of the banking and finance sector and our (so called) democracy relies of cash from the sector for propaganda at election times.

    Further, my fear of inaction are compounded because no-one has yet fried the duff regulators that substantially allowed the bubble to grow (fire Mervyn King and Nick Macpherson!) Nor is anyone yet actively promoting ways of breaking up the banks (see above #16) Both of these steps are necessary preliminaries to fixing the Worlds banking and finance sector.

  • Comment number 24.

    15. At 10:28am on 15 Jan 2010, John_from_Hendon

    "Question: What figure should the UK 'collect'? "

    A very good question - I for one cannot wait to see the 'figure' that the Government puts on this - and the spin which is going to try to show the taxpayer 'making a profit'.

    However some of the things I expect to be 'forgotten about' by the crooked Treasury are:-

    1) Inflation / Deflation - depending on which 'measure' you use will depend on whether we're in a deflationary environment or not. A deflationary environment means the money lent to the banks is actually going up in value relatively - which we should be compensated for.

    2) opportunity cost - even if we get all the money back who will bear the cost of the public projects which will have been shelved or cut completely because the money was lent out to banks? A lot of project will suck up millions in the requirements stage - if the project is cut short then this money is often lost. Even if the project is restarted that work often has to be re-done because the original information is now out of date.

    3) Pre-budget cuts - There are already 'sneaky cuts' underway in local councils - pre-empting the expected clampdown on budgets after the election. These will never be included in the total cost to us for bailing out the banks. The cost of making someone redundant from public service today - and then re-employing someone else when the country recovers is going to be a huge 'hidden' overhead faced by many public institutions.

    4) Devalued sterling - don't forget we have LENT this money to the banks, and when you are a multi-national bank with holdings in many currencies - how pleased are you going to be when you find your debt of £30 Billion which was equivalent to 60 Billion Euros when it was lent - will only be worth 30 Billion Euros when you come to pay it back. This cost is actually a burden on everyone who uses sterling as their main currency.

    There are possibly more, but here's a start for you.

    The odd thing is that none of these have been mentioned when talking about 'banks paying back bailout money' and 'taxpayer making a profit' - which is very odd as it's standard practice for bond traders to take these elements into account!

    Watch this space - another robbery coming up...

  • Comment number 25.

    If you look at the detail (and the worked example) provided by the Treasury, this tax is cleverly structured. It is levied on total assets minus tier 1 capital and retail deposits, so it both encourages deposit-based (rather than wholesale) financing and increasing capital. It makes vastly more sense than the UK's moralistic, playing-to-the-gallery bonus tax.

    As for it not raising enough money for taxpayers, that is easily resolved simply by increasing the 15 basis points levy. I think that Obama will wait to see what other countries do. If this is taken up by others, he'll look at increasing the rate.

    It's not a complete answer, however - we still need to separate commercial and investment banking along Glass-Steagall lines.

  • Comment number 26.

    18. At 10:37am on 15 Jan 2010, cornishmaninyorkshire

    Oh I think there will be a future in manufacturing - simply because once the value of Sterling hits rock bottom there will be no desire to import from abroad - as the proverbial 'cheap imports' become very expensive and the result will be we have to manufacture what we need ourselves.

  • Comment number 27.

    Posted this on previous blog in error

    In the Pre Budget Report Darling announced that losses to public finances from bailing out the banks would only be £10 billion. Everyone laughed. OK Lets make a start with £10 billion

    We want our money back !

    Do your job and go and get it Darling

  • Comment number 28.

    23. At 10:50am on 15 Jan 2010, John_from_Hendon wrote:

    "However, I think Brown/Cameron don't have the backbone to do anything (nor does Obama) particularly when anything will 'hurt' the short term benefits of the banking and finance sector and our (so called) democracy relies of cash from the sector for propaganda at election times."

    I don't think the choice is theirs anymore - it's in the hands of the people populating the soup kitchens and living on the streets.

    Desperate people are much more likely to do desperate things - this is a fact all oppressors forget eventually. No regime has been successfully able to impose utter desperation on it's populus and retain power - throughout history (and there have been some real brutal ones). Last night I saw desperate people...

  • Comment number 29.

    #17 WOTW - Awesome.

    'Power To The People - Beat The Banks!'

    Beat the banks?...YES WE CAN!

  • Comment number 30.

    Ultimately this is a tax on the small saver. The banks are a global monopoly. The interest rates for the the small saver will be reduced until the both the tax and the bonuses can be paid.

    The only way to avoid the problem is to make banks unlimited partnerships. The partners could take whatever bonuses they liked but it the banks went bankrupt the partners would lose everything. It would focus minds a bit.

  • Comment number 31.

    At the end of the day, who is actually going to pay the tax?

    Re the Haiti comment - look closely and you'll find many evil banks have commited significant funds.

    one other point, other than biffing the bankers to increase politicians popularity, is the tax an admission that the Fed dosen't have the skills to regulate investment banks properly?

  • Comment number 32.

    It is often said that what happens in the US usually happens here albeit slightly later.

    In any event in my view the main issue is this:

    The Bank of England’s quantitative easing has kept the Government funded up to press, but all that has been achieved is a 12 month delay in facing the problem.

    The DMO has (according to Mr Peston) around £200 billion in gilts to shift in the forthcoming tax year.

    Projected tax receipts in 2010 – 2011 = £400 billion
    Projected Government spending 2010 – 2011 = £600 billion
    There’s a £200 billion hole that has to be filled.

    You could:
    Cut public expenditure, but that means sacking quite a lot of the public sector workforce
    Cancel infrastructure projects, which will hurt the private sector
    Cut benefits and public sector pensions.
    None of which will go down well of course.

    You could:
    Try and borrow it by issuing fixed interest gilts, but evidence suggests that isn’t the demand for £200 billion worth of them, and even if there was, the UK would end up in a compound debt trap.

    The BOE could print another £200 billion to fund the shortfall like last year, but then sterling’s value will likely fall further, and facing the problem is only delayed another year in any event.

    Maybe Simon Schama will be rolled out to do another documentary in a year or two’s time about the UK problem.

    As Mr Rocket once said, ‘It’s definitely a train not a light’

    And to prevent a repeat performance in the future, it’s not a bank tax we need, it’s state control over the creation of money.


  • Comment number 33.

    Picking sides....

    Well I am on the side of the people.

    Obama seems to be on the side of the people

    Boris appears to be on the side of the bankers

    http://news.bbc.co.uk/1/hi/england/london/8460661.stm

    I would be careful of the 9000 bankers who will leave the country (according to Boris) - this may be like the 20000 affordable homes he claims have been built by him (but actually at least 10,000 were started by the previous mayor)

    Maybe Boris is a banker in disguise - I mean he has all the requirements:
    No financial qualifications
    No real business experience
    Very bad with big numbers
    Totally oblivious to the damage the risky decisions he makes are to the wider community.
    ...and of course extreme arrogance

  • Comment number 34.

    Obama and his team were very clever to come up with a solution like this one. I really do hope we follow there example and start to reclaw some of the money we've paid out.

    I really don't think hitting the top bankers bonuses is the solution.

  • Comment number 35.

    Why don't all these BANK CHIEFS donate the bonuses to the Haiti Disaster .After all if you do not have it how can you miss it . In the case of the UK they might even get a Knighthood.

  • Comment number 36.

    #30.111John wrote:

    "The interest rates for the the small saver will be reduced..."

    However, you are assuming that organisations(regulators) such as the Bank of England do not put interest rates up to rational levels and thereby put a lower level in the interest rate market.

    (I want Mervyn King and Nick Macpherson etc. sacked for their role in reducing interest rates in the last decade that gave rise to the bubble economy - they still haven got the message that they are substantial contributors to the problem - we need to fire them and put in place others that will maintain proper levels of interest rate minimum - as well as a maximum with the reintroduction of the crime of usury for interest rates above 42.5%, as abolished by one M. Thatcher arch de-regulator who set up the economy for this collapse!)

  • Comment number 37.

    This is not just retribution for all the harm the bankers have caused to both ordinary people and the government.

    These people benefitted from (and some only survived because of) what was effectively free insurance. Some of them offered a similar 'product' to other institutions at a very nice rate of income.

    It is only proper that people who sheltered under state guarantees should be asked to pay for that now that the money is flowing in again.

    I would love to see it catch on globally so that they cant play the 'tax us and we will move overseas' threat.

  • Comment number 38.

    #28. writingsonthewall

    I commented on Simon Shama's programme last night [LINK] I forgot to include the link earlier.

  • Comment number 39.

    # 6. At 09:54am on 15 Jan 2010, the_fatcat wrote:
    “Hmm, not much of a penalty is it? Shouldn't the US tax payer be aiming to get nearer $1Tn over the next 12 years?”

    Well, this is just one tax. If we assume that on average these institutions pay about 25% of their profits as bonuses, then the total profit (after bonuses) would be about $435bn. Federal tax on this at 35% would be about $152bn. Federal tax on the bonuses (at an average rate of about 40%) would be about $58bn. The total of these two taxes in this one year would be $210bn, so if profit and bonus figures were to stay at this level over the next 12 years, the total would be $2.5tn. Assuming that 60% of this tax is avoided somehow (or paid outside of the US) these two taxes alone (ignoring social security, state and local taxes, property taxes, sales taxes etc) would raise the $1tn you think they should be aiming for.

    Whilst it is true to say that other corporations in America (and their employees) will also be paying these taxes, it is undoubtedly true that these same corporations and individuals would have suffered considerable incremental hardship had the banking system collapsed, and so have also indirectly benefited from the bailout.

    We should also ask ourselves where the US government losses have arisen. Citibank, Bank of America, JP Morgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, PNC Financial, Capital One Financial, American Express, Bank of New York Mellon and State Street have all either repaid the TARP investment or made arrangements to repay it.

    For example, the US Treasury’s investment in Goldman Sachs has been repaid in full. The US Treasury also earned a return on its investment (part dividend and part warrant buy-back) equating to 23%. Whatever we think about the terms of this investment, it’s hard to see how it is a “loss” unless the US Treasury is telling us that it pays more than 23% on its debt, which seems unlikely.

    Those that haven’t repaid it yet include AIG, Regions Financial and Discover Financial, who together received preferred stock investments totalling about $45bn. It’s reasonable to assume that the AIG investment will not turn around in any sensible timescale, so that’s a loss of about $40bn.

    Other recipients of TARP stock investments that haven’t yet been repaid are General Motors, GMAC (a General Motors financial services subsidiary) and Chrysler. Their total investment is about $22bn.

    Some of the losses must be attributable to assets purchased by the Treasury. A report from the Congressional Oversight Panel in early 2009 marked these securities to market and determined that there was a shortfall of $78bn against the purchase price. However, I cannot find any information detailing what losses have been realised on these assets or what their current value is – and anyway, if the US Treasury doesn’t have to sell these assets, their current value is not really very informative.

    (For example – there were times in 2008 and 2009 when it was impossible to sell a house in parts of the UK at any price. Nobody was buying houses. If you owned a house, it was functionally impossible to sell it. However, that doesn’t matter if you don’t have to sell a house – you can just carry on living in it. If it was truly impossible to sell houses, a mark to market valuation of your house would be nil. On that basis, you’d have lost the entire value of your house. However, if you’re not selling your house, this “loss” doesn’t really mean all that much.)

    So, I am not at all clear what is being “repaid” – it surely isn’t the direct investment in the banks, since most of those have already been repaid with 'interest'.

    It could be the direct investments in the auto companies – but those don’t add up the amount targeted by this tax, and this tax is not directed at the auto companies.

    It could be the losses on the TARP assets purchases – but so far as I can tell, many of those losses are only paper losses at the moment. What happens if these assets turn around and no losses are actually realised (as happen in the Scandinavian banking crisis of the 1990’s) – is the tax to be refunded? I doubt it.

    Maybe this isn’t about repayment at all – perhaps it’s a premium against future insurance. In this case, can we assume that were this to happen again, no additional taxes would be levied (you don’t pay for car insurance and then buy it all around again when you have an accident)? I doubt it.

    Perhaps it’s just a tax, levied against a group that is seen to have the funds to pay it and which is so unpopular with the voting public that for once additional taxes are a positive vote winner.


    #29. At 11:20am on 15 Jan 2010, DebtJuggler wrote:
    “Beat the banks?...YES WE CAN!”


    If you really want to change banking you should vote with your wallet. Move your account to the Co-Op bank or Nationwide. Both of these institutions claim to operate in a different way from the rest of the banking system and both offer current accounts, savings accounts, mortgages, credit cards, insurance, unsecured loans and investment products. It is nowhere near as hard as it was to move accounts (thanks mostly to the FSA).

    If we were all to move to these institutions (or similar) we could remove our terrible dependence on the international capital markets and wholesale bank lending. We’d once again have a system where we deposited money in banks and they lent it out to customers here in the UK. How much safer this would be.

    However, there might be one turd in this glorious vision of the sunny uplands of mutualised banking. It is worth remembering that (using figures from Robert Peston’s “New Capitalism” paper) to remove this dependence on foreign capital entirely would mean reducing the amount lent to UK individuals and businesses by about £4,400bn (yes, that’s £4.4tn).

    So, somehow, as a nation we’d have to borrow £4.4tn less than we currently do. That’s about £68,000 per man, woman and child in the UK. To put it another way, if we all repaid our residential mortgages in full, right now, then according the figures in the “New Capitalism” paper, we’d then only have to come up with an additional £50,000 each.

    Oh, and by the way, these figures aren’t a cost of the banking bailout – they simply reflect the fact that we as a nation have consistently borrowed more than we have saved for many years.

  • Comment number 40.

    19. At 10:46am on 15 Jan 2010, writingsonthewall

    I conclude with your comments but must also extend the debate on Capitalist system.

    Any system runs its course, look at how communism system in eastern Europe eroded after over 60 years, fragments and elements are still being expounded in certain countries. It seem the communist system has been diluted to accept elements of the capitalist market or captialism has empowered itself on them.

    Therefore capitalism with all its variants has reached a crisis point of reaching a peak, it requires to readdress itself, reestablish its core foundations and if that means bankers loss their bonuses so be it for the longer term.

    The excesses are those that take out of the system. A normal person in the street with a family, mortgage or renting accommodation, hopefully with a job, saving for a pension, building a future saving nest-egg has to use the the system. While those greedy persons who take out and use the system are only interested in themselves.

    Those warning of a disaster if taxes are applied to bankers and their associates, typically are spreading a message of disaster, it has no sympathy. Why not accept the consequences of your demise, you caused it, accept it before other decisions take it totally out of your control.

    UK Govt has not gone far enough in my book, Obama thinking seem a more coherent policy, they did it to us by dragging us down. They used the system to advantage themselves without a care for the normal person in the street.

    As for capitalism, it can survive and probably will, it needs to adjust to the correct level before any advancement can be achieved. This whole episode highlights our reliance on the certain factors, banks, financial institutions, etc overall the system requires a high level of regulation that will act

    I have no sympathy for bankers, industrialists and other money persons who want to leave the country and find another tax heaven, GO.

  • Comment number 41.

    Is there not another angle to this situation. Keeping the banks solvent has meant that the mega rich, who have their money controlled by the bankers, have not lost out (compared to the banks going bust).

    So if the bankers have made a fortune on commission using the money of the mega-rich, this means the mega-rich have made much much more.

    And of course the mega-rich will not be paying taxes, as they know all the avoidance schemes (thanks to the bankers).

    So while we are bashing the bankers, we quietly let the mega-rich get even richer, when they are the ones we actually bailed out by saving the banks.

    Nice smokescreen, don't you think?

  • Comment number 42.

    33. At 11:47am on 15 Jan 2010, writingsonthewall wrote:

    "Maybe Boris is a banker in disguise - I mean he has all the requirements:
    No financial qualifications
    No real business experience
    Very bad with big numbers
    Totally oblivious to the damage the risky decisions he makes are to the wider community.
    ...and of course extreme arrogance"

    and of course, don't forget Eton and Oxford educated - although I'm not against that per se.

  • Comment number 43.

    Tobin Tax on every investment bank transaction. That would re-build the economy pretty quickly, but how do you stop it being passed on to the poor suckers using retail banks?

  • Comment number 44.

    Seems like a plan to me .. the banks needed a loan to get them out of a hole and now we're calling it back in - that is how they operate - right?

  • Comment number 45.

    Of course it is necessary to have a global approach to banking. We are living in a world where we are first and foremost consumers and no longer citizens. (No, I don’t like it either!) No Western democratic government would get away with any laws that the main global businesses (Mining, Utility, Banks etc) don’t agree.

    Good for Obama that he is at least making a show of wanting to get taxpayers money back. But he (like Brown and other Western Leaders) needs the support of people who have a great deal of interest not to lose their own investment in the process (our own MPs and law makers). Which turkey votes for Christmas?

    Consensus is what we need, and my vote is for the Tobin tax. It is slow, but it can be demonstrated to be fair. Additionally I would support insurance for bankers’ risks. As our commenting banker said: everything will be passed on to the customer. I can live with that, as long as I know, that I will not be called upon to bail out people who would treat me like riff-raff in a public place. Yes – I put up my hand and admit that I feel passionately about respect regardless of income (and all the rest..).

    Lastly, let’s also look at the absurd way we gamble with Maslow’s fundamentals in the UK. The value of our houses is being played like pieces on a monopoly board. Why don’t we treat them like any other goods? New, second-hand and antique? At least many of us could sleep more restfully in our beds, knowing we would not be sucked into a financial roller coaster.

  • Comment number 46.

    It is unfortunate that this debate is being (for political reasons) encased in "bash the bankers" language. There is a more serious issue here - we use the markets to manage our societies, and we need to make sure that they work properly.

    Are huge profits for one agent in society a sign of market success or market failure? That is a tough question to answer. If the profits are ultimately due to real progress (improved technology developed somewhere, discovery of more oil, efficiencies of scale, or better management in a factory) then that seems good. But if the profits are just because another agent in society is not intelligent enough or has poor information, then that is a sign that the market is really failing, and as a society we are not performing optimally. Its even more complex than that - these two cases have blurred lines between them. And it is not just a question of one financial insitution versus another, its a question that applies to the whole of society considered as one big market.

    But a reasoned debate about this problem is much much more important than banker's bonuses. We use markets to optimise our society, and if huge profits for one agent are a sign of the system failing, then that is a bigger concern than whether we tax the profits or not. If on the other hand the profits of one agent are a sign of real progress, then taxing them is a secondary issue.

    Don't get me wrong - I'm not a banker and I'm not trying to defend their bonuses. The bigger problem for me is that profit is sometimes a sign of success, but sometimes it is a sign of failure. We need to make sure that we need to target success, and find a better way of monitoring when a given activity is successful or not.

  • Comment number 47.

    Brilliant bandwagonism again... pull the wool over the eyes of the man in the street and make it look as if you are doing a good job.

    The tax on the bank will be a "Cost" to the bank, that will be factored in when they determine their charges therefore their charges will be higher than they needed to have been, the ordinary Customer pays. It means their commercial Customers will be faced with higher costs therefore the cost of their products goes up, the consumer pays. Pension funds will be faced with higher cost therefore the return to the pension fund will be decreased, need I go on.

    Who pays... the ordinary person in the street once again, but even worse, we're probably going to pay for a lot of it twice.





  • Comment number 48.

    I don't think bonuses, or tax on bonuses is the way to tackle the issue for the long term.
    Common sense said all this was coming, and there was a credit bubble about to burst as we lived the 2000's on the never-never. It's not a suprise when you look at the raw figures of how much debt our governments and people are in, secured against the rising prices of assets, which were rising becuase only because debt was increasing. In a nutshell: yet another bubble (yawn!), of which there have been dozens throughout history.
    What we need is a government more clued up on economics. The problem is that people who are clued up tend to go into business rather than politics for obvious reasons.

  • Comment number 49.

    If governments were to give 'catastrophe insurance' to banks, then surely two things flow from this:

    1 That there should be a guarantee that any bank that paid the 'premium' would be paid the sum required to bail it out at any point in the future. This raises moral hazard questions.

    2 That any bank should not have to give up any equity in return for any bail out payment, as 'premiums' have been paid in advance.

    If this is built into the agreement, most banks would probably not object, since the payments would be passed on to customers anyway. Is this really where we want to be?

  • Comment number 50.

    > President Obama's levy on bank leverage or wholesale funding - and the
    > way he explicitly linked it to the "obscene" (his word) bonuses being paid
    > by banks - has surprised European ministers, central bankers and regulators.

    I'm surprised that we have such slow-witted people in those jobs. Everybody wants to beat the big banks and break them down to size, so why have ministers, bankers and regulators wandered off in the wrong dirction?

    Those guys had better pull thier socks up and get with the programme, else some of us might believe they are in cahoots with the greedy pigs, and we can't have that sort of thing anymore.

  • Comment number 51.

    21. cornishmaninyorkshire wrote:

    "my eldest son had tried local government and banking but could not stand the sheer idleness and boredom so he joined the real world."

    On the other hand, I have worked in both local government and banking in my time and found both to be challenging and extremely rewarding - both professionally and financially. And you simply cannot say that providing essential services to the disadvantaged, or life-changing finance to first-time buyers and start-up companies, is not "the real world".

  • Comment number 52.

    47. At 12:22pm on 15 Jan 2010, Art wrote:

    The tax on the bank will be a "Cost" to the bank, that will be factored in when they determine their charges therefore their charges will be higher than they needed to have been, the ordinary Customer pays. It means their commercial Customers will be faced with higher costs therefore the cost of their products goes up, the consumer pays. Pension funds will be faced with higher cost therefore the return to the pension fund will be decreased, need I go on.

    That is the point of regulators. To stop monopolies making obscene profits. Banks are the worst kind of monopoly.
    Admittedly our regulators have become a joke. I include both the FSA and the FOS in that but they have to be rebuilt or else we have no chance.

  • Comment number 53.

    If you are paying up front for something, it is only fair that you know what you are paying for. For example, if a bank were to pay for 'catastrophe insurance' from a government it would not be fair for that government then not to bail it out if required.

    However, knowing that you will be bailed out may mean that you then engage in even riskier activities as you know there will be no downside (i.e. moral hazard).

    Similarly, if you are paying an amount up front for catastophe protection, then why should you give up any equity in the event that you need the bailout?

  • Comment number 54.

    #4. darksurfer wrote:

    "The majority of the comments on this blog are so puerile that it is a laugh. At least it gives the opportunity to ignorant people to air their most ludicrous theory and have the feeling they are about to change the world."

    I couldn't agree more.

    The regulars on this blog have been spotting the green shoots of a new world order for over a year now; they are going to be bitterly disappointed when the recession eventually comes to an and they realise that the world continues along its usual path.

  • Comment number 55.

    36. John_from_Hendon:

    "I want Mervyn King and Nick Macpherson etc. sacked for their role in reducing interest rates in the last decade that gave rise to the bubble economy "

    I think you've got the right analysis but the wrong target. Rather than blaming Mervyn, BLAME BROWN - the architect of the tripartite system.

    When the Bank was given independence in 1997, it was ORDERED to tie interest rate policy to a wholly retail definition of inflation. Therefore, the Bank could not raise rates unless retail inflation increased. Worse, it was ordered to use CPI, a heavily distorted measure.

    This meant completely ignoring ASSET INFLATION, which, presumably, Brown either hadn't heard of, or thought didn't matter. In fact, the bank did keep an eye on asset (housing) inflation, and warned about it, but the Bank's hands were tied by Brown. Not only did he believe that asset price escalation was benign - he also thought that it was endlessly sustainable (remember when he abolished "boom and bust", and lectured our EU neighbours on the virtues of "light touch" regulation?).

    So you won't get the chsance to sack King, but you will get the chance to sack Brown. Markets are assuming that that's what will happen in May. They'd better be right.

  • Comment number 56.

    #47 Art

    "Brilliant bandwagonism again... pull the wool over the eyes of the man in the street and make it look as if you are doing a good job.

    The tax on the bank will be a "Cost" to the bank, that will be factored in when they determine their charges therefore their charges will be higher.....

    Who pays... the ordinary person in the street once again, but even worse, we're probably going to pay for a lot of it twice."


    I do partly agree with you - in that I think that ultimately we face a much deeper problem than can be resolved by taxing bonuses. but there is a potential objection that ultimately you don't really need to use banks and pension funds. You don't have to use them. Accounts in credit are free. You could invest all your earnings in bricks and mortar, or buying antiques instead of a pension fund. So the "cost" being passed on by banks is not a cost that you need to pay if you don't want to. Yes, I agree that if you want to buy a house you'd likely need a mortgage from a bank, and there would be few other options, but then increased costs of borrowing money are a sign that we have all lived beyond our means.

  • Comment number 57.

    darksurfer, rbs_temp

    Must be scary being so intellectually superior to the rest of us!

    Maybe you could post some constructive material with real content, rather than withering wittering...

  • Comment number 58.

    b The banking sector has caused a lot of misery for many people and the politicians are seeking to remedy the mistakes made by the Banks and gain popularity for introducing the proposed, belated, taxes. However it was the Politicians who deregulated the Banking sector and allowed the Banks to lend more than they could afford. Whilst I consider the Banking sector to be inept for their failure to manage their businesses prudently, I wonder if the Government's silence during the "Boom Year's" has made them complicit in the cause of the financial collapse. Light touch regulation of the Banks was foolhardy in the extreme and the "Bank of England" must be held to account. The perfect storm, in my view was created by the greed of Bankers and the "clinging to power at all costs" attitude of the Government. I am saddened by the fact that unless there is a greater willingness by the international community to hold the major World Banks to a proper level of accountability then we will have an even greater recession in another ten years. The Government(s)and Bankers rule our lives and are generally "feather bedded" from the selfish decisions they have made but which we the little people will have to suffer the consequences.

  • Comment number 59.

    #18 cornishmaninyorkshire

    ...yet more misery and poverty announced, all because of bankers' greed.

    '900 jobs go as Bosch shuts car parts plant'
    http://www.independent.co.uk/news/business/news/900-jobs-go-as-bosch-shuts-car-parts-plant-1868807.html

    My fear is that many other foreign owned manufacturing operations will be 'pulled' in the UK. This is probably the first of many that will be announced this year.

    #39 Dr Dave wrote

    'If you really want to change banking you should vote with your wallet. Move your account to the Co-Op bank or Nationwide.'

    I already have!...I have been recommending the same on this blogsite for well over a year now. To anyone else interested in opening an account with the Co-op bank...you can do it online...it only takes about 5mins to apply.

  • Comment number 60.

    #53. At 12:44pm on 15 Jan 2010, markbrignell wrote:
    “However, knowing that you will be bailed out may mean that you then engage in even riskier activities as you know there will be no downside (i.e. moral hazard).
    Similarly, if you are paying an amount up front for catastophe protection, then why should you give up any equity in the event that you need the bailout?”

    I agree with both of these sentiments, but maybe there is mechanism to deal with them.

    If I drive a cheap, lower powered car I can obtain cheap insurance. If I choose to switch to a more expensive, more powerful car, I can still obtain insurance, but it is more expensive. If I am convicted of a motoring offence, my insurer may review my premium, and if I have a crash I’ll probably end up paying more for insurance if I get another car.

    A simple, low risk banking operation can obtain cheap insurance. A more complex, riskier banking operation would have to pay more for its insurance. Breaches of regulations would probably end up with an insurance review and a bank that had to be bailed out should expect to pay more for insurance in future.

    The moral hazard would now be increased future business costs in the event of transgression or failure.

    This isn’t as hazardous as letting a bank fail, but we must ask ourselves how realistic letting a bank fail really is.

    I doubt there would be huge support for “fail” to include depositors not getting their deposits back.

    If “fail” means that the bank can default on wholesale finance (or other interbank liabilities) then any sniff of a problem will result in an immediate liquidity crisis, which (as we have seen) is not a particularly attractive result either.

    “Fail” could mean lots of bankers being fired, or losing a lot of money, or both. Well, this is a distinct possibility, and has been happening for a while now. Presumably there must be some limit to this, as even the most simple of banks needs someone to operate it.

    Lastly, “Fail” could mean that the shareholders lose money, either through a dramatic reduction the value of their holdings, or through some form of compulsory purchase by the insurer (the government). As with banker bashing, I suspect that there would be general support for this, but of course most (if not all) banks are in reality owned indirectly by individuals, so maybe this is just the same as a progressive tax – taking property from the relatively wealthy (who are probably more likely to have direct or indirect investments in banks) and giving it to the relatively poor (if they have credit balances at banks).

  • Comment number 61.

    54. At 12:47pm on 15 Jan 2010, rbs_temp

    I don’t think there’s going to be a new world order either, but by the same token I don’t think that this recession is any where near over either.

    New world order?

    Likely not, shame though, to carry on allowing a country to operate in a continual boom-bust cycle is rather silly to put it mildly.

  • Comment number 62.

    The government is totally out of its depth and knows it.
    It cannot rock the boat before an election, but hopes that a spot of short term greed will drag the economy out of recession - even though the 'income' is based on trades related to quantitative easing.
    What would YOU do if someone had YOU by the short and curlies?

  • Comment number 63.

    # 54. At 12:47pm on 15 Jan 2010, rbs_temp wrote:

    > I have worked in both local government and banking in my time and found both
    > to be challenging and extremely rewarding - both professionally and financially.

    If it wasn't so boring, why would the wages be higher than
    average? On the plus side, they can afford to pay a _lot_ more tax.
    The global plan is to make it far less "extremely rewarding"!

  • Comment number 64.

    #55. Friendlycard wrote:

    "I think you've got the right analysis but the wrong target. Rather than blaming Mervyn, BLAME BROWN"

    I don't entirely disagree, but without getting rid of the regulators and advisers who actually run the system we can't hope to achieve anything.

    I am also worried that there is nothing different in Cameron - his party after all gave us light touch regulation that is at the bottom of all this. Neither Brown nor Cameron can claim any legitimacy in providing a solution unless we flush out both the Governor of the Bank of England whose supine attitude and poor economic understanding (that is being kind to him!) taught at Harvard when he was there with Ben Bernanke gave us the regulatory environment that allowed the bubble to grow in the first place. And of course one has also to single out for shared condemnation the Permanent Secretary of the Treasury (and his predecessor) Nick Macpherson (and Gus O'Donnell) for they are the chief managers of the Permanent Government who let these things happen. Both are responsible, knew what they were doing (or should have known if they were fit fro their responsible jobs) and should be sacked.

    The Nation is in a deep hole. All prospect of any rational resumption of economic policy is cut off because of how deeply entrenched the wrong economics has become! We need to make a fresh start (and Cameron is NOT that start.)

  • Comment number 65.

    # 4. At 09:48am on 15 Jan 2010, darksurfer wrote:

    > Bonuses are being paid “normally”, a tax in the US will be imposed on large
    > banks over 10 years…from next year…and it will pass as a cost to their
    > customers.

    Only on "large banks", my man. That means small banks won't pass a cost on to
    their customers, which means - well, I'll let you work it out!

  • Comment number 66.

    64. John_from_Hendon:

    "#55. Friendlycard wrote:

    "I think you've got the right analysis but the wrong target. Rather than blaming Mervyn, BLAME BROWN"

    I don't entirely disagree, but without getting rid of the regulators and advisers who actually run the system we can't hope to achieve anything."

    I agree, so long as we don't let Brown off the hook. The man is a blame-shifter.

    I certainly agree about the permanent officials. Government (both permanent and 'elected') are using bankers as 'human shields' over this. That's why they feed the flames of anti-banker sentiment. I'm not defending bankers, but the constant blame-shifting by Brown and co is utterly contemptible.

  • Comment number 67.

    Two words.

    Midterm elections.

  • Comment number 68.

    The answer to the titular question is yes because banks cheerfully paying large bonuses to their executives provide government a ready-made excuse to claw back expenditure.
    Confusion arises from the issue of whether or not the tax encourages banks to refrain from handing out super-generous bonuses.
    A brilliant stroke of policy, the levy is unsurpassed in virtually balancing the budget deficit outright; banks apparent insistence for large compensation packages ensures that rather than raising the $120bn as predicted, the levy is expected by banks themselves to bring in between eight and twelve times that figure.
    That banks will absorb the cost means that shareholders, not bonus recipients, will bear the cost, turning the tax on bankers’ pay into a levy on bank equity.
    The chronic problem that institutions put executives ahead of shareholders remains not addressed. Governance will have to target fixed compensation if shareholders are ever going to rebalance the allocation of risk and reward between their boards and themselves.

  • Comment number 69.

    33. At 11:47am on 15 Jan 2010, writingsonthewall wrote:


    "Obama seems to be on the side of the people"

    Obama is on the side of Obama and the Democratic Party. He is ignoring the opposition of the people to his designs and railroading his plans through. Luckily we are still able to kick the bum out and undo his actions. Although I have no doubt he will ensure as many people as possible are reliant on the government teat to try to tie them to him.

  • Comment number 70.

    WOTW, thanks for suggesting the Simon Schama documentary, it was a good watch. I also enjoy reading your posts and to a large degree hope you're right, but look at the facts, there was a great depression caused by a Wall Street crash but I'm not living in some alternative nirvana type universe where wealth is shared by all. Those institutions are still around and have now got all my taxpayer money and there doesn't seem to be an awful lot I can do about it (vote Conservative, ha ha right for all the good etc...). It's the reality but the posts from darksurfer and rbs_temp are unfortunately true.

  • Comment number 71.

    The banks and investment firms were in collusion. Does anyone believe that they did not understand that a banking indusry-created insurance pool with no funding of loans to unqualified borrowers would not crash. If they did not understand this basic math they should not have their jobs. It was a scam, not less and the legislative bodies in most Western countries did nothing when made aware.
    The governments also "bought" what have been called toxic assets, non-performing loans. It does not seem unfair that the banks should help to pay these off as they created them through greed and corruption. This was not about bankers taking risk, this is about a corrupt banking system that had the political power to prevent legislation that would have ended these loans before the collapse. Because the governments were involved no one will be held accountable.
    Why is there an argument about the banks participating in paying off the mess they created. Many of them should be in jail.
    It remains interesting that discussions never include the reitrement funds that were diminished, but that would probably just make people angry again, which is what is needed. I suggest that in every country when elections are held the question to be asked to any candidate that is in office: When did you become aware of the impending financial crisis and what actions did you take to prevent it? For any oppenent: What is your relationship with the financial services and banking industries and what is your position on regulating their practices?

  • Comment number 72.

    To 66. At 1:36pm on 15 Jan 2010, Friendlycard

    Ultimately I have to agree that both the Government and the banks are at fault.

    We can change a Government at an election.
    But we can’t change who runs the banks, they’re unelected by us, but we are still liable for their actions.

    As regards regulators, we have:
    • The Bank of England.
    • The Financial Services Authority
    • The Financial Ombudsman
    • The Treasury.
    • The Basel ll Agreement.
    • The European Union

    Well that’s an awful lot of people doing an awful lot of regulating.

    And, lets be honest now, it’s not worked has it.

    Wish it had, but the plain truth is regulation doesn’t work.

    It doesn’t work at national level, and it doesn’t work on a personal level.

    Remember endowment policies, personal equity plans, payment protection policies, equity release schemes, self certification, 100% + mortgages and not least bank charges.

  • Comment number 73.

    54 rbs_temp
    agreed.
    57 PercyPants - not the best contribution on the blog I've ever seen. This is not a case of intellectual superiority (although who am I to say that it's not the case), but a plea for rational presentation. To my knowledge rbs_temp and I (and Dempster, Onward Ho the Pirate and a dozen or so others) have contributed to this - and Stephanies blog - for pretty well as long as they have been running. Just occasionally I (and I can speak for no others, but I suspect rbs as well) get irritated by opinions, rarely based on good evidence, that have been trotted out as fact many hundreds of times before. That opinion could be entirely negative or stupidly optimistic. What they have in common is that they are totally intellectualy undemanding. Now that may not concern you, unfortunately nobody is going to stop you using the blog as a chat room and, of course, there is always the Sun newspaper.
    This is occasionaly a very good blog, but it has become increasingly bogged down with repetition and the same dubious opinions dressed up as "facts".
    A good blog engages the intelligence with proposals and opinions based on closely reasoned argument and new information - particularly from those who know what they are talking about. The "isn't life awful and it's going to get a lot worse" school of amateur economics, is limited if it doesn't engage rationally with those prepared to put up examples from the real world that contradict elements of that scenario.
    If you would like to have a look at such a blog, with many arguments, stats and opinions on the topic of housing prices, as they relate to economic activity and consumer reaction, take a look at stephanie's current blog. But you may find your pre-conceptions challenged by the facts.
    Good weekend to all.
    TM StH

  • Comment number 74.

    72. Dempster:

    Yes, regulation has failed, but obviously we need it. So how can we improve it?

    * Internationally - separate commercial from investment banking by law.

    * UK - scrap the tripartite system; hand bank regulatory authority to the BoE; mortgages limited to 3x of proved earnings and 85% LTV; BTL mortgages limited to 2x earnings and 65% LTV; stop bank proliferation (we really don't need supermarkets etc setting up banks); encourage mutuals.

    Not perfect - nothing ever is - but a lot better than what we've got now.

  • Comment number 75.

    The only logic behind the size of these bonus payments is that the demand for these staff outweighs the supply.

    If it is the other way round then the bonuses would be smaller or non-existent.

    If demand for the positions exceeds their availability, then the banks could cut costs by having a Dutch auction on remuneration. They will be able to find a match at a lower salary, I am sure.

    I don't accept that there is a special breed of person who can do these jobs. If this had been the case then these very people would not have been responsible for the crash.

    I cannot see a logical case for any bonuses for a long time.

  • Comment number 76.

    31. At 11:40am on 15 Jan 2010, Mark wrote:

    "Re the Haiti comment - look closely and you'll find many evil banks have commited significant funds."

    Don't try and claim banks are saving the world. Haiti is extremely poor - due to the inequality of wealth, which the banks play a major part in maintaining.
    If you're fooled into thinking banks are 'ok' because they throw a few coins at the poor - then you need to do the maths Donations vs Bailout.
    You may still be impressed by a million or two - but I am no longer. £850 BILLION - did any banks pledge that?

    "one other point, other than biffing the bankers to increase politicians popularity, is the tax an admission that the Fed dosen't have the skills to regulate investment banks properly?"

    How does a puppet tell the puppet master what to do?

  • Comment number 77.

    74. At 2:13pm on 15 Jan 2010, Friendlycard wrote:
    72. Dempster:
    'Yes, regulation has failed, but obviously we need it. So how can we improve it?'

    I don't know, but even if you did manage to improve it, this situation, or one very similar to it has happened before (late 1980' - early 1990's), they 'improved' regulation, and now it's happened all over again.

    All the evidence says: Regulation doesn't work.









  • Comment number 78.

    I still think that this is a better idea than out bonus tax. Perhaps our Chancellor and our Prime Minister should have given more time to think rather than acting in haste. I remember http://notayesmanseconomics.wordpress.com suggesting such a tax back in early December so the idea was out there. Perhaps our leaders should look wider for those to listen too

  • Comment number 79.

    I am sure that this move will travel the Atlantic and so it should too. We have to eliminate bonuses from the remuneration arrangements in financial services firms. They fuel greed and mismanagement. I see nothing wrong in rewarding financial services employees with annual salary rises for performance and that ought to be where it ends. No doubt Mr and Mrs Hester (senior) would agree! And if a few tetchy bankers swan off to Geneva or somewhere east of Canary Wharf so be it.

  • Comment number 80.

    40. At 12:00pm on 15 Jan 2010, Peter Miller wrote:

    "As for capitalism, it can survive and probably will, it needs to adjust to the correct level before any advancement can be achieved."

    ...but Capitalism is full of contradiction, opposing social forces in conflict - there is no level, just a 'period off peace' until the next crisis comes along (which we're in right now).
    Each time we reach temporary peace the leaders proclaim "we've done it - we're made permanent peace" (or in Gordon's case - we've sold Boom and Bust)

    ....and then Capitalism reminds them all (and us) who is really in control...

  • Comment number 81.

    44. At 12:06pm on 15 Jan 2010, U13235548

    Now we're talking - lets go and repossess the RBS buildings.

    We take all the homeless off the streets and house them in RBS offices. I mean it is our bank after all.

    I'll tag everything - you sort out the paperwork.

  • Comment number 82.

    46. At 12:22pm on 15 Jan 2010, captainarmchairhero wrote:

    "Are huge profits for one agent in society a sign of market success or market failure? That is a tough question to answer. If the profits are ultimately due to real progress (improved technology developed somewhere, discovery of more oil, efficiencies of scale, or better management in a factory) then that seems good. But if the profits are just because another agent in society is not intelligent enough or has poor information, then that is a sign that the market is really failing, and as a society we are not performing optimally. Its even more complex than that - these two cases have blurred lines between them. And it is not just a question of one financial insitution versus another, its a question that applies to the whole of society considered as one big market."

    ....or those profits come from the exploitation of the workforce who over time see their wages decline in real terms resulting in a collapse of demand for goods and services - i.e. a recession.

  • Comment number 83.

    I just read that our Chancellor had been written to appeal for a rethink on a similar tax on British institutions. Is that right? I under this newssheet with said report is about a day behind the news curve but the writer of the appeal suggests allegedly if Mr Darling doesn't have a rethink - he - the Chancellor of the Exchequer - will be assisting the fast tracking of our essential financial talent to New York or Singapore was it, Boris Johnson?
    After yesterdays announcement - maybe just Singapore then.
    Or am I really that financially illiterate? That would allegedly be "Odd to (my)kin. (Being)took in" I mean.
    Too kind - too kind, Mr Buik. lol

  • Comment number 84.

    A lot of people on here seem to be saying that "we can't tax the banks - they will just pass the cost onto us".

    ....is this the level of faith you have in regulation? Are you admitting that the banks will make you pay for the crisis?

    If so then the question you should be asking yourselves is why you are going to allow the banks to 'financially blackmail' you.

    I mean we (humans) can live without banks - but banks cannot exist without us creating Economic activity for them to live off.

    You need to stop being so defeatist and stand up to the bullies. Give in to the bully and you will be doing that for the rest of your lives...

    Come on - are you men - or mice?

  • Comment number 85.

    #71. At 1:57pm on 15 Jan 2010, ghostofsichuan wrote:
    “Does anyone believe that they did not understand that a banking indusry-created insurance pool with no funding of loans to unqualified borrowers would not crash. If they did not understand this basic math they should not have their jobs. It was a scam, not less and the legislative bodies in most Western countries did nothing when made aware.”

    Well, if you are referring to Freddie and Fannie, they were established by the Federal Government in the first place, and if you believe Wikipedia:

    In 1977, the Community Reinvestment Act forced banks to operate in deprived areas and advance loans to borrowers in these areas.

    In 1999, the Federal government forced Fannie to increase the proportion of its portfolio in CRA areas, leading Fannie to slacken its purchase criteria. The NY Times published an article starting…
    | In a move that could help increase home ownership rates among
    | minorities and low-income consumers, the Fannie Mae Corporation is
    | easing the credit requirements on loans that it will purchase from
    | banks and other lenders.
    | The action… will encourage those banks to extend home mortgages to
    | individuals whose credit is generally not good enough to qualify
    | for conventional loans. Fannie Mae officials say they hope to make
    | it a nationwide program by next spring.

    And continuing
    | In moving, even tentatively, into this new area of lending, Fannie
    | Mae is taking on significantly more risk, which may not pose any
    | difficulties during flush economic times. But the government-
    | subsidized corporation may run into trouble in an economic downturn,
    | prompting a government rescue similar to that of the savings and loan
    | industry in the 1980's.
    |
    | 'From the perspective of many people, including me, this is another
    | thrift industry growing up around us,' said Peter Wallison a
    | resident fellow at the American Enterprise Institute. 'If they fail,
    | the government will have to step up and bail them out the way it
    | stepped up and bailed out the thrift industry.'

    In 2001, the then director of the Congressional Budget Office, Dan L. Crippen, testified before Congress, that the "debt and mortgage-backed securities of GSEs [like Freddie and Fannie] are more valuable to investors than similar private securities because of the perception of a government guarantee."

    In 2002, the Federal government instigated a program to provide over $2bn of tax incentives for the construction of low income housing in depressed areas.

    In 2003, the Federal government established a program to provide grants to help low income house buyers with deposit and legal costs.


    All of these government actions may well have been made with the best of intentions, but it's hard to see that the Federal government was unaware of the activities of the US sub-prime mortgage market.

  • Comment number 86.

    48. At 12:27pm on 15 Jan 2010, Martin wrote:

    "What we need is a government more clued up on economics. The problem is that people who are clued up tend to go into business rather than politics for obvious reasons."

    ....but the people in business didn't see it coming either - not even the highly paid CEO's.
    The only person who saw this coming was Karl Heinrich Marx who wrote it all down in a book - which you shoudl all read sometime - because clearly the people you think are the experts clearly haven't!

  • Comment number 87.

    73. At 2:03pm on 15 Jan 2010, remoteislander wrote:

    > What they have in common is that they are totally
    > intellectualy undemanding.

    That's because bean counters try to read this blog, and we have to keep things simple enough for them.


  • Comment number 88.

    51. At 12:36pm on 15 Jan 2010, rbs_temp wrote:

    "And you simply cannot say that providing essential services to the disadvantaged, or life-changing finance to first-time buyers and start-up companies, is not "the real world"."

    ...except that money was fictional - printed on the basis of FRB - proper real world stuff.

    How rewarding it must be to play the part of monkey for the organ grinder.

  • Comment number 89.

    54. At 12:47pm on 15 Jan 2010, rbs_temp wrote:

    "The regulars on this blog have been spotting the green shoots of a new world order for over a year now; they are going to be bitterly disappointed when the recession eventually comes to an and they realise that the world continues along its usual path."

    ...and you have been spotting the 'green shoots of recovery' for about the same length of time - in fact I seem to recall you weren't able to see the recession to begin with.

    A new world order has already started - or do you seriously think any political party will get elected next spring without committing to clamp down on banks?

    I think you are now so used to bubbles RBS_temp that you are living in one yourself!

  • Comment number 90.

    55. At 12:54pm on 15 Jan 2010, Friendlycard wrote:

    ""I want Mervyn King and Nick Macpherson etc. sacked for their role in reducing interest rates in the last decade that gave rise to the bubble economy "

    I think you've got the right analysis but the wrong target. Rather than blaming Mervyn, BLAME BROWN - the architect of the tripartite system."


    ...why stop there - why don't you simply BLAME THE CENTRAL BANK - which I would like to remind you was introduced to control the crises Capitalism kept bringing about

    I mean why bother reading the message when you can simply shoot the messenger.

  • Comment number 91.

    69. At 1:42pm on 15 Jan 2010, Schwerpunkt wrote:

    "Obama is on the side of Obama and the Democratic Party. He is ignoring the opposition of the people to his designs and railroading his plans through. Luckily we are still able to kick the bum out and undo his actions. Although I have no doubt he will ensure as many people as possible are reliant on the government teat to try to tie them to him."

    As opposed to the previous President who simply 'let everyone get on with it' - and look how that one worked out....

  • Comment number 92.

    #FriendlyCard

    I agree. Regulation is definitely needed. Better still, we need people with a talent for proper regulation.Regulation is often written off because it is badly planned and implemented by morons.

    Why is it that your ordinary person in the street can come up with better ideas on how to regulate the system than people employed to do that task?

    Maybe we need to have the Bank of England open a network of high street branches run on common sense lines for people who like to bank and save without risk. When people start transferring their money from existing banks, maybe the bank moguls will understand how unhappy people are about bankers' bonuses.

  • Comment number 93.

    70. At 1:43pm on 15 Jan 2010, OffToOZ wrote:

    "but look at the facts, there was a great depression caused by a Wall Street crash but I'm not living in some alternative nirvana type universe where wealth is shared by all."

    If you saw the documentary this is only because one JP Morgan ensured that the system was propped up.

    In 1929 it was JP Morgan
    In 2008 no man was rich enough - so ALL men had to prop up the system (through Government).

    ...so what happens next time? Does God step in and prop up the system? - because there sure as hell won't be anyone or anything left on earth who will be able to fulfill this task.

    RBS_temp and darksurfer have to believe things won't change - simply because the alternative for them is extremely frightening - much more than the 'things continuing as before' are for us.

    They're not telling us in confidence - their telling us in hope. I mean if you count down this blog the number who are calling for change and those who are happy as things are - the call for change is deafening.

    ...it's the same on the street - but darksurfer and RBS_temp don't get out much I'm afraid...

  • Comment number 94.

    86. At 2:53pm on 15 Jan 2010, writingsonthewall wrote:

    "The only person who saw this coming was Karl Heinrich Marx who wrote it all down in a book - which you should all read sometime - because clearly the people you think are the experts clearly haven't!"

    Pub talk writingsonthewall, you usually are more balanced. You know many pundits - Vince Cable for one - said we were on the road to ruin. So funnily enough did a certain Kondratieff, a Russian Economist I believe, who postulated Capitalist economies move in 70 year cycles of boom and bust (we were a bit late for this one!). Anyone who experienced the 70's busts must have thought we were in trouble after Mr Brown ramped up Govt spending from 2001.

  • Comment number 95.

    73. At 2:03pm on 15 Jan 2010, remoteislander

    ...and how do you explain my posts?

    Am I bereft of financial knowledge? Do you have arguments to defeat my claims?
    I have worked in finance for the last 15 years (roughly) - am I from the "school of amateur economics"?

    Your arrogance is unsurpassed - possibly because you are the one who does not understand how the system works

    Can't explain where the source of profit is from can you?
    Can't stop the crisis of Capitalism can you?
    Can't see how this current QE bubble is going to end can you?
    Can't see the environmental disaster awaiting us (which I presume you believe the market will miraculously 'fix' just as it's managed to 'fix' everything else in our lives)

    Are we out of recession yet? - NO
    Is the crisis requiring Historic (record breaking) action - YES
    Is the crisis breaking new ground - YES
    Will the world be the same again - NO

    You all try to deny the crisis - and for your information RBS_temp has made many claims about the housing market and the recovery - none of which have come to fruition yet.
    We only have another 6 months or so and it's officially a depression. What happened after the last greadt depression? - oh yes, the world changed totally with the onset of World War II - something that 50 years later the world is still feeling the consequences of.

    I don't need to make predicitons - history has already mapped it all out for us.

  • Comment number 96.

    friendlycard #74:

    "...UK - scrap the tripartite system; hand bank regulatory authority to the BoE; mortgages limited to 3x of proved earnings and 85% LTV; BTL mortgages limited to 2x earnings and 65% LTV..."

    While we could quibble about the exact figures I too am perplexed that something of the sort has not been brought in by legislation, or at least announced as being in the legislative programme. I suspect that any such ideas might have to be brought in incrementally to avoid the risk of serious complications in the housing market cropping up elsewhere as "unintended consequences".

    At the same time I am not perplexed at all because governments - particularly this one with its addition to spending taxpayers' money with little prior thought - have a perverse incentive to leave things exactly as they are. Any restrictions as those above would reduce the amount of money flowing into the Exchequer, and that of course would never do.

    Another instance, perhaps, of government speaking with forked tongue. What a surprise.

    But I for one think such restrictions are highly desirable.

  • Comment number 97.

    To WOTW.

    Now whilst I agree with many of your posts, I have to say that I’m not against what some describe as ‘capitalism’.

    I don’t see the current system we have as a bad one overall.

    And I don’t think that the current system as a whole (irrespective of the name you give it) is in itself, responsible for the current economic plight either.

    I don’t think you should necessarily tar a whole system due to the failings of one part of it.

    You see I suspect that irrespective of whether you’re a ‘capitalist’ (have a business) or a ‘socialist’ (perhaps work for one); both may well be paying a high price for the reckless behaviour of the banking sector and the failure of regulation.

  • Comment number 98.

    85 DrDan - useful post, thank you.
    WOTW 89 and many other posts - keep up the good work! Excellent entertainment value.
    Anybody tell me why the Venuzuelian economy is failing, with nationised banks, centrally operated utilities, as much oil as you like, Socialist President with complete control of the political system. And he knows all about Karl Marx, in fact he bases his economic policy on him - you wouldn't think they could possibly get into trouble would you. Perhaps WOTW could give them a bit of practical advice on managing their economy? After all, he appears to have most of the answers for managing ours.
    Sorry to snipe, but you are getting a bit silly....
    TM StH

  • Comment number 99.

    I really wish that we had an Obama to vote for, the current crop of MPs all seem like middle management rather than the inspired leadership that we need at the moment.

    I might not agree with everything Obama has done, but I admired his passion and determination to take on all comers to reach his aims. I am sure that I, like many other, when hearing about him running for President, thought it could not happen.

    We need a strong leader to take up the rights of the ordinary people and at the moment I don't see anyone who deserves my vote.

    By the way, to all the banker supporters, I am still waiting for someone to tell me in details exactly why these people are so unique and wonderful that they deserve this money.

    Finally update on the "We are not Happy" group our logo is done and we have set 1st April for our protest day because lets face it the Bankers and MPs both appear to think we are fools to be used for their own gain

  • Comment number 100.

    92. newshounduk:

    Thanks, it seems we're in agreement on this. You ask why the experts can't come up with a better system than the ordinary person in the street can.

    Well, there WAS a perfectly good system before - tight BoE regulation of banks before the tripartite system in the UK; Glass-Steagall separation between commercial and investment banking in the US; and similar separation here.

    So let me rephrase your question as 'why did a perfectly good, tried-and-tested-over-decades, system get thrown out by so-called experts?'

    I'm afraid the answer is a combination of vested interests, lobbying and ignorance. I doubt if Clinton, let alone Bush or Brown, knew whether Glass-Steagall was a regulation or a comedy duo, or cared much. Then you've got lobbying. Paul Mason's book 'Meltdown' is very good on how G-S got repealed. Then complacency came into it - G-S was passed in 1933 by a US government sobered by the Wall Street Crash, but this was forgotten about over the decades.

    The trouble is, I think we're going to need another crash before the necessary action - obvious though it is to ordinary people - gets taken.

 

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