BBC BLOGS - Peston's Picks
« Previous | Main | Next »

Obama's bigger rod for banks

Robert Peston | 08:04 UK time, Thursday, 14 January 2010

Spare a thought for Lloyd Blankfein, chairman of Goldman Sachs and lightning conductor for the aphorisms that many would say define the surreal economics of the modern financial economy.

First he inadvertently devised the phrase - "Goldman Sachs, doing God's work" - that perhaps best captured the miracle of banks' astonishingly short journey from crisis and rescue to boom revenues and bumper bonuses.

And yesterday he was on the receiving end of a resonant jibe about investment banks' ethics in selling mortgaged-backed securities to clients and then betting the firms' capital that these securities would fall in value.

"It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars," Philip Angelides, chairman of the historic Financial Crisis Inquiry Commission told Blankfein yesterday. "It doesn't seem to me that that's a practice that inspires confidence in the markets."

Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell. The regulators allow the principle of caveat emptor to operate in this market - so if Goldman fed stuff to its clients that it was reluctant to eat itself (to adapt a metaphor employed by the chairman of Morgan Stanley, John Mack), that's just how it goes.

Those clients could choose to take their business elsewhere. And what's striking - if Goldman's bumper revenues for 2009 are any guide - is that they haven't done so to any demonstrable extent.

What a world!

It all makes perfect sense to investment bankers but does look a bit odd - and not desperately attractive - to outsiders.

Which is the political explanation for why President Obama is today expected to join Gordon Brown and President Sarkozy of France with a special new tax to bash the big banks.

There are very important differences between the fiscal retribution on banks being inflicted in the three countries.

Perhaps most striking is that Obama plans to raise $120bn from his planned impost, to pay for the cost of the US banking bailout - which is massively more than either the French or British bonus taxes will yield (even on the assumption that the British Treasury receives the few billion pounds that I expect, rather than the £500m odd it has forecast).

There is also a big difference in respect of precisely what is being taxed. Brown and Sarkozy are levying 50 per cent taxes on bonus payments. Obama will be levying - according to initial reports - a charge related to the size of banks' balance sheets.
There is a neat logic to the Obama approach.

He is apparently planning to levy the charge in proportion to banks' dependence on wholesale finance, the credit provided by financial institutions and professional institutions.

Why does this make sense?

Well, when the banking crisis was at full throttle in late 2008 and early 2009, no provider of wholesale finance to the banks lost a penny.

In practice, the banks drew on insurance provided by taxpayers - who rescued both individual banks and the entire banking system - although this was insurance for which neither the banks nor the providers of finance had ever paid a penny.

So Obama has decided to send them a retrospective bill for the insurance. Which is a bit like paying the firemen after they've put out the fire that was engulfing your house.
It is very striking that the levy will be most painful for the likes of Goldman Sachs and Morgan Stanley, which are very dependent on wholesale finance, and less so (relative to their size) for the likes of Bank of America and JP Morgan - because B of A and JP Morgan fund themselves to a significant extent from retail deposits.

This may be irksome for Goldman and Morgan Stanley but it is logical - because retail deposits have since the Great Depression been explicitly insured by an insurance scheme. Levying a second charge on these retail deposits might not seem desperately fair.

That said, many bankers will feel that the Obama bank tax is unfair in any case, because it is retrospective.

If the tax has a sunset clause - such that it will be abolished when the full $120bn is raised - they would have a point (although not one that is likely to resonate with most US citizens).

Funnily enough, and as no less an authority than the deputy governor of the Bank of England, Paul Tucker, has pointed out, there is a strong case for imposing a permanent tax on big banks, to cover the likely cost of potential future bailouts (it is what Tucker would describe as a fee for access to "capital of last resort").

But if bankers will be wincing, Gordon Brown and Alistair Darling will be cock-a-hoop. Their bonus tax doesn't any longer look as though it will massively harm the City's competitive position in relation to Wall Street.

UPDATE 11:54

The Whitehouse has been briefing this morning that the tax is expected to raise about $90bn over ten years.

That $90bn is its estimate of the final cost of the Trouble Asset Relief Program, the cornerstone of the US authorities' rescue of its banks.

Some 50 banks will be liable, of which ten to 15 would be the overseas subsidiaries of non-US banks.

I would therefore expect the US arms of Barclays, Royal Bank of Scotland and UBS to be caught by the tax.

The liable banks are those with more than $50bn in assets. And the levy itself will be calculated as I described earlier today.

Insured retail deposits and equity capital will be exempt from the charge. It will in effect be a levy on wholesale finance, at a rate - according to the Wall Street Journal - of 15 per cent (I am a bit puzzled by that figure, because a 15 per cent tax rate would raise well over $90bn).

So, as I have already said, the likes of Goldman - so dependent on wholesale finance - will pay proportionately more than banks with large numbers of retail depositors.

UPDATE 13:24

Reuters says the levy will be at a rate of 15 basis points, or 0.15 per cent - which makes a lot more sense.

Comments

Page 1 of 2

  • Comment number 1.

    A good move - but we still need to separate commercial from investment banks.

  • Comment number 2.

    "Spare a thought for Lloyd Blankfein"

    No - I won't - unless it's one about doing him some injustice!

    "And yesterday he was on the receiving end of a resonant jibe about investment banks' ethics in selling mortgaged-backed securities to clients and then betting the firms' capital that these securities would fall in value."

    ...oh yes, that's why - he's also another crooked banker.

    "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,"

    - but surely that would be against the law???? - unless of course you live in a moral wilderness.

    "Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell."

    Nice attitude - what does it say on a dollar bill? - A promise to fulfil?
    What good is business without honesty?
    Is this what they mean by 'restoring confidence'? - i.e. get into the pool of sharks with your fish blood suit on?

    "Those clients could choose to take their business elsewhere. And what's striking - if Goldman's bumper revenues for 2009 are any guide - is that they haven't done so to any demonstrable extent."

    eerrrrr - isn't that because it's not actually their money - it's ours! Pension funds, endowments, S&S ISA's - they're not stupid you know.

    "It all makes perfect sense to investment bankers but does look a bit odd - and not desperately attractive - to outsiders."

    That's because it's a confidence trick - they think it makes perfect sense because they are making money without taking any risks (except possibly loosing their job). Everyone on the outside can see it's a trick - although some still cannot bring themselves to believe such a scam has been pulled off.
    Remind us Robert - what is the punishment for a pension fund manager losing £4 billion on a bad investment decision to buy Goldman CDO's? - ah yes, he might loose his job but it's the pensioners who pay - they suffer the losses

    "Funnily enough, and as no less an authority than the deputy governor of the Bank of England, Paul Tucker, has pointed out, there is a strong case for imposing a permanent tax on big banks, to cover the likely cost of potential future bailouts"

    I can see this getting abused immediately - "got some spare cash BoE - I'm running low at the moment..."

    Has anyone else noticed that since the financial crisis started the BoE now have permanently employed security guards patrolling the bank. What are these for? - and who is paying for them?

    It seems the bank is expecting to have to defend itself - from what though? an angry public when they finally workk out what QE has actually been doing?

  • Comment number 3.

    " But if bankers will be wincing, Gordon Brown and Alistair Darling will be cock-a-hoop. Their bonus tax doesn't any longer look as though it will massively harm the City's competitive position in relation to Wall Street"

    Did they (GB & AD) know Obama was going down this route when they were making their decisions? If so have they sold us down the river in order to shore up their seemingly shakey job security.

    As for sunset clauses..... how many Big G sunset clauses are anything but an Arctic summer's day.

    And as for Paul Tucker's idea of a permanent charge on banks in lieu of the next bailout.... won't work. They will be even more reckless, and the money will not have been 'saved' but spent on wasteful 'initiatives', so the pain will be the same if not worse.

    Agree with #1. Separate, and let the high risk businesses fail when they mess up.

  • Comment number 4.

    How amusing. The banks have been getting away with murder these past years so much so that they have now upset those professional murderers who run all the governments in the world. Who will murder whom? Or should that be who?

    The banks will rage and fume but let's face it, they have been asking for it. If the UK government misses this open goal - like they usually do - then they are even far more stupid than even I think.

    The message is not to bank on that bonus.

  • Comment number 5.

    'Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell. ...so if Goldman fed stuff to its clients that it was reluctant to eat itself (to adapt a metaphor employed by the chairman of Morgan Stanley, John Mack), that's just how it goes.'

    This just goes to show that investment banking is a game played by the rich few at the expense of the rest of us. In this case at the expense of the holders of pensions etc. held by the institutions, and to the extent that these were protected by the bail-out, taxpayers.

    The Obama bank tax appears completely justified, but of course it doesn't compensate for the collateral damage of the bankers' activities. Prevention, in the form of a complete reform of the monetary and banking system (see http://www.diarmidweirphotography.co.uk/wealth_without_money/%29, would be better than belated sticking plaster.

  • Comment number 6.

    I have heard of insurance companies taking out insurance for an event in the case of failure, then when nothing happens just ripping up the paper work and all this seems to be the same, except tax payers are the ones who are claimed against. Or am I being too simplistic?
    Are these big banks actually worth having? Does size really make a difference to the products?

    And now are the bankers to be trusted?

  • Comment number 7.

    > "It sounds to me a little bit like selling a car with faulty brakes
    > and then buying an insurance policy on the buyer of those cars,"

    Or - heads I win, tails you loose! Bankers need a constitution - a
    set of rules that give them a reason to exist. And rule number
    one is: Parasites must not destroy thier host!

  • Comment number 8.

    Brown and Darling's targeting of bonuses is key! The extreme overextended sense of entitlement that is symptomatic of sector must be removed if we are to move on.

    The arguement that bankers insane bonuses ontop of unjustifiable salaries are demanded by the market clearly indicates on thing:
    THE JOB MARKET IN FINANCIAL SERVICES IS UTTERLY DISFUNCTONAL

    This could be clearly argued even before the recent chronic faliures and unprecedented governement support (yes- to the full banking sector, not just RBS, Lloyds and Nrock)

    Then evidently: Although the banking sector has proved chronically inept at its key core competancy - Risk Management, they have shown themselves masters at profiteering out of the consensus that the 'market' is always an efficient mechanism for asessing value. As we have learnt- disfunctional markets are most deifinately not, and do require the governement to step in.

    So until the bankers can illustrate they are working within a properly functioning job market where salaries are in line with the real world, the government should most definately be involved, either through targeted taxation or direct regulation. If this means some bankers with an overextended sense of intitlement leave UK- So be it!

    I have recently been interviewing a number of bankers threatening to leave New York.... to LONDON.. would you believe it!!!!!

  • Comment number 9.

    "spare a thought for Goldman Sachs" erm no

    They have ex employees on the governments payroll, They had big bet with AIG and using inside information gained huge amounts of money, and they are no better or worse than the other companies who pay millions a year lobbying congress and the senators to make everything suit them. So the 120bn that the President is proposing is a mere plop in the ocean compared to how much this has cost the taxpayers and the investors who have been conned.

  • Comment number 10.

    3. p45builder:

    "And as for Paul Tucker's idea of a permanent charge on banks in lieu of the next bailout.... won't work. They will be even more reckless, and the money will not have been 'saved' but spent on wasteful 'initiatives', so the pain will be the same if not worse".

    Absolutely. We cannot expect any government - especially one which routinely describes shed-loads of current spending as "investment" - to put aside funds for future crises. (I'm tempted to remark that they did not even inventory adequate road salt, so are they going to inventory funds?)

    There are two basic activities involved here. The first is commercial banking. This is an essential component of the economy. When push comes to shove, it always has to be rescued by taxpayers. Accordingly, therefore, it should be strictly regulated. Mortgage finance should be limited to 3.0x income and 85% LTV. Commercial banks should be forbidden to hold or create derivatives.

    Then there's investment banking. Nothing wrong with it in principle - it is a valid part of a risk-taking market economy. But it should NEVER be bailed out by taxpayers. There's nothing wrong with earning high rewards, so long as the correspondingly high risks aren't shuffled off onto the taxpayer. If an investment bank fails, it fails. Period.

    It is, therefore, essential that separation be re-imposed. This means a modernised version of Glass-Steagall. This seems to me inevitable. The only question is, 'will it take another crisis before this lesson is learned?'

  • Comment number 11.

    Robert,

    how much do you think Obamas tax would cost British banks if he can get it past the houses? I believe several of ours have US based investment operations.

  • Comment number 12.

    I do find it fuuny that American Bank are also pulling the same blackmail on the US Govt saying "we must be able to pay bankers or they will all leave"

    I have started getting visions of a roaming herd of bankers moving around the world changing countries every six months as each country brings in a new bank tax to reign them in. Soon there will be no place left for them to go unless they want to head out to space!



  • Comment number 13.

    Friendlycard (credit or debit, by the way?!)said:

    'We cannot expect any government - especially one which routinely describes shed-loads of current spending as "investment" - to put aside funds for future crises.'

    Well, I hope you don't mean this literally! There's no point in the government hanging on to money that represents a liability to itself! It can either buy back some bonds (reducing the debt burden) or purchase some additional goods and labour from the private sector. (Which 'initiatives' would you then consider non-wasteful?)

  • Comment number 14.

    "Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell. The regulators allow the principle of caveat emptor to operate in this market - so if Goldman fed stuff to its clients that it was reluctant to eat itself (to adapt a metaphor employed by the chairman of Morgan Stanley, John Mack), that's just how it goes."

    So when their institutions imploded, because they turned out to have been so monumentally incompetent, WHY were these banks not allowed to fail, if as Blankfein assumes, they knew the risks and should accept "that's just how it goes........when you bet wrong?"

    Typical bankers don't even believe their own horse...t, never mind anyone elses!

    Bankers and their banks have GOT to pay! Tax the pips 'til the pips squeak!! Oh yes!

  • Comment number 15.

    However justified the levy might be morally it is wrong to apply it retrospectively. These terms and conditions should have been sewn into the original agreements when bailout funds were made available. That they were not exposes the incompetence/corruption of the American system and its not exactly at arms length advisors.

  • Comment number 16.

    12. At 09:50am on 14 Jan 2010, smallgraycat wrote:
    'I have started getting visions of a roaming herd of bankers moving around the world changing countries every six months as each country brings in a new bank tax to reign them in. Soon there will be no place left for them to go unless they want to head out to space!'


    I like that one.

  • Comment number 17.

    I wonder if Obama knows about this?

    http://fdralloveragain.blogspot.com/2010/01/goldman-sachs-about-to-declare.html

    Quick Robert! - to the Peston-mobile - There's a story to find and you're the man to find out.

    ....and I was discussing with another blogger just the other day stating how GS were 'not reckless' and did not deserve to be tarred with the same brush as the other banks.

    Oh how people are desperate to believe anything but the truth

  • Comment number 18.

    12. At 09:50am on 14 Jan 2010, smallgraycat

    very good point - a 'Nomadic banking system' - all the money and nowhere to live.

    An ironic form of punishment for those who will make so many others homeless before this crisis is over....

  • Comment number 19.

    No other industry so threatens the stability of the economy and no other industry's remuneration can make footballers and pop stars seem underpaid. Fundamentally the market system does not operate and shareholders appear to be impotent spectators or in the case of institutional s/holders corrupted by the culture of their own executive pay. If government will not contemplate state ownership as a strategic option the banks must be subject to close supervision with the prospects of jail sentences for those who cross the lines.

  • Comment number 20.

    Mr Peston wrote:
    'So Obama has decided to send them a retrospective bill for the insurance'

    Well done President Obama.

    Any chance you could come over here and help us out.

  • Comment number 21.

    Jamie Dimon, chief executive of JPMorgan Chase said at yesterdays Congressional Hearings.

    "We somehow missed that home prices just don't go up for ever,"

    Bankers do not need regulation, they need medication.
    So we should retain the bonus culture because it's vital to hang on to experts such as these?

  • Comment number 22.

    President Obama is doing the right thing - but why don't all our governments pull in the same direction and do the same thing? Then there can't be any "blackmail" by the bankers about "hurting financial institutions in this country".

    The bankers final stand then would be the claim that

    "the brightest and best will not join financial institutions".

    Great result: the brightest and best should be going into research, engineering, science and manufacturing.

  • Comment number 23.

    15. At 10:02am on 14 Jan 2010, fluffybunniescloudsandkittens wrote:

    "However justified the levy might be morally it is wrong to apply it retrospectively."


    ...but if you don't - all you're doing is punishing those who came after the event and not those who helped cause it.
    Most of the bankers who took their mega bonuses will now be setting up their own hedge funds with their previous bonuses because the bank can no longer justify their salaries.

    They're (quite rightly) applying retrospective changes to the MP's expenses aren't they? - so surely bankers, the champions of public disgrace 2009, should deserve the same.

  • Comment number 24.

    shouldn't the point of the tax be to change bankers' behaviour, rather than just to cash in on the windfall (which surely ought to be used by banks to rebuild their capital)?

  • Comment number 25.

    21. At 10:09am on 14 Jan 2010, johnwilkes wrote:

    Jamie Dimon, chief executive of JPMorgan Chase said at yesterdays Congressional Hearings.

    "We somehow missed that home prices just don't go up for ever,"

    Surely not - I can't believe it - you must have made it up.

    Perhaps we're all wrong and they are in fact idiots after all - just not clever enough to be criminal - it's just plain old incompetence by some highly paid buffoons.

  • Comment number 26.

    13. diarmidwp:

    "Friendlycard (credit or debit, by the way?!)said:

    'We cannot expect any government - especially one which routinely describes shed-loads of current spending as "investment" - to put aside funds for future crises.'

    Well, I hope you don't mean this literally! There's no point in the government hanging on to money that represents a liability to itself! It can either buy back some bonds (reducing the debt burden) or purchase some additional goods and labour from the private sector. (Which 'initiatives' would you then consider non-wasteful?)"

    The answer depends on the situation as it stands. At the moment, the situation is excessive government debt (even if we don't include off-balance-sheet obligations). If/when the next crisis arrives, the ability of the government to act will be in inverse proportion to indebtedness. Therefore, if there was a windfall/repayment from an Obama-style tax, then yes, pay down debt, putting the Treasury in a better position to respond if or when crisis strikes again.

    As for wasteful initiatives, I hardly know where to start. The Taxpayers' Alliance has identified wasteful government spending at just over £100bn annually, so there's plenty of scope for reducing spending and strengthening the government's balance sheet.

    BTW, strictly debit, not credit.

  • Comment number 27.

    The comment around selling a car with faulty breaks and then taking out an insurance policy on the buyers, is at very best, a grandstanding analogy again aimed at over simplifying what is a market of complicated financial products with ONLY experienced and qualified counterparts.

    The fact is you have to be a qualified investor to purchase the kind off assets GS were selling, the firms buying such assets would carry out their own in depth analysis and due diligence while also being answerable to their own compliance, audit and credit departments. The Buyers are NOT Joe Public they are fully aware of the risks they are entering into and were comfortable to take the increased yield for increased risk, the fact GS hedged out is risk in such products just proves they have better minds in their firm.

    The better analogy would be selling a classic car to a dealer that needs a lot of work doing, (including the breaks), they would assess their ability to find replacement products and fix the car up for a profit. If the dealer then sells the car for profit he pockets it, if he breaks even or losses money does he then have the right to ask the original seller to cover his costs as he failed to make a profit? No.

    The governments are plumed into the financial markets, happy to cosy up to banks to help off load their gilts and treasuries, happy to take tax revenue from the banks and bankers and for bank lending to stimulate the economy producing those ever so important growth figures in the good times. Recession bang blame anyone else, financial services, "systemic risk" anything but actually the Government was a sleep a the wheel.

  • Comment number 28.

    I think with the banks now so big and so morally indebted to the ordinary citizens of the world it is time to re-ask the question;

    "And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country." (JFK)

    But maybe I am just being old fashioned in this modern era of selfishness

  • Comment number 29.

    15. fluffybunniescloudsandkittens:

    "However justified the levy might be morally it is wrong to apply it retrospectively."

    Very true, but are you seriously expecting government to act morally?

    In 1933, for example, Roosevelt confiscated ALL privately-held gold, paying $21/oz compensation. People could then buy their own gold back from the government - but at $35/oz. Not very moral - just expedient.

    In modern times, governments responded to the crisis by lowering interest rates, thus forcing the prudent (savers, many of them elderly, far from rich and dependent upon interest income) to bail out the imprudent. Is there any morality in that?

    Moreover, banks and businesses are forced to declare the full state of their obligations by "marking to market" all liabilities. Is the government going to apply the same standards to itself and mark-to-market its pension and PFI obligations? No, I thought not.....

  • Comment number 30.

    Capitalism thrived at the begging of the 21st century and was embraced by its staunch believers. Whats happening now just proves that Capitalism requires certain conditions to be be adhered to function as a coherent system. These conditions being moral responsibility and accountability, both of which are severely lacking in the present context. Runaway greed....

  • Comment number 31.

    Robert, I know that it would be bias reporting, but when the BBC reports on this, could they interview a group of UK bankers saying they considering going to the US because of the UK supertax and then a group of US banker saying they come to London over the Obama tax.

    Please, it would give the rest of us a laugh

  • Comment number 32.

    'Mr Blankfein's defence was that Goldman's clients are investment institutions, professionals capable of making up their own minds about what to buy and sell. ...so if Goldman fed stuff to its clients that it was reluctant to eat itself (to adapt a metaphor employed by the chairman of Morgan Stanley, John Mack), that's just how it goes.'

    Blankfein's position on this goes to the core of why 'performance' within the banking sector is not aligned to a valid sense of 'productivity'. Banks such as Goldman's primarily judge performance on how adeptly they can shift assets and liabilities around within the financial services sector. Inspite of bankers assurances to the contrary there is no factual evidence whatsoever that many of these transactions are a net benefit to the wider economy. On the flip side- associated enormous banking fees, insane leverage and chronically inept risk management have shown many of these transactions to be materially devestating to the wider economy.

    The MARKET FOR FINANCIAL SERVICES IS UTTERLY DISFUNCTIONAL - it has become insulated from its effects on the wider world and represents a huge tax on other 'productive' areas of the economy. Until the market for financial services can illustrate that its 'performance' is fully aligned with the ACTUAL long term growth and productivity of the wider economy... the government should be directly involved in adressing the imbalance through targeted taxation and direct regulation.

  • Comment number 33.

    P.T. Barnum would have been proud of Mr Blankfein and his ilk - “There's a sucker born every minute”.

  • Comment number 34.

    Dear Robert, please keep on writing these articles and help to expose once and for all the mad injustices of the national and global financial services sector. Western countries have allowed an immensely powerful and obscenely rich finance industry to grow like a hiden cancer in their economies, with the potential to bring whole countries to bancruptcies. The financial services sector has to be strictly controlled, regulated and yes, made less profitable for the so-called 'top talents', who sooner or later will produce, collectively, one boom and bust after the other.
    Please find many more arguments for the urgent need for financial sector reform here:
    http://globalinsights.wordpress.com/

  • Comment number 35.

    Finally, a policy response that will begin to address the asymmetric incentives rampant within this sector of the global economy.

    Any disaster insurance, as provided by the global tax payer in the 2008 bail-out in this case, must come at a premium. Just ask Warren Buffett after 9/11. Otherwise where is the moral hazard/incentive for these institutions to avoid this type of disaster in the first place?

    It seems both sensible and proportional to provide tax payer insurance, a bail-out facility free at the point of use, in order to avoid systemic collapse but make the medium/long term cost of taking that insurance (disaster coverage) sufficiently expensive as to force the absurd management of our investment banks to consider seriously the question whether their business model is viable in the face an unprofitable short/medium term horizon. Faced with this question would the IBs be so keen to still allocate a vast proportion of their profit to compensation with taxpayer remunerations settlements calling?

    The bonus tax in the UK was a gimmick, which judging by the FT will be paid for by the banks themselves anyway thus completely defeating the whole object. Obama’s tax, if passed, will force these business leaders to actually confront some business decisions regarding the viability and size of their operations, rather than just working out how to defend absurd remuneration settlements whilst pumping up risk, sorry “leverage”, to intrinsically unstable levels in the pursuit of maximum bonuses without any consideration of the downside consequences.

  • Comment number 36.

    Separate retail banks from investment banks!

  • Comment number 37.

    The difference between the reality of banking and finance and the propaganda that their publicity machines exude is just as apparent as it ever was. However because they have so much money, muck like tobacco companies, they are well able to resist change. This reality of capitalism will not be done away with by a few blogs!

    I really do not see any genuine prospect of any nation stopping the banks from sucking the lifeblood out of the World's people without genuine revolutionary change.

    All banks will have to become smaller and less powerful and it is now a battle for the World's nation states to achieve this and it looks like the nation states are failing badly.

    IT must no longer be a source of pride that any nation has a world dominance in banking and financial services. Instead it should be a badge of national humiliation and shame. Being a World power in banking must be seen as akin to being a failed state and no better than present day Somalia. Bankers need to be see as pirates and leeches on the lifeblood of any nation and the World.

    The propaganda of the banks must be resisted and countered for the very simple economic reason that the people of countries like the UK cannot afford to bail them out. We must see and portray bankers more as international criminal and pirates in order that we counter their propaganda.

    The banks have nobody else to blame for this situation than themselves. Their obvious economic piracy must have been obvious even to them - their pay and salaries is so disproportionate to their actual worth - even their mothers see them as overpaid to quote Stephen Hester - currently in change of RBS and the most overpaid Civil Servant. We must remember that at present Mr Hester's pay is equivalent to about five hundred times the average wage - is he really worth that?

    My solution is to impose a national maximum annual income through taxation. I'll only believe Brown and Obama if they implement such a system, anything else, or less, is just window dressing.

  • Comment number 38.

    Gordon and Alastair are thrilled that their unilateral action on bonus tax will no longer harm the City of London. All along we have heard from Gordon that he is leading and saving the world and that he and Obama are close.

    This is a bit retrospective, but instead of congratulating themselves, Gordon should be ashamed that if his much vaunted global cooperation was true, we'd be implementing a plan similar to Obama's and expecting 10's of Billions for the exchequer. As it is, the tax payer gets shafted again and Gordon's city friends get off lightly.

    It is going to be so interesting to see which financial institution feathers Gordon's nest once we finally get the chance to kick him out.

  • Comment number 39.

    I agree with Obama

    It is the companies that need to fix their stance and this initiative will strike directly at the board room and ensure that some thought is put into policy changes

    Meanwhile in the UK, Brown and Darling have spun it as a punitive tax on the greedy...striking directly at the employees rather than the people and authorities that are supposed to control the environment in which those employees are allowed to operate

    Brown and Darling have not sought to change the failed triumvirate, nor initiate any need for change

    It also demonstrates the difference in perception of intervention to cause change to personal aspirations that is inherent within the US system, whilst the UK is based on envy

    On top of which Obama also has the last card, because these businesses will have to change if they refuse to pay and the "lender of last resort" is withdrawn

    No bank is now too big to fail in the US

    No reward for failure

    Call an election

  • Comment number 40.

    10. At 09:31am on 14 Jan 2010, Friendlycard wrote:

    "Then there's investment banking. Nothing wrong with it in principle - it is a valid part of a risk-taking market economy. But it should NEVER be bailed out by taxpayers. There's nothing wrong with earning high rewards, so long as the correspondingly high risks aren't shuffled off onto the taxpayer. If an investment bank fails, it fails. Period."

    ....and the Directors of an investment bank have unlimted personal liability, ie a partnership, as it used to be in the good ol' days

    "It is, therefore, essential that separation be re-imposed. This means a modernised version of Glass-Steagall. This seems to me inevitable. The only question is, 'will it take another crisis before this lesson is learned?' '

    Yes - but by then we will be past the point of no return and the end will come surprisingly quickly, just as it did with the Fall of the Roman Empire.

  • Comment number 41.

    I agree with the proposals but have reservations about the attitude of the German Government. Are the Germans going to follow, and if not, what impact on the City?

  • Comment number 42.

    #24 benagyerek wrote:

    'shouldn't the point of the tax be to change bankers' behaviour, rather than just to cash in on the windfall (which surely ought to be used by banks to rebuild their capital)?'

    --------------------------------------

    Good point!

  • Comment number 43.

    15. At 10:02am on 14 Jan 2010, fluffybunniescloudsandkittens wrote:
    'However justified the levy might be morally it is wrong to apply it retrospectively'

    Good point, let;'s abolish inheritance tax and capital gains tax, these both are retrospective as well.

  • Comment number 44.

    40. the_fatcat:

    "Yes - but by then we will be past the point of no return and the end will come surprisingly quickly, just as it did with the Fall of the Roman Empire."

    You could well be right. We are in no state to withstand another crisis, and this might well come sooner than people think. A whole range of asset classes have escalated purely on the basis of cheap money (low interest rates plus QE) - that could be the next bubble to burst. Meanwhile, we haven't addressed the separation issue. Banks, that previously only THOUGHT that they were too big to fail, now KNOW that they are.


  • Comment number 45.

    Bankers Anonymous...meeting #1

    'Hello...I am a complete and utter banker!'

  • Comment number 46.

    All these soon to be self-made homeless, stateless bankers, looking for a friendly tax free haven so they can ply their trade without the Man breathing down their necks. It's lonely out there on the road.

    Makes you want to cry. But not really.

  • Comment number 47.

    re: 37. At 10:38am on 14 Jan 2010, John_from_Hendon wrote:
    'The difference between the reality of banking and finance and the propaganda that their publicity machines exude is just as apparent as it ever was. However because they have so much money, muck like tobacco companies, they are well able to resist change. This reality of capitalism will not be done away with by a few blogs!'

    Yes, banking and finance are immensely powerful and obscenely rich, but I think this time they have overplayed their hand in their greedy poker game. An important difference is not made by one blog or another, but by the combined power of the internet in the 21st century. One or the other broadcaster, a few newspapers can be influenced by the finance industry's lobby power, but the spread of information through the internet cannot be controlled. For example, my blog has been read by around 8000 visitors over the past year, and I would assume that quite a few researchers of MP's are amongst those visitors. Keep on writing John from Hendon, speak with your MP, with ministers and business leaders wherever you can find them. It is not populism to complain about the malfunctioning banking system, but it is common sense and a very good sense for the common good. Fairness, this old British virtue, must be made relevant again in the life of the economies of Western liberal democracies.
    Please find many more detailed arguments here:
    http://globalinsights.wordpress.com/

    Nobel Laureate Prof Joseph Stiglitz just published his newest book:
    'Freefall: America, Free Markets, and the Sinking of the World Economy'.
    He is one of the best informed critical voices out there.
    His web site is here:
    http://www.josephstiglitz.com/

    Happy reading and, fellow bloggers, please continue your peaceful advocacy for a fairer and more just society.

  • Comment number 48.

    I remember reading 'Liar's Poker' many years ago and being amzed that investment bankers regularly sold bonds they desperately wanted to get rid of to their customers. I see that this sort of thing is still going on.

    What I can't understand is why their customers are so stupid as to buy these bonds, and why they stay with the banks concerned, even when the banks admit to these sort of practices.

    I don't really agree that what is needed is more regulation. You can't pass a law to stop people being idiots.

  • Comment number 49.

    12. smallgraycat:


    Maybe they could all club together and buy an island and set up shop. They could have the time of their lives doing all those things they love doing so much, trading, shorting each other, paying each other palm leaf bonuses until the cows came home.

    Just as long as they left the rest of us alone.

    Everyone wins.

  • Comment number 50.

    Friendlycard

    'As for wasteful initiatives, I hardly know where to start. The Taxpayers' Alliance has identified wasteful government spending at just over £100bn annually'

    I specifically asked about 'non-wasteful' initiatives. I guess from your endorsement of the 'Taxpayers'' (Tax-dodgers, more like! See http://www.guardian.co.uk/money/2009/dec/29/taxpayers-alliance-tax-scrutiny%29 Alliance, you wouldn't recognise the concept.

    I think watriler is spot on when he says 'If government will not contemplate state ownership as a strategic option...'.

    The commercial banking sector is supported by the state legal system of debt enforcement, the issue of state-backed money, explicit state deposit and liquidity insurance and implicit state solvency insurance. The only thing the state isn't doing is getting the profits (usually)!

    If we can design a credit allocation system that isn't open to political abuse, 'social' or 'community' control of banks follows logically.

  • Comment number 51.

    This is a massively better idea than the irrelevance of taxing bonuses. Full marks to the Americans for dreaming it up.

  • Comment number 52.

    > shouldn't the point of the tax be to change bankers' behaviour, rather than
    > just to cash in on the windfall (which surely ought to be used by banks
    > to rebuild their capital)?

    That's a side benefit. The main reason to tax bankers heavily is to make
    the occupation less appealing to the (many) spivs and cheats amongst them.

  • Comment number 53.

    The problem with increasing tax on banks to cover potential costs of future bail outs is two fold:

    1. Banks will not pay it - they employ the best minds to get around tax.

    2. Logically the tax should vary depending on the riskiness of the bank. If you look at final salary pension schemes and the PPF levy (which is effectively a variation of the same idea) the effect of the PPF levy is simply to accelerate the closure of most of the remaining pension schemes. Doing the same to the banks suddenly seems less sensible.

    Making it a tax has further unpleasant effects:

    Govt does not put the extra tax away for a rainy day and certainly will not use it to repay debt - they will spend on some other useless govt initiative. When, as will inevitably happen, there is another banking crisis and a bail out the govt will forget about all the extra tax it has received (which might be more than the bail out costs) and complain about the banks.

    Our economy already suffered from too much public spending - giving govt yet more tax to spend is like trying to put out a fire using petrol

  • Comment number 54.

    27. At 10:25am on 14 Jan 2010, STjim wrote:

    "The comment around selling a car with faulty breaks and then taking out an insurance policy on the buyers, is at very best, a grandstanding analogy again aimed at over simplifying what is a market of complicated financial products with ONLY experienced and qualified counterparts."

    Would these be the "experienced and qualified counterparts" who didn't see the GIANT SIZED CREDIT BLACK HOLE coming towards them?

    What evidence do you actually have that they are a) experienced and b) qualified?

    We all assumed CEO's of banks were 'qualified' - and look how that turned out....

    "The fact is you have to be a qualified investor to purchase the kind off assets GS were selling, the firms buying such assets would carry out their own in depth analysis and due diligence while also being answerable to their own compliance, audit and credit departments."

    No you don't - you just need to have one of those qualified people at your firm (if it's even true) and anyone can buy structured products through an ETF or similar investment vehicle.

    "The Buyers are NOT Joe Public"

    No - but they are using Joe public's money.

    "hey are fully aware of the risks they are entering into and were comfortable to take the increased yield for increased risk"

    ....because it's not their money - just remind us again what the penalty for a bad decision by a fund / investment manager is?

    "The better analogy would be selling a classic car to a dealer that needs a lot of work doing, (including the breaks), they would assess their ability to find replacement products and fix the car up for a profit. If the dealer then sells the car for profit he pockets it, if he breaks even or losses money does he then have the right to ask the original seller to cover his costs as he failed to make a profit? No."

    That is true - but you missed out the part where the AA (or similar breakdown firm) stamps an 'assessed to satisfaction' sign on it to indicate it has been through their thorough tests - as the ratings agencies obliged for the structured products.

    "Recession bang blame anyone else, financial services, "systemic risk" anything but actually the Government was a sleep a the wheel."

    Which is ironic considering what you wrote left out some key facts which support the original analagy.

    You must tell us how the Government was 'asleep at the wheel' - the last time I looked the financial services industry was calling out for 'self regulation'.

    So when your son reaches 16 and you let him go out to a disco for the first time in order to prove his coming of age and how he has learnt about responsibility - and he gets brought home by the police - is it your fault for letting him go?

    By your argument 'being asleep at the wheel' was actually 'not running the banks for them'.

    I mean that has to be the height of incredulity, not only do the bankers want huge wages but for the Governemnt to manage the risks of their business through regulation we (the taxpayer) must pay for!

    Come back to the real world - it's nice over here...

  • Comment number 55.

    28. At 10:26am on 14 Jan 2010, Scottish_Storm wrote:

    ""And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country." (JFK)"

    ...and that is exactly why they shot him. He was in danger of blowing the whole gaff by promoting a selfless and sharing world - one which was not based on a war with fictional adversaries in order to impose greater and greater clamps on our liberties.

  • Comment number 56.

    By the way, some mainstream newspapers in the US are more openly critical in their reporting of the malfunctioning world of banking than the average BBC News report.
    To get a sense of the public outrage in the US you could read, for example, today's New York Times article commenting on Obama's planned bank tax:
    http://www.nytimes.com/2010/01/15/us/15tax.html

  • Comment number 57.

    I'm actually a defender of more flexible capital and think the wholesale markets have been, in general, a good thing. But it's right that governments put a price on the implicit insurance that they have been providing.

    An odd side-effect of this is that it might actually boost the competitiveness of London relative to New York. London benefited a lot in the last ten years from regulatory arbitrage - American banks trading here because it was less regulated and easier to raise capital than at home. But hopefully the UK will harmonise its taxes with the American one so that both markets can benefit from correct risk pricing.

    One question: will central banks continue to keep monetary policy loose to counter the reduction in money supply that this policy will bring about?

    http://www.knowingandmaking.com/2010/01/will-banking-be-more-stable-is-that.html

  • Comment number 58.

    30. At 10:28am on 14 Jan 2010, DF2 wrote:

    "Whats happening now just proves that Capitalism requires certain conditions to be be adhered to function as a coherent system."

    No, what is happening now proves that Capitalism is inherently contradictory where you have production formed by one section of society but owned by another - a minority. Eventually this temporary state of equilibrium snaps and we have a recession.

    If you don't believe me look at the last recession, or the one before that, or the one before that, or the one before that, or the one before that etc.

    Come on people, don't you read your history - the central bank's were invented to manage the accepted crises of Capitalism following the panic of 1907.

    ...not making such a good job of it 100 years later are they?

    http://en.wikipedia.org/wiki/Panic_of_1907

  • Comment number 59.

    32. At 10:29am on 14 Jan 2010, harry dobbs wrote:

    "Blankfein's position on this goes to the core of why 'performance' within the banking sector is not aligned to a valid sense of 'productivity'. Banks such as Goldman's primarily judge performance on how adeptly they can shift assets and liabilities around within the financial services sector. Inspite of bankers assurances to the contrary there is no factual evidence whatsoever that many of these transactions are a net benefit to the wider economy. On the flip side- associated enormous banking fees, insane leverage and chronically inept risk management have shown many of these transactions to be materially devestating to the wider economy."

    Thank you, thank you , thank you - now will everyone else please take note of this.

  • Comment number 60.

    37

    Pedantry I know but:

    Hesters salary is not 500 times the average wage, it is 1.2 million annual which is only about 50 times the average wage.

    The package could be worth a lot more but only if the 3 year targets get achieved and we all benefit from those (just he more so).

  • Comment number 61.

    50. diarmidwp:

    I don't particularly endorse the TPA, but they provide a useful offset. After all, government spends taxpayers' money employing researchers to show how good they are at spending taxpayers' money.....

    Yes, it's easy to identify wasteful initiatives, but I'm not sure what you mean by non-wasteful initiatives. It has always seemed to me that governments are an intrinsically wasteful way of getting things done. For instance, if we want to transfer money to those on low incomes, great, but do we really want 20% of that money sticking to the fingers of government?

    With all the approbrium (rightly) heaped on bankers over the financial crisis, we should remember that it was politicians, not bankers, who (a) weakened a previously-effective regulatory system by spreading BoE powers to the Treasury and the FSA, (b) targeted retail inflation exclusively, thereby ignoring asset inflation, (c) presided over lax mortgage lending criteria (the previous rules of 3x earnings and 85% LTV worked very well), (d) were happy to ride on the City's coat-tails (and lecture other EU countries about "light touch regulation") so long as the tax from the City was flowing in, and (e) mistook a housing/building/equity-release bubble for 'real' growth in economic output.

    Bankers are greedy; we know that, if we didn't already. But governments are wasteful, and politicians are blame-shifters.

  • Comment number 62.

    56. At 11:34am on 14 Jan 2010, invisiblehandadvisor wrote:

    "By the way, some mainstream newspapers in the US are more openly critical in their reporting of the malfunctioning world of banking"

    Yes - the US are about 6 months further down the path of revolution than we are. We should all watch with interest as everything that happens over there is critical to us.

  • Comment number 63.

    We're running out of people to defend the banks - all this agreement is wearing thin.

    Surely there are still some deluded bloggers out there who still think the undefendable bankers can be defended?

    Bankers - rich with money, poor with popularity.

    If you listen very carefully you can hear that tiny violin starting up again......

  • Comment number 64.

    Love the idea of nomadic bankers #12 smallgraycat

    If Obama's hit on such a good idea though, wouldn't it make sense of all the government's affected by the crisis to adopt a similar attitude? GB may be happy that he doesn't look like the bad guy any more, but what about restoring the money to the country's coffers? To hell with what the City fat-cats will say behind your back: do what's right for the country!

    And if so many countries were to implement the same rules, where is the supposed "talent" going to run off too? Are they all going to up-sticks and live in China to see if they can pull off a similar disaster there?

  • Comment number 65.

    32. At 10:29am on 14 Jan 2010, harry dobbs wrote:
    'The MARKET FOR FINANCIAL SERVICES IS UTTERLY DISFUNCTIONAL - it has become insulated from its effects on the wider world and represents a huge tax on other 'productive' areas of the economy. Until the market for financial services can illustrate that its 'performance' is fully aligned with the ACTUAL long term growth and productivity of the wider economy... the government should be directly involved in adressing the imbalance through targeted taxation and direct regulation.'

    Very well said, harry. Please continue your writing and I hope you take your advocacy also beyond these blogs into the wider world by speaking or writing to your MP, other political leaders, influential business leaders, etc.


  • Comment number 66.

    Really excellent and illuminating posting, Robert.

    Please keep it up - explaining to Joe Average what the significance of these things is.

    And there are some good other ideas here.

    So, are we getting to some kind of overall plan?

    1. The UK should implement an "Obama Tax" as well (....hey, maybe at a very marginally lower rate so the UK can say it's competitive!!??), which should (like Income Tax, so many years ago) convert from being a temporary tax into a permanent one.

    2. The commercial banks should be split off and be the only organisations able to call themselves banks, and should operate with a govt guarantee, not be able to buy complex instruments nor trade on their own behalf, have to post their management accounts onto the web, and be limited to a 10% max share of the market to ensure effective competition (and maybe we should make it a hell of a lot easier for new mutual banks etc to be set up?).

    3. Goldmans, Morgan Stanley, the bits of Barclays etc and all other gamblers (so-called existing investment banks) should be completely free to operate quite unhindered as a normal limited liability company as long as they operate only with equity capital, but the moment they start borrowing/leveraging up with someone else's money, that they then be:
    a. taxed on this borrowed money with the "Obama Tax"
    b. lose their limited liability, so that all directors/employees become liable for any losses.

    Sounds like a good plan to me!

  • Comment number 67.

    I wonder what the odds are of the UK banking industry pledging their entire 2009 bonus pot to the Haiti quake victims?

  • Comment number 68.

    I don't know how many of you saw a Newsnight piece with a US lady, who is rallying against Positive Thinking?

    She was saying that after getting breast cancer, she was told by her doctors that she needed to think positively to cure herself. She was appalled by this (surely thats what the drugs were for?), and started to investigate the cult of Positive Thinking. She fould that it dominated most US corporations (think banks), and that essentially failure had been outlawed. If you failed, it wasn't because you were out of your depth, but that you had listened to negative thoughts and not focused enough on your goals. Etc Etc.

    The point? She outlined cases where US banks employees ignored risk assessors because they were giving negative views! Also she suggested that these people are so motivated (brainwashed) by the system that they actually can't see that what they are doing is wrong or that things going wrong is normal: they are perfect, the system is perfect...

    Frightening, especially when you see it taking ground here.

  • Comment number 69.

    WOTW some good posts today, with some excellent insight into the banking industry. Just one issue it is lose not loose. You are now on a yellow card. ;-)

  • Comment number 70.

    I believe that the current 'bail out' legislation requires the US President to assess the shortfall BY 2013 and present a legislative proposal.

    This means legislative proposals have to be passed by the house of representatives and the senate.

    Clearly, if one were President, one might make proposals whilst one has majorities in both houses and a super majority in the Senate, especially in a mid term election year.

    Nevertheless, it seems a trifle odd to penalise the remaining big banks.

    WHAAAAAAAT, I hear you cry.

    Firstly, lossess are likely to be concentrated in the automotive bail out, AIG and Fannie Mae and Freddie Mac (both of whom reduced lending in the critical 2004-2008 period)

    Of the top 10 banks, only Citigroup, one third owned by the US government remains on the hook ($25 billion and paying dividends) and interestingly much less has been used to purchase Toxic Assets than was considered necessary. Loan modification moneys have been taken up by lending institutions of all shapes and sizes across the country including credit unions.

    Basel II accord of 2004 gave rise to the conditions for huge RBMS/CDO 'investment' as investment in mortgages reduced capital requirements after 2004. The Basel Committee is pretty much made up from central bankers (G10 and now G20).

    New agreements have been reached during 2009 and they are currently consulting again, if any of you feel like making a contribution.

    Then....

    Wells Fargo bought Wachovia (estimated RBMS losses of 52.7 billion). They have returned all bail out funds ($25 bllion) and paid dividends of 5% on what they had.

    Bank of America bought Merrill Lynch (estimated RBMS losses of $52.2bn). They have returned all bail out funds ($45 bllion) and paid dividends of 5% on what they had.

    JPMorgan Chase bought Washington Mutual (RBMS losses estimated at $45.6bn). They currently have 1bn of bail out funds but have returned $24bn and paid dividends.

    Had WaMu or Wachovia (4th largest bank, at the time) been allowed to fail, there would have been significant calls on the FDIC to return deposits to account holders. In fact the FDIC was supportive of Wells Fargo's takeover of Wachovia since the deal previously agreed with Citibank (now one third owned by the US Government) would have required a $30 billion guarantee.

    So, it is possible to consider that some of the banks, at least, let the FDIC etc off the hook.

    I'm not a banker. No one I know works for a bank but I can follow the money and to be frank, when you do, you tend to end up in a different place.

    What I want is a supervisory and regulatory framework that forces sensible capitalisation and transparent, financial and other reporting and simple information that enables shareholders, debt investors, depositors and borrowers to be able to assess an institution.

    Had Icesave adverts printed, in big bold letters DEPOSITS ONLY PARTIALLY INSURED BY UK GOVERNMENT SCHEMES some depositors at least might have thought twice. You could even have big bold letters 'HOUSE PRICES CAN GO DOWN AS WELL AS UP on application forms or IF INTEREST RATES INCREASED TO 5%, 7% OR 10% COULD YOU PAY THIS MORTGAGE?

    Anyway, I'm sick of this subject presented in this way.

    I would find it interesting to have some blogs about say which businesses have failed and who lent them money or the impact of prepack administration and who is benefiting and who owns the big farms and food producers in the UK or about the size and might of electricity companies globally or precisely which companies were involved in PFI schemes and who provided them with funds.





  • Comment number 71.

    I think this begins to take on the most important relationship in the banking industry: the relationship between management and shareholders? If the shareholders can beat up the management when the management take unacceptable risks (like, say, loosing all of your shares because the bank has broken certain regulatory requirements, and the government is mandated to take over the bank), then the shareholders will be more careful about how much profit they demand from the management, and the risks they are willing to accept in getting that profit. Taxing the asset value not attributable to deposits (and, I presume, shareholder capital) is a good start, because taxes reduce dividends, and this tax is a particularly easy one to measure, taking away the banks' ability to confuse the tax authorities over what they should pay with complex financial instruments.

  • Comment number 72.

    As a professional engineer, I take issue with the current crop of bankers and investment managers describing themselves as professional. When I design a product or provide advice, I am legally responsible for any loss incurred by an end-user of my services and I carry professional indemnity insurance to protect me.
    Bankers, mortgage lenders and investment managers appear to have no similar responsibilities. They over sell finance schemes which they describe as "products", they make wildly over inflated predictions of the yield of investments, and they revoke loan agreements without notice. And when they are found out, they fall back on the phrase "caveat emptor" i.e. let the buyer beware or "hard luck". And they believe they are entitled to award themselves vast salaries and huge bonuses.
    If I buy a product on the highstreet, for example a toaster, it doesn't matter how little I pay for it, it must make toast, and if it doesn't, there are legal procedures to compensate me. If I buy a financial "product", there appears to be no similar consumer protection scheme.
    I believe that the entire banking and finance sector needs a thorough clean up and a detailed training course in the meaning of professional responsibility.
    Because in my opinion, professional and finance do not belong in the same sentence.

  • Comment number 73.

    Friendlycard

    'it was politicians, not bankers, who (a) weakened a previously-effective regulatory system by spreading BoE powers to the Treasury and the FSA, (b) targeted retail inflation exclusively, thereby ignoring asset inflation, (c) presided over lax mortgage lending criteria (the previous rules of 3x earnings and 85% LTV worked very well), (d) were happy to ride on the City's coat-tails (and lecture other EU countries about "light touch regulation") so long as the tax from the City was flowing in, and (e) mistook a housing/building/equity-release bubble for 'real' growth in economic output.'

    Oh indeed. And whose sweet nothings were they listening to as they did so? But blaming the bankers or the politicians is fairly fruitless, I agree. We, the voters, are at least as much to blame for supinely accepting political and economic systems that are wholly unfit for purpose.


    'But governments are wasteful'

    True. And domestic boilers are inefficient. Do you want to get rid of your central heating?

  • Comment number 74.

    Robert,

    You seem to suggest that this is going to be some kind of big deal for the US banks.

    But the tax would be spread over 10 years, across maybe 50 institutions.

    I don't think those vainglorious idiots who are doing "God's work" are going to miss much sleep over it. Especially as they are getting free money from the Fed's fiscal stimulus, which they turn into huge profits on a daily basis.

    Just a bit of politics to make the sheeple feel like something is being done.

  • Comment number 75.

    Insurance companies price risk based on historic performance, so charging enough to get back current losses and protect future problems is perfectly justified.

    On a related note, counterfieting is illegal. If I say my printed paper is worth £50, and promise to pay you £50 at a future date, and genuinely belive it, I can be imprisoned for destroying the economy. If a banker says his CDO is worth £500 million, he has also created money, but gets a bonus even though the taxpayer has to stand most of the losses on that £500 million. Please explain why the bankers have not been jailed for bringing down our economy.

  • Comment number 76.

    When will everybody get it?

    Most of the activities these banks deal in, is gambling! When the banks make money, someone - or something somewhere HAS to lose!

    Why can't the banks serve their actual purpose - store our money and provide loans. And provide us with a good service, because they are not providing us a good service, in fact we, as customers, get a particularly bad service - because all they are interested in is gambling!

    Perhaps we should set up a new type of casino - one where they can bet on the value of something going up or down or whatever they actually do - at least then we (as customers, or as a country) don't lose any money! They can play with their own money and not ours!

  • Comment number 77.

    An insurance premium for banks is what I've advocated here and elsewhere for a long time, and it should become standard practice around the world. Banks would be free to choose which countries' scheme they particpated in, and the customers of those banks would decide where to place their money based partly on the credibility of that country's insurance scheme. Countries with less credible schemes would have to set their premiums at a low level, and the market would decide which would attract the banks' premiums.

    The insurance premium set by countries offering credible insurance at a level to make payment of excessive salaries impossible, thus removing the free ride these people are currently used to.

  • Comment number 78.

    God bless President Obama.

  • Comment number 79.

    #'15 20 23 29 43

    "However justified the levy might be morally it is wrong to apply it retrospectively."

    I'm missing the point why acting in a justified and moral manner is wrong if it is applied retrospectively. Hindsight is after all a very valuable and this seems the first steps in making the bankers pay for what they should have done in the first place.

    I actually would like to see retrospective taxes applied more, too many "get away" with "show me the rule that says i couldn't do that", which taxpayers effectively have to make up for in loss of tax revenue.

    If it were me i would add a punative element to the tax. Paying only for the cost of the bailout doesn't seem a total assurance that bankers won't take such risks again with the world's economy

  • Comment number 80.

    Banking and finance has the useful purpose of providing cash for 'projects' to find their way through 'cash holes', the stage of a project where the cash position is negative. This works by loans and sometimes by insurance.

    Just about all the other stuff is bubblenomics or downright indecent speculation or robbery and done at the cost of others.

    We need to change the emphasis in the world, in general, and the UK, in particular, away from helping b & f to helping the people who want to do the projects. These are the ones who increase our real wealth and make the world a better place.

  • Comment number 81.

    I read yesterday that most large banking organisations have brought/lobbied for political support across all parties and all key countries.

    Or though I don’t have a major problem with this I do have a major concern when no one can make a robust argument for paying peoples such large sums when they are not risking their own capital!

    Ironically a counter argument can and has been made i.e. people pushing products (and there by inflating the market) to people who could not afford them just so they could take their cut in commission!!!!

  • Comment number 82.

    What would the Red party have done if they were in power?

  • Comment number 83.

    What a pack of self-serving, snouts-in-troughers our present financial masters are. I say "Preston for Chancellor" Please.

  • Comment number 84.

    Q. Are the banks important on a day like today?

    In pictures: Haiti under rubble
    http://news.bbc.co.uk/1/hi/in_pictures/8458291.stm

    A. Only if they donate £Billions to Haiti.

  • Comment number 85.

    79 - making laws retrospectively is tyranny. we have to have rules that apply at any one time. say you have your income tax deducted paye, and then 2 years later hmr&c write to you and say "actually it should have been 70% - send us a cheque or go to jail.

  • Comment number 86.

    As an addendeum...

    The Federal Reserve announced record profits of $52.1bn of which $46bn gets handed to the US Treasury.

    see this http://news.bbc.co.uk/1/hi/business/8454535.stm

    Besides the income from its securities, the Fed said it earned $5.5 billion from holdings related to the takeover of investment firm Bear Stearns and insurance company American International Group.

  • Comment number 87.

    Times headline today "bankers grilled" - is that with chips and peas?

  • Comment number 88.

    #70 MrsBloggs

    A very interesting read.
    The ability of the listed banks to repay in such short times clearly shows just how much capability they have to manipulate and empoverish.
    Or was it that the size of the taxpayers loans were truly small beer to these people and we all got uptight for nothing.

    Are you saying that Obama's tax is unjustified, or just stating that the tax is about aportioning some of the blame for large scale industrial collapse (and the social, ie taxpayers, costs) to the fallout from the banks' activities. (who pays the regulators penalty for failure to stop the rot, when they all knew it was there?)


  • Comment number 89.

    The rate will be 15 basis points, so 0.15%

  • Comment number 90.

    There are no links at all in your blog... lazy

  • Comment number 91.

    Fail on the analogies Robert. You of all people should know that there are perfectly sensible reasons to hold either side of a financial product. Many financial products are zero sum - one person holds the side that goes up in value and one side holds the side that goes down. In most cases both sides actually want the side they are on. Take many of the CDOs that are currently the topic of discussion. As a long term investment many of these are actually worth holding - they are valued so low at the moment because of illiquidity and fire sales at the depth of the crisis, when people are excessively worried about the value of property. But in 5 or 10 years time when property has bounced back, they will actually be worth a lot more and will have been worth holding. But as a short term effect, Goldman expected them to fall, which they did.

  • Comment number 92.

    Friendlycard wrote:
    "A good move - but we still need to separate commercial from investment banks."

    I couldn't agree more !

    I'd also like to see legislation put in place to promote Mutual, Friendly and Co-operative banks, the sort that served individuals, small businesses and communities so well for so long before the greed of the 90s saw them all becoming banks.

    We could also do with much stricter lending rules; particularly mortgage lending that should again be limited to a maximum of three times your salary and credit cards that should have a maximum interest rate imposed upon them.
    In short, I'd like to see the sort of legislation we have for loan sharks applied to the banks to stop them from profiteering and taking advantage of those in a vulnerable position.

    Profit is good, profiteering is bad !

  • Comment number 93.

    85. At 1:02pm on 14 Jan 2010, truths33k3r wrote:

    "79 - making laws retrospectively is tyranny."

    ..so which is the biggest Tyranny? The retrospective law or the tyranny of the bankers demanding if they are forced to pay for this mess they will leave the country in an attempt to destroy the Economy.

    One man's Tyranny is another man's justice.

    Is it fairer to make those who come after the bankers pay? - That seems much more like Tyranny to me...

  • Comment number 94.

    Funny how none of America's banks have threatened to leave in a mass exodus yet.

    Although that might be as a result of the United States' percieved plucky nationalism.

  • Comment number 95.

    So the banks are getting an overdue extra tax, this may well be morally OK in view of the fact that they are minting it [Borrowing at 0.5% from BoE and lending to us at 20%]. Unfortunately I can see it all backfiring and ending up with any bank user getting clobbered with more unfair charges. It just doesn't seem possible to take the power away from those who control distribution of loans. What we need is another organisation (other than a bank) where we can deposit our savings or get a cheque book! ANY IDEAS?

  • Comment number 96.

    86. At 1:02pm on 14 Jan 2010, mrsbloggs13c2 wrote:

    "The Federal Reserve announced record profits of $52.1bn of which $46bn gets handed to the US Treasury. "

    I thought you might pick up on this story - but I'm afraid it's just another piece of fakery and financial trickery - this time by the Government.
    The Fed is following the same 'mark to fantasy' pricing as the banks have been.

    "Some of the securities the Fed bought and some of the direct loans it made to banks or other financial institutions like AIG are worthless. Eventually, they will have to be written off. Then, the Fed will show a loss. But that loss similarly will tell us nothing about whether the Fed did the right thing in these emergency operations. "

    ...and guess what - it's due to buy another $1.25 trillion mortgage securities from Freddie Mac and Fannie Mae within March - which will initially be given 2007 values before they are written down to nothing eventually.

  • Comment number 97.

    95. At 1:44pm on 14 Jan 2010, PaulattheRocks wrote:
    'What we need is another organisation (other than a bank) where we can deposit our savings or get a cheque book! ANY IDEAS?'

    The plain truth is, if the state (which is us) does not control the creation of money, then the state (which is us) can only ever be at the mercy of those who do.

    We need a state bank.

  • Comment number 98.

    The corrupt questioning the corruptors. Not a regulation or law has been passed to address the instruments that caused the collapse. The banks should pay as they caused the problem. The legislative bodies in the UK and US were made aware of the non-funded insurance scheme in 2001 but the banking lobbyist beat back any attempts to regulate their Golden Cow.
    We can certainly have things done to better regulate the banking and financial industries in an attempt to prevent future theft but the real issue remains in the corruption of elected officials and their willingness to place individual investment at risk for the profits of banks and financial institutions. Accountability to the banks may be in taxes and that is not only fair but responsible as the taxpayer would have this burden if not the banks and accountability, and honesty about changes to the legislative processes and access of lobbyist. Politicians holding hearings about processes that they could have changed and did nothing..sitting in judgement is hypocracy. The cops and the criminals were and still are partners.

  • Comment number 99.

    91. At 1:23pm on 14 Jan 2010, dave_h wrote:

    "Take many of the CDOs that are currently the topic of discussion. As a long term investment many of these are actually worth holding - they are valued so low at the moment because of illiquidity and fire sales at the depth of the crisis, when people are excessively worried about the value of property."

    ...as long as the majority of the tranches within don't default of course (which was the reason behind the firesales and illiquidity) considering they were all incorectly rated by the ratings agencies.

    "But in 5 or 10 years time when property has bounced back, they will actually be worth a lot more and will have been worth holding."

    ....well you had better get buying them then - as you know - 'the price always goes up' - doesn't it?

    I sincerely hope you do not manage other people's money with that attitude because I wouldn't want my fund manager to be thinking there is a 'buying opportunity' simply because the product is so cheap.

    I mean by that logic - junk Bonds would be all the rage!

  • Comment number 100.

    92. At 1:38pm on 14 Jan 2010, General_Jack_Ripper wrote:

    "Profit is good, profiteering is bad !"

    ....but where does the profit come from? How can one man's exploitation of another be described as 'good'?

    Profit is fake - and the more you invest in trying to achieve it the more crises we will encounter and the more severe.

    The source of profit is labour - and there is no 'work' that happens in any type of bank - hence no profit.

    Got an alternative explanation?

 

Page 1 of 2

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.