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Banking Industry Politics Of Punishment

by como ·

The politics of punishment are tricky. Take the playground, for example. The boy in the striped shirt not only pushed your child out of the way at the top of the slide, but also gives your child a good kick for his efforts when he reaches the bottom. You can comfort your own child, but you can’t truly punish the boy in the striped shirt; he is a stranger. You can hope that his parents have a vigilant eye on the playground and will step in and say something, but that doesn’t always happen.

It’s even trickier to punish adults who are acting within legal parameters, if not moral ones. President Obama would like to create a tax to punish banks for effectively taking the bailout money and running. He is calling it a fee, but the proposal is actually for a 0.15 percent tax on the liabilities of large financial institutions. The tax only applies to companies with assets of more than $50 billion, a rather intimate group of about 50. (Reuters)

The tax is proposed to last 10 years and estimated to generate about 90 billion for the government, the majority of that from the ten largest banks. The question is who will really be paying? In all likelihood the banks will use creative accounting to sidestep the tax, as well as share the pain with bank customers in higher fees and tighter rules.

The idea behind the tax is that the Obama administration hopes this fee will give banks and other companies an incentive to whittle down burgeoning balance sheets. Even as President Obama defends the necessity of the bailout in the first place, he has criticized the banking industry for proposing nearly record-breaking bonuses. According to the Associated Press, “Six of the biggest U.S. banks are on track to pay $150 billion in total executive compensation for 2009, slightly less than the record $164 billion in 2007 before the financial crisis struck, according to the New York state comptroller’s office.”

The President is strongly suggesting that banks pay the fee out of the bonus pool, rather than find ways to pass the cost of the fee down to the customer. However, it is more likely that banks will keep the bonuses and find ways around the tax. Some of those solutions could involve risky loans, which is what started this whole mess in the first place.

While the President is insisting that Congress will pass the proposed bank tax, it is hardly a foregone conclusion. Republicans, not to mention the financial industry, is opposing it. And just what will the bankers spend all those billions in bonus money on? According to CNNMoney, at the top of the list is real estate. Bank execs will spend money on swanky New York apartments and European vacation homes. Also on the banking bonus wish list is private school tuition, expensive vacations, boats, cars and Botox. Yes, Botox. Apparently big time bankers need to look wrinkle-free to stay competitive.

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