Obamatax on Banks - Not investment related

[Myth465]

See my above reply. I edited it for your edit.

 

We argue on what should have been done. We are debating tactics, but talking about the same thing. Doing it your way, the preferred way, would have probably costs about the same or slightly less with no moral hazard and better transparency.  You are making the same arguments as Joseph Stiglitz and I agree with yours and his.

 

What should be done going forward now that those mistakes were made is what I thought we were discussing.

[watsa_is_a_randian_hero]

See my above reply. I edited it for your edit.

 

We argue on what should have been done. We are debating tactics, but talking about the same thing. Doing it your way, the preferred way, would have probably costs about the same or slightly less with no moral hazard and better transparency.  You are making the same arguments as Joseph Stiglitz and I agree with yours and his.

 

What should be done going forward now that those mistakes were made is what I thought we were discussing.

 

My replies would be as follows:

 

Rebuttal 1

Your reply (correct me if I'm wrong) seems to argue that the bailouts may have been flawed (bailing out investors), but now that they are done, this justifies taxing investors (who aren't the same) and employees (who aren't the same either).  

 

The error in the bailouts doesn't justify another error now is what I would say.

 

Rebuttal 2

You admit the investors are not the same, so I'm not sure why you still feel justified to tax the companies.  Instead of trying to "get them back for last time" why not just come out with a law providing for receivership of any financial company deemed systematically important?  Lets get to the root of the problem.

 

 

Rebuttal 3

As far as the employees go, I still don't understand, if you agree there are better solutions, why do this?

 

1. Employee A at Ibank takes enormous risks that pay off and is paid with cash bonus (not restricted stock).

2. The risks don't pay off the next time & recession occurs.

3.  Huge regulation on horizon for Ibanks causes unfavorable environment

4.  Employee A leaves for hedge fund.

5.  Employee B is hired, and does a better job controlling risks

6.  Regulation is passed to tax employee B's bonuses

 

Do you really agree this is the best solution?  If not why are you arguing for it when better solutions exist? 

 

 

[SharperDingaan]

 

You might want to recognize that the industry is going to be made to pay for its foul-up. Either all up front at once, or gradually over a number of years

 

TARP funds are demand loans, & they can be deliberately called at any given time. Calling the loans on a Zombie bank will immediately collapse it, & spread the contagion; but this time we dont have MTM accounting, counterparty exposure is far better known, there are 3 quarters worth of earned inflated loan spreads to help absorb industry losses, and the fed has far more leverage over players than it used to.  It would be the market solution, brutal, & devastate the industry - but healthy. Alternatively it could be done more humanely over time, through progressive regulatory & social tightening aimed at changing the streets culture.

 

As we dont think the culture will change untll 1:2 is deliberately bankrupted, we prefer the 'controlled' collapse. And if it temporarily spikes the unemployment rate another 4-5%, so be it.

 

Be thankfull its 'Obamatax', ... & not 'Sharpertax'!     

 

SD

 

   

[Myth465]

Rebuttal 1

 

Yes, actions are needed to correct prior errors and political process issues (due to gridlocks in Congress and lobbying). I also argue that the private Big Banking sector has not helped, and has caused this problem by failing to listen to good advice (Buffetts).  They have brought the rage on to themselves and throw a match on a powder keg voters.

 

They should be blaming politicians and pushing for sensible regulation.

 

Rebuttal 2

 

Im not sure how politically aware you are but, try passing that law (receivership) through Congress and let me know what the free marketers end up voting. Also tell me how a law taxing bankers bonuses will end up vote wise. Show me more then 40 Senators who want to go home saying they didnt agree with that tax. You tell me which one sells better and is easier to pass.

 

Financial reform and regulation, both of those ships have sailed. I would say the leverage is gone (the money has been given out). Now they are simply trying to appease outrage. I understand the goal, dont support the solution, but will take it given nothing else.

 

I would prefer a moratorium banning bonuses for select divisions and executives.

 

Rebuttal 3

 

Realistically Employee A was worried about losing his job and is still at Goldman counting his bonus. he knows there is no regulation on the horizon and is enjoying his day.

 

Ok let me propose a scenario for you. Person A puts bolts on a car, and his employer GM institutes a bonus pay for performance system. Person A takes a 20% paycut and is paid a reasonable and livable wage. He now is offered a 40% bonus based on metrics related to how fast he puts on bolts. He does an amazing job, exceeds expectations, but is laid off due to GM failing. Or he does an amazing job and GM gets a bailout, but doesnt award his bonus. Either case is fair to me because you cant do better than your company. Its happening all around the country except in high finance.

 

Companies are struggling and good / great employees are suffering. Raises are down, hours are longer, and things basically suck for most people (compared to a few years ago). Its the nature of business. Finance wants to take money directly from tax payers and in the same year pay out huge bonuses. It doesnt look right and isnt right. Ideology be damn.

 

Contracts / Personal liberties or not. It doesnt pass the smell test, to most sensible people and politically is suicide. The CEOs knew that or should have known that. They could have limited bonuses to traders (or specific key employees) and Management teams (any executive) should have passed on a bonus for the year. They failed to run the companies correctly.

 

If they wanted to pay bonuses they should have said clearly to the public that this division had nothing to do with the meltdown and profited using minimal support we are giving them a bonus but, skipping the bonus for these divisions and all executives to show that we understand what is happening. They refuse to so now government is using a blunt tool (taxes to correct wrongs).

 

The Fed booked record profits on their portfolio. Should Ben Berknanke get a bonus based on this profit?

Someone is going to have to pay and to say they should have paid back but now its trampling on rights is not good enough.

[ERICOPOLY]

I'm glad to see that Warren Buffett also thinks it's stupid.

 

http://www.huffingtonpost.com/2010/01/20/warren-buffetts-housing-s_n_429850.html

 

Separately, Buffett told Bloomberg that he "didn't see any reasons why the banks should have to pay a special tax," and questioned why Fannie Mae and Freddie Mac had not been asked to pay similar fees.

 

Here's Buffett:

 

"If it's some kind of guilt tax or something of that sort because banks were among the [firms] that were saved back in 2008, everybody was taken care of then. And the banks, basically, somebody like Wells [Fargo], it's cost them a lot of money to be in the TARP and it was basically forced upon them. They didn't want to take the money, but really had no choice...The government's made a lot of money off Wells. They've made a lot of money off Goldman. They've made a lot of money off JPMorgan. And where they're at going to lose money, at least where it's possible they'll lose money, is in the auto companies."

 

 

[watsa_is_a_randian_hero]

I'm glad to see that Warren Buffett also thinks it's stupid.

 

http://www.huffingtonpost.com/2010/01/20/warren-buffetts-housing-s_n_429850.html

 

Separately, Buffett told Bloomberg that he "didn't see any reasons why the banks should have to pay a special tax," and questioned why Fannie Mae and Freddie Mac had not been asked to pay similar fees.

 

Here's Buffett:

 

"If it's some kind of guilt tax or something of that sort because banks were among the [firms] that were saved back in 2008, everybody was taken care of then. And the banks, basically, somebody like Wells [Fargo], it's cost them a lot of money to be in the TARP and it was basically forced upon them. They didn't want to take the money, but really had no choice...The government's made a lot of money off Wells. They've made a lot of money off Goldman. They've made a lot of money off JPMorgan. And where they're at going to lose money, at least where it's possible they'll lose money, is in the auto companies."

 

 

vindicated

[Myth465]

His argument is much better then yours and Buffet clearly said he thought they did an amazing job giving what they were dealing with and this would be a fairly easy bill to pass (which is what everyone else is saying).

 

Its not so much that we (correct me if I am wrong), disagree with what you are saying. Its more the rationale and ideology that is problematic. No one said this was the best idea or even a bright idea. We are arguing that politically something must be done and this is one of the few things that is tough to vote against. I am also saying that the CEOs have brought this on themselves by trying to have there cake, eat it also, and leave the door open so that they could go back for seconds. Imagine trying to pass the too big to fail CEO goes broke bill in this political environment.

 

This seems like a step in the right direction.

 

Obama Proposes Volcker-Style Financial Reform

 

http://economistsview.typepad.com/economistsview/2010/01/obama-proposes-volckerstyle-financial-reform.html

[Guest kawikaho]

Buffett's opinion is his own, and it's not the right or wrong one.  Personally, I'm very happy to see Obama finally taking serious action on this.  I think Mass. was a wake up call, and now that his health care reform (although it was heavily compromised) is in jeopardy, he needs to make headway in other aspects of his political campaign platform.

 

Again, very happy Obama is pursuing this.  It gives me some hope in him after all.  In terms of making money from the bailouts, I don't see how the AIG bailouts, or the FRE and FNM bailouts made taxpayers any money...  am I the only one that doesn't see this?  

[Packer16]

I am encouraged too but I am waiting for the details to see if it is real reform or reform in name only.  Obama is good at getting everyone to agree on a top level concept (Health Reform for example) but he appears to be swayed in the details to such an extent by special interests and the concept of making history that the original idea is transformed into a special interest bill that may not be better than the status quo.  I also am concerned that he has not built political capital to make people comfortable in making hard decisions and has surrounded himself with political yes men who are driven by politics versus good policy.

 

Packer

[txlaw]

Obama Proposes Volcker-Style Financial Reform

 

http://economistsview.typepad.com/economistsview/2010/01/obama-proposes-volckerstyle-financial-reform.html

 

Hallelujah! 

 

Perhaps there's hope for this administration after all!

[Myth465]

I too was happy about the seat loss. Obama is amazing, he has compromised so much that both bases dislike him and are disenfranchised. Hopefully it will act as a lesson to go after what you want. Bush was very good at this, he brought home what his base sent him there to do and this was regardless of what the rest of the country thought.