This would seem like a good example of how politicians engage in the game of political "smoke and mirrors" to spruce up on their images.
Pres. Obama, who appears to be working to shore up his rapidly flagging approval ratings, recently took to task the banking industry and proposed that banks be levied to cover or redeem the cost of the spate of bailouts.
The New York Times quoted Pres. Obama who said that he wanted "to recover every single dime the American people are owed."
The articles continues with Pres. Obama's strident diatribe on these banks, ``“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair,” he said. “That by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”
``Mr. Obama continued, “What I say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities” — including by rolling back bonuses."
What else would seem as the most politically appealing way to pander to the uninformed public than to piggyback on the prevailing negative sentiment by taking on the lead role in bashing the sector!
However beyond the surface of the politically enticing rhetoric, there appears to be significant undertones.
Cumberland Advisors' Bob Eisenbeis scrutinized on the possible ways how such tax might be imposed and came up with this stirring conclusion.
From Mr. Eisenbeis (bold emphasis mine),
``Whether or not retribution is justified, the proposal from the Administration makes little economic sense. Moreover, the spin that the tax is intended to recoup the losses banks caused to the TARP is misleading, because the primary sources of those losses to date have been Freddie and Fannie and the automobile companies that may be exempted from the tax.
``If there is a desire to extract revenue-retribution from large institutions, it turns out that there is no easy way to do it. If one wants to punish management then the efforts should be directed towards taxing their bonuses and other compensation. But there are four problems with this. First, most of those responsible are no longer in their positions, so it will be the new management who will suffer, not those who caused the problems. Second, taxing bonuses won't prevent another crisis. Third, there are always ways around the tax, in terms of how payments can be structured. Finally, managers of foreign institutions that might be covered can escape entirely.
``If the objective is to levy the tax according to how government support was provided, there is the issue in the case of those TARP recipients that were "forced" to take the government support even though they didn't want it. It is not clear how one can rationalize imposing a penalty on those who took the funds to support the government's rescue policies, even if those policies were misguided. Furthermore, there is no justification from the taxpayers' perspective of excluding the auto companies or Freddie and Fannie from responsibilities for losses, as well."
Read the entire article here.
Aside from the above, which exposes that the said taxes will not exact the social retribution from which these have been meant for, the far more significant points emphasized by Mr. Eisenbeis is that big banks will likely skirt these taxes by employing tax avoidance schemes through the shifting of their "funding by booking liabilities off-shore" or by utilizing "off-balance-sheet mechanisms to duplicate the traditional loan-funding-by-liabilities process".
And the brunt of which will likely be borne by "institutions smaller then the top five or six, who are mainly the regional institutions whose main business is the lending and deposit taking upon which their profitability depends".
The other way to interpret this is that the interests of the big banks will likely remain unscathed or could even be protected, by having its competitive moats widen against aspiring rivals through such tax measures.
I understand this to be crony capitalism.
And those of the smaller units would likely serve as the political sacrificial lambs for Pres. Obama's approval seeking publicity stint.
Yet, the more important victim could be the customers of these smaller banking institutions or the small and mid scale enterprises which compose about half of the GDP and more than half of the employment of the US (wikipedia.org).
Pres. Obama, who appears to be working to shore up his rapidly flagging approval ratings, recently took to task the banking industry and proposed that banks be levied to cover or redeem the cost of the spate of bailouts.
The New York Times quoted Pres. Obama who said that he wanted "to recover every single dime the American people are owed."
The articles continues with Pres. Obama's strident diatribe on these banks, ``“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair,” he said. “That by some twisted logic it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.”
``Mr. Obama continued, “What I say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities” — including by rolling back bonuses."
What else would seem as the most politically appealing way to pander to the uninformed public than to piggyback on the prevailing negative sentiment by taking on the lead role in bashing the sector!
However beyond the surface of the politically enticing rhetoric, there appears to be significant undertones.
Cumberland Advisors' Bob Eisenbeis scrutinized on the possible ways how such tax might be imposed and came up with this stirring conclusion.
From Mr. Eisenbeis (bold emphasis mine),
``Whether or not retribution is justified, the proposal from the Administration makes little economic sense. Moreover, the spin that the tax is intended to recoup the losses banks caused to the TARP is misleading, because the primary sources of those losses to date have been Freddie and Fannie and the automobile companies that may be exempted from the tax.
``If there is a desire to extract revenue-retribution from large institutions, it turns out that there is no easy way to do it. If one wants to punish management then the efforts should be directed towards taxing their bonuses and other compensation. But there are four problems with this. First, most of those responsible are no longer in their positions, so it will be the new management who will suffer, not those who caused the problems. Second, taxing bonuses won't prevent another crisis. Third, there are always ways around the tax, in terms of how payments can be structured. Finally, managers of foreign institutions that might be covered can escape entirely.
``If the objective is to levy the tax according to how government support was provided, there is the issue in the case of those TARP recipients that were "forced" to take the government support even though they didn't want it. It is not clear how one can rationalize imposing a penalty on those who took the funds to support the government's rescue policies, even if those policies were misguided. Furthermore, there is no justification from the taxpayers' perspective of excluding the auto companies or Freddie and Fannie from responsibilities for losses, as well."
Read the entire article here.
Aside from the above, which exposes that the said taxes will not exact the social retribution from which these have been meant for, the far more significant points emphasized by Mr. Eisenbeis is that big banks will likely skirt these taxes by employing tax avoidance schemes through the shifting of their "funding by booking liabilities off-shore" or by utilizing "off-balance-sheet mechanisms to duplicate the traditional loan-funding-by-liabilities process".
And the brunt of which will likely be borne by "institutions smaller then the top five or six, who are mainly the regional institutions whose main business is the lending and deposit taking upon which their profitability depends".
The other way to interpret this is that the interests of the big banks will likely remain unscathed or could even be protected, by having its competitive moats widen against aspiring rivals through such tax measures.
I understand this to be crony capitalism.
And those of the smaller units would likely serve as the political sacrificial lambs for Pres. Obama's approval seeking publicity stint.
Yet, the more important victim could be the customers of these smaller banking institutions or the small and mid scale enterprises which compose about half of the GDP and more than half of the employment of the US (wikipedia.org).
And what seems as a politically correct harangue may actually be of the reverse intent, another political poker bluff aimed to buttress select vested interests group/s.
Of course since the proposed taxes have NOT been finalized yet, all these would be speculation on our part.
The aim of this post is to show how these political manipulations happen even in the US which goes to show how susceptible countries like the Philippines is, given its highly fragile state of democracy (I would agree with Joe Studwell-it's more of manipulated democracy).
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