Taxing Banks

I can’t believe the CEO of Goldman Sachs claimed before the congressional committee, looking into the causes of the banking crisis, that Goldman Sachs was in the business of risk management. Is that putting spin on it or what? I’m not a rocket scientist, but I don’t see the difference between derivatives and the ponzi scheme that Madoff ran. A real physicist working on Wall Street recent said in an interview, “It’s a third derivative world; Let’s face it.” I guess that’s what you get when you cross a bank, an insurance company and a brokerage.
Remarkably, the World’s emerging economies create new wealth that seeks a safe haven. Hedge funds and derivatives grew. A conservative estimate was 57 trillion in equivalent US dollars. -- The hedge funds, credit default swaps and other highly creative derivatives create so vast an amount of new wealth that the US Treasury should get into the business. They could pay off our National Debt as well as our taxes. -- Derivatives give an elusion of safety and high return. Derivatives in and of themselves create wealth through their layer upon layer of highly leveraged new financial interments. I guess the scheme will work until it sops up all the new wealth out there that’s soppable, but when the last new dollar gets sopped there will come another crash. – So much for “no taxes.”

What’s a derivative based upon? You guessed it, our home mortgages, our retirement plans and now Goldman Sachs wants to get into the exchange-traded funds, ETFs. That’s our IRAs and our police officers’ retirement fund. The goats are us!

There is nothing wrong with investment banks in a pure sense, There is nothing wrong with local National banks, nor is there a problem with old reliable New England Insurance companies – although I mistrust medical insurance.

The problem grew, however, when we allowed these hybrids to evolve into what amounts to a floating shell game. – Just move the documents across the hall.

“Risk management,” it would seem, implies passing the risk on upstream to another layer of leverage, a derivative, and still another, and another, Ah, until the last sucker is borne and the last investors are fleeced. Executives all the while slip away with obscene salaries, bonuses and a golden parachute. Are the million dollar bonuses to post doc physicists for services rendered or to keep them from squealing? Yes the good old days of trust us or we will break your legs are over, replaced by million dollar bonuses. After all, it’s other peoples’ money.

Now in all fairness I don’t think any, well almost any, of these people thought they were doing anything illegal. However, the relaxation of anti trust laws and deregulation lead to a slippery slope in which legitimate operations unconsciously slid into grayer and darker territory, like a third derivative of consciousness with layer upon layer of highly imaginative highly creative interlaced inventions. The layers are so complex and the trillions of dollars so great that no-one can see the infinitive in the equation that spells it’s doom. Like a chain letter, that soon dies out. The last investors in get stuck while the first ones in walk away with the money. Derivatives are money pumps that rob from the poor and give to the rich.

However, if we regulate these investment banks to ensure some hope of sustainability, there is much to gain by the government in remaining a partner. The tax on banks should pay back the taxpayer’s bailout, but the tax-payer deserves more. 57 trillion in derivatives grew out of home mortgages and other consumer products even before the same consumers, taxpayers, bailed out the banks.

Solutions come harder than criticisms, but these measures seem minimal under the circumstances.
· Dissolution of all mergers between banks, brokerage houses, and insurance companies
· Allow branch banks only within the same city as the home bank
· Reinstate the banking regulations from the 30s including a cap on usury.
· Enforce anti trust laws
· Break up the entities that are too big to fail
· Demand fiduciary behavior of banks as a public infrastructure
· Spin off mergers between banks, credit card companies, insurance companies and brokerage houses.
· Tax the banks for salaries and bonuses as proposed
· Tax the recipients of these obscene salaries and bonuses – sufficient to change risky behavior.

Deregulation and hybridization of these banks created the problem. With one hand shaking the other, bank executives used the public’s money and trust to build enormous wealth, siphoning off much of it for themselves and their elite cadre of designers and traders. An equally elite cadre of assistant prosecutors, phorensic accountants, tax planers and a Chicago lawyer, should rein them in.