Tax the bankers? – The Anna Raccoon Archives

by Thaddeus J. Wilson on December 7, 2009

Money, money, money …

The man with the award-winning eyebrows has let it be known that he is going to make another U-turn:

Alistair Darling is drawing up plans to face down the country’s top bankers by taking the “nuclear option” of a windfall tax on their bumper bonuses as part of measures aimed at the super-rich.

The dramatic move, which was off the agenda just weeks ago, is under active discussion as the Treasury and No 10 try desperately to control the explosion of public anger over bankers’ pay.

Government sources said Darling was keen to explore the option for introducing a windfall tax if practical problems – such as defining what constitutes a bonus – could be overcome.

[Ed: Emphasis is mine.]

There are several issues at stake here.

Firstly, this is just a knee-jerk reaction to something that was already sensibly rejected the first time around. This is never a good basis for policy making. The fact that they can’t even say off the top of their heads what a bonus is just emphasises how badly this is going to fail. (And this isn’t a fatuous concern, I have some passing contact with the labyrinthine world of employment contracts and Mr Darling’s concern over identifying what a bonus is, is not a trivial one.)

Secondly, it’s a very clear targeting of a small number of people. What is next, are we going to make bankers wear a badge so that we can identify them on the street and vilify them and smash their windows in? Will we be going after financial planning advisors next? Where will we stop, once we start making a case for demonising and punishing one group of people.

Thirdly, the people earning the bonuses aren’t just the directors. Many of the people who have earned substantial bonuses have actually earned them by making huge sums of money for the banks. By penalising them, you will chase them away and damage the banks even more. And make no mistake, these people are very mobile and could quite easily become “non-doms” without even selling their homes or moving.

Fourthly, they will spend their bonuses, unlike Quantitative Easing, which was just a means to allow the government to finance debt. So by giving these people huge bonuses, you’re actually doing more to stimulate the British economy than all the fiscal stimulus packages that have been outlined to date.

Fifthly, these are bankers, for heaven’s sake! These are people skilled in the dark arts of legally minimising their tax obligations, or have ready access to people who are. So even if this tax is implemented, it’s going to earn very, very little for the economy and probably cost more to collect than it brings in.

Does anyone actually believe that a windfall tax is anything other than a diversionary “taxtic” to distract our attention from the billions and billions of pounds of our money that our incompetent government has thrown at every bit of special interest pleading and the aggressive devaluation of the pound, all of which has manifestly failed to achieve anything of use as we remain the only member of the G20 group of countries which is still in recession?

{ 12 comments… read them below or add one }

1 Mr Wallis December 7, 2009 at 11:03: There is some need to change the way that bankers bonuses are paid, currently (from my limited knowledge) many bonuses are paid on a yearly basis, despite the fact that the results of deals or decisions made often take many years to see. Banks need to have incentive compatible contracts that fully encourage their employees to make responsible and accountable decisions.
2 Mr Wallis December 7, 2009 at 11:05: Sorry, so to add to my above point, I do not think that this plan of Darling’s is sensible at all. It is simply a witch hunt aimed at the “demonic” bankers. The public don’t like them, so lets publicly damage their earnings! If only MPs they took this attitude towards themselves.
3 Danish Pastry (Mrs) December 7, 2009 at 11:15: Subrosa’s blog is back up and running

http://subrosa-blonde.blogspot.com/2009/12/global-central-heating-conference.html
4 mark vickery December 7, 2009 at 11:31: Consider this – Morally I agree with the view that an individual tax should be employed rather than a group banking tax.
Don’t be fooled by the view that replacing the irreplaceable is impossible. There is always somebody out there that can do your job.
I work for LBG and my view is it is evitable that the company will be leaner and made more streamlined and those here that have gratuitously been kept in their job are probably going to have to work twice as hard for the same money whilst those that made mistakes have walked away
Now how should I feel………
5 ivan December 7, 2009 at 12:21: Here we go again, anything, just anything, to divert people looking at the fact it is all the governments doing.

The banks are where they are because of Brown and his dealings when chancellor but with an election looming a scapegoat must be found and the bankers are it. All this relies on the envy card being played just to appease labor supporters and those on benefits – look, we’re going after all those toffs with their expensive cars and houses.

If, and it’s a very big if, Brown had known anything about economics and been prudent during his time as chancellor then we wouldn’t be in this mess now. But, Brown is not an economist, he murdered Prudence very early on and it is the nature of the labor beast to destroy the economy. Now they have been found out and the desperate fumbling to find someone else to blame must go on.
6 john ward December 7, 2009 at 14:23: Chaps
It’s rare for me to sound a note of discord on this site, but then without discord, we would have nothing in the world but dat chord.

Politicians have very little effect on anything, and this has shrunk to near-zero since the golbalisation of business. One thing they can still do, however, is the ‘pour encourager les autres’ thing. While I accept entirely that removing bonuses is irrelevant, it is at least some kind of punishment – and a warning to the next lot who decide to take risks with other people’s money.
For we must not forget that this is precisely what the banking community does. Banks make most money from lending, but there are five times the number of depositors funding those lending operations.
Not only did the bankers lose most of the depositors’ money the first time around, they then crawled to the taxpayer to replace the money. Not only did they then start paying themselves huge bonuses all over again, they now threaten to go non-dom to avoid tax on them. If we simply lie back and accept that bankers are clever cheats, it strikes me as both limp and defeatist. For example, how hard would it be (given we’re talking people who worship money here) to pay some of these poachers to turn gamekeeper and show us how to stop non-domming around the globe? If the will was there, easy.
The media are fond of saying that the bailout has cost each UK household £5500. They’re looking through the wrong end of the telescope: the taxpayer has spent £1.73 million PER BANKING EMPLOYEE IN THE UK.
As some 90% of these were entirely innocent and/or highly competent, the real number is about £11.6 million per head…or headless chicken, depending on your perspective.
Now, as a commercial manager, would you give a £10 million bonus to that jerk the next year? Or would you fire him? If you’d just been rescued by a predator company from an ozone-layer sized hole in your balance sheet, do you think they’d let you pay ANYONE a bonus?
I watched that BGC muppet David Buik on the Business News last night. It never seems to occur to him that much of the world (including one whole country) has been rendered bankrupt….and not one of the perpetrators has been given so much as a week’s community service.
The whole banking system is based on the ridiculous myth that without crooked pillocks, greedy remote shareholders, huge bonuses for braindead target-chasers and all the wealth being held by under 1%, everyone would starve. Here in Britain alone, JLP and the Co-op are living examples of how everyone can make money and make great products without involving any of these clowns.
Since the Zanu-Brownshirt naifs got hold of the nation’s finances, I’ve seen my pension rogered (twice), everyone’s gold sold by Brown, a bond I had missold leaving me with only 40% of it, my rate of exchange slashed, and my interest rates reduced to 0%. Every last one of these ‘government’ policies was done on bankers’ advice, and every last one was a complete waste of time and money. We get in a mess thanks to bankers farting about with Russian-roulette swaps, multiply packaged junk and repo lending – and what is every Government in the world’s solution? ‘Let’s ask the bankers’.
I’d rather ask our dog Harry, and he died last month.
We need to stop making excuses for these dingbats. We don’t need them, for the simple reason they no longer do what they were designed to do. Once they go back to taking sound commercial risks, lending to entrepeneurs and treating their depositor customers as something higher up the chain than amoebae, we’ll need them again. But right now they’re just an expensive obstacle to real progress…a pile of dead wood lying in the way of economic justice.
By gad, I needed that.
YM x
7 Anna Raccoon December 7, 2009 at 14:32: Would it help to talk about it, John?
8 Vimes December 7, 2009 at 16:36: Oh dear, how sad, never mind – my heart bleeds for the poor wan…, sorry, bankers.
9 Thaddeus J. Wilson December 7, 2009 at 17:07: John, I would still lay the blame for the bankers’ bad decisions at the feet of the government (or governments, depending on your perspective.)

In essence, the “credit crunch” was nothing more than a liquidity shortfall. However, since the implementation of the BASEL accords, banks have not determined their own liquidity reserves: governments have decreed what liquidity reserves should be. Governments set these reserves too low.

Now you might well argue that bankers should have held higher reserves to show their superior judgement in these matters, but the fact of the matter is that any bank holding higher reserves than its competitors would be at a severe disadvantage in the market.

I am sure that any of the actions you attribute to bankers’ ineptitude is more likely actually a case of rent-seeking. Banks will not go back to making sound business judgements when the government has clearly shown that it will protect them from the consequences of any bad decision they may make.

If you knew that any decision you made would have no negative consequences, what kind of decisions would you make?
10 john ward December 7, 2009 at 17:59: Thadders and Anners

We are agreeing violently here. That’s why (despite being held up as a baby-bayoneter for saying it at the time) I would’ve let Applecart and the rest of the Northern Crock idiots go hang…but saved the depositors. I’ve been waiting since Autumn 2007 for someone to explain why we didn’t do that – beyond, of course, Cyclops the Trouser Snake wanting to be elected to something or other.
Grrrrr.
YM x
11 Paul S December 8, 2009 at 11:14: How do you get a bonus when the company you work for are billions in debt ?

I didn’t even get a pay rise this year and my company was in profit !
12 Thaddeus J. Wilson December 8, 2009 at 12:10: “How do you get a bonus when the company you work for are billions in debt ?

I didn’t even get a pay rise this year and my company was in profit !”

That’s because the traders have generous contracts to entice and retain them. That is one of the problems that the man with the award-winning eyebrows has: these are not “bonuses” in the sense that you or I might get a bonus — they are contractually-agreed incentives, much like sales commissions.