Any excuse will do

Posted by Marc Hodak on April 21, 2010 under Collectivist instinct, Economics, History, Movie reviews, Politics, Reporting on pay, Stupid laws | Read the First Comment

The IMF is pushing for a bank tax:

[T]o pay for the costs of winding down troubled financial institutions, the IMF proposed what it called a Financial Stability Contribution”—a tax on balance sheets, including “possibly” off-balance sheet items, but excluding capital and insured liabilities. That tax would seek to raise between about 2% to 4% of GDP over time—roughly $1 trillion to $2 trillion if all G-20 countries adopted the tax.

On top of that, the IMF proposed that nations to adopt what it called a Financial Activities Tax, levied on the sum of profits and compensation of financial institutions. That would be paid to a nation’s treasury to help finance the broader costs of a financial crisis…

The IMF said that a nation didn’t need to put in place a specific resolution authority. Instead, the tax money could go to general revenues and used in case of financial crisis. But the IMF warned that the money would be spent by the time a problem arose.

OK, so let’s see how this would work.  Congress levies massive new taxes on every major bank.  Congress would then spend that money on…stuff.  A financial crisis hits, and certain TBTF banks get into trouble.  Congress bails them out, having to borrow gobs of money to do so because the tax revenues that were nominally for “Financial Stability” were in fact spent on…stuff.

So, how is this different from what happened last time?  Hard to see.  Does it do anything to reduce the systemic risks that regulators insist were at the root of the last crisis?  No.  Does it strengthen the banks to make them better able to weather such a crisis?  Not likely when so much money of their capital–enough to raise between 2% to 4% of GDP–is being sucked out of their coffers.  At least if the money were being held in a trust fund instead of dumped into general revenues, it would be there for frenzied politicians to disburse based on the rational workings of the government.  But, of course, the money will not be there.  It will have been spent not to support the financial system, but to support the reelection of incumbent politicians–the most short-term actors on the planet.

Oh.  Yeah.  THAT would be the difference.

So the lesson from all this appears to be:  When it comes to a justify raising taxes, any excuse will do.