Financial Reform: What’s the Endgame?

Have you ever read something and the question “What is this article really about?” popped in your head! Well as I began to read the article below I couldn’t help but question the latent function of this article. A latent function is a sociological term which simply means “unintended” or “unrealized” function. I suppose the author only knows his true intentions; however the title of the article suggests that a Bank Tax should be included in the “Financial Reform” bill being discussed in both houses of Congress.  

Before I go into what I perceive as a latent function of this article I would like to say that a bank tax is unconstitutional and discriminatory. When we set the precedence to tax one sector and not another we intensify the descent down the slippery slope to fascist tyranny that really picked up steam after TARP was passed under the Bush administration! Please do not believe I am an apologist for the banks! Hardly! The banks and the criminals responsible should be held liable for their actions, but taxing one industry instead of another is not the answer! Instead, what we should do is let these institutions fail just like we are allowing for at the individual level with American’s who are upside down in their mortgages and are forced to file bankruptcy. If these institutions continue to practice risky behavior then how can we as a society permit the subsequent losses associated with this risky behavior be placed squarely on the backs of us taxpayers? This double standard of bailing out the Too Big To Fails while holding individuals accountable for “suspect” loans provided by the same TBTFs has made a mockery of the term “justice.” 

Now that that rant is over, please indulge me a bit longer. You tell me if this is not a method Communication graduates have learned called “agenda-setting” and “framing.”

Taken from NYT article below:

So ultimately, the regulators are left with the same choice that arose in 2008: bankruptcy or bailout. Regulators can let the firm fall apart suddenly and risk the kind of collateral damage that the bankruptcy of Lehman Brothers caused. Or they can spend billions of taxpayer dollars propping up the firm, as was the case with A.I.G. It’s a miserable choice.”

Well, I suppose these two dichotomous “choices” are all that are available. The problem with framing is that too often the public fails to remember these media products are socially constructed, and usually have an agenda behind them.

The afore mentioned “framing” issues I see is not the latent function that bothers me with this article though. What truly bothers me is the subtly constructed perception that the United States is ill-equipped to combat this “global” financial problem which originated on our soil. What do I mean? According to the author, Leonhardt, “…as they dig into the details, they(Washington) realize they are facing a raft of problems. One of the biggest is that the firm has 70 percent of its assets abroad (roughly the share of Citicorp’s business that was overseas in 2009). Washington can’t simply seize assets held in London, Shanghai or Moscow.(bolded emphasis added by me) This innocuous statement infers, in my humble opinion, the need for some sort of global agreement or global governance by a supranational institution such as the IMF which the author mentions many times throughout the article.

Is this the end of “Statism?” I’m sure that is the desire of many multinational corporations. A world corporatocracy hidden behind supranational corporations like the International Monetary Fund, the United Nations, or the Bank of International Settlements that provide the illusion of democratic processes. This illusionary “unilateral” binding agreement would eliminate nation states as we know it by incrementally synchronizing laws of all nation states (this has been going on for some time now already) into a cohesive set of “agreed” upon rules suggested by the IMF. Leonhardt provides just one example of such a suggestion by the IMF when he stated, “The International Monetary Fund has started pushing for a bank tax, and a tax has also become part of the debate in Britain’s election campaign.”

In addition, let us not forget Rahm Emmanuel’s statement that “we(Obama administration) cannot let a good crisis go to waste.” This kind of thinking is rooted in The Hegelian Dialect. Problem, reaction, solution. Many of us are aware of Gordon Brown’s proclamation about the need for a World Constitution to combat this financial cataclysm that by many accounts (Bernanke, Obama, GE and others) is nearing its end.

If you missed Gordon Brown’s comment here is a link to the youtube video:

 My argument is that, in this instance, reading between the lines we can see the endgame here. The desire is nothing less than a global entity designed to regulate former nation state’s economies and in turn, their people regardless of whether the majority of the peoples of these countries want it or not. The end result is nothing less than the proverbial “slip and slide” descending into a totalitarian world system run by consensus building and marginalization of the people via these unelected, unaccountable and non-transparent entities like the central banks of the world.
————————————————————————-

 Leonhardt: Bank Tax as Insurance for Us All

nytimes

On Wednesday April 28, 2010, 2:13 am EDT

The financial regulation bill before the Senate has the potential to do a lot of good. But it also has at least one major flaw: it would not do enough to prevent taxpayers from paying the bill for a future crisis, David Leonhardt writes in his latest column for The New York Times.

What would? A tax on banks. The International Monetary Fund has started pushing for a bank tax, and a tax has also become part of the debate in Britain’s election campaign. In this country, however, the subject has taken a back seat to issues like derivatives regulation and the Goldman Sachs case. Those other issues are important, but they are not as central to minimizing the damage from the next crisis.

To understand why, let’s take a glimpse into the future. Imagine the year is 2020, and a major financial firm is collapsing.

The financial regulation bill that President Obama signed back in 2010 was meant to deal with just such a problem. It gave regulators something called “resolution authority.” They could seize a dying firm, wipe out its shareholders, fire its top executives and keep it operating until its surviving parts could be sold off in an orderly fashion. Now, in 2020, the regulators are preparing to use that authority for the first time.

But as they dig into the details, they realize they are facing a raft of problems. One of the biggest is that the firm has 70 percent of its assets abroad (roughly the share of Citicorp’s business that was overseas in 2009). Washington can’t simply seize assets held in London, Shanghai or Moscow.

So ultimately, the regulators are left with the same choice that arose in 2008: bankruptcy or bailout. Regulators can let the firm fall apart suddenly and risk the kind of collateral damage that the bankruptcy of Lehman Brothers caused. Or they can spend billions of taxpayer dollars propping up the firm, as was the case with A.I.G. It’s a miserable choice.

You also can be pretty sure which of the two options tomorrow’s policy makers will choose: bailout. History – in the form of the Great Depression and, more recently, Lehman – argues against the idea of liquidate, liquidate, liquidate, as Herbert Hoover’s Treasury secretary, Andrew Mellon, advocated. The downside, of course, is that taxpayers end up paying for Wall Street’s sins.

Obama administration officials insist that the reregulation plan will prevent this outcome. They note that both the Senate and House bills will give regulators more authority to monitor financial firms. Banks will also be required to hold more cash in reserve, which will give them a bigger cushion when some investments do go bad. The rules for resolution authority, meanwhile, will be written with international cooperation in mind.

And maybe time will prove the administration correct. But a good number of economists and banking experts are worried. They think the odds of a future bankruptcy-or-bailout dilemma will remain uncomfortably high even if reregulation passes.

For starters, there are the cross-border problems; in the midst of a crisis, governments may have trouble cooperating. Then there is the fact that the regulators have never before tried to shut down anything as complex as a multibillion-dollar financial firm. “It’s really hard – really hard,” says Robert Steel, who worked on the financial crisis in the Bush Treasury Department and later was chief executive of Wachovia. “Anyone who says they know exactly what we should do is overconfident.”

Another former top government official adds, bluntly, “Don’t kid yourself into thinking that if J. P. Morgan were on the rocks, it would disappear.”

Above all, no one knows what the next crisis will look like. So no one can be sure exactly how to prevent it. In all likelihood, Wall Street will eventually figure out ways around technocratic rules – and technocrats – and create trouble that today’s proposals don’t anticipate.

The beauty of a bank tax is that it acknowledges as much. Financial firms play a vital role in a market economy. But they also have a long record of causing crises, be it the South Sea bubble of 1720, the Panic of 1873, the Great Depression or our own Great Recession. A bank tax is akin to an insurance policy that taxpayers would require Wall Street to hold. The premiums on that policy would keep Wall Street from making big profits in good times while foisting its losses on society in bad.

The current Senate bill includes a kind of bank tax, but it has all kinds of problems. It would initially collect only $50 billion from firms and then set the money aside to pay the costs of future bailouts. Other crises have cost far more than $50 billion.

For this reason, the Obama administration prefers a postcrisis tax. The White House has proposed a so-called TARP tax, to raise at least $90 billion over the next decade and cover the costs of the 2008 bailout fund (the Troubled Asset Relief Program). But this idea has its own flaws. It does not leave any money for future busts. It assumes Washington will always be able to recoup those costs later, which doesn’t sound like a great bet.

The I.M.F. prefers a permanent tax, for the good reason that the risk of crises is permanent. “The challenge is to ensure that financial institutions bear the direct financial costs that any future failures or crises will impose – and maybe somewhat more, given all the other costs that bank failure can impose on the economy,” Carlo Cottarelli, the head of the I.M.F.’s fiscal affairs unit, wrote last weekend. The tax wouldn’t go into a dedicated bailout fund. Its purpose instead would be to discourage too much risk-taking and, over the long term, help offset any bailout costs.

Because the tax would be calculated based on a firm’s holdings, a small local bank or a larger bank with billions of dollars in safe consumer deposits might pay nothing. A leveraged investment bank would surely be taxed.

The TARP tax, in its technical design, would be similar. And Timothy Geithner, the Treasury secretary, told me recently that he was open to the idea of the tax’s becoming permanent. “There is a very good argument you should put a fee on finance, like a tax on pollution,” he said.

Yet the administration – nervous about upsetting the fragile support in Congress for financial reregulation – has been afraid of making the tax part of the broader bill. That strikes me as a mistake, given the tax’s importance. Obviously, though, if Congress passes a bank tax in a separate bill later this year, it will work out the same in the end.

There is some reason for optimism, too. Max Baucus, the chairman of the Senate Finance Committee, told Politico this week, “I don’t think there’s much doubt that there will be a bank tax.” Why? The tax is not just about punishing banks.

The federal government, remember, is facing a huge deficit. To pay it off, Washington will need to make spending cuts and raise taxes. Can you think of a better candidate for taxation than an industry that made huge profits during the boom and then helped cause the bust that has sent the deficit soaring?

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~ by jrparrott on April 28, 2010.

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