Last week, President Obama unveiled a plan to tax bank profits $90B over 10 years as punishment for causing the financial crisis and paying out huge bonuses.
As expected, Barney Frank piled on with his typical class warfare rhetoric.
As Glenn Beck as it sounds; we are crossing the line into socialism. I don’t say that just to jump on the tea party bandwagon. I say it to shine a spotlight on the nature of the class warfare created by the left. Robbing from the rich to give to the poor has gotten so out of hand that it’s causing the administration to completely miss the point on what really happened and how to clean up the financial industry.
The financial crisis was due to three factors as I see it.
- Our government promoting the concept through Freddie and Fannie that everyone has the right to own a home – regardless of ability to pay.
- Wall Street unchecked risk taking; giving loans to those who were unqualified then packaging up the securities to pass the risk along.
- Lack of oversight and regulation from government agencies to play watchdog over the whole game.
Greed is good. It is the driver of economic growth. But lack of regulation has devolved our stock market and institutions into legalized gambling parlors; with much more in common with Vegas than the mahogany lined offices of downtown Manhattan. Today the stock market serves a key liquidity function, but has transitioned from a lagging indicator of the health of the economy, to a leading indicator. Not a reflection of economic health, but a driver of it, in both directions.
With high risk financial instruments created without prudent government oversight, banks mask real assets and risk to create leverage. It is these instruments that must be given a serious look by regulators, in addition to stricter rules on liquidity and reserves.
Don’t put a penalty tax on financial institutions when they make money. Regulate the methods they can use to make money in a way that protects the economy as a whole and does not put stock holders at undue risk.
To me, tighter regulations are a reasonable and necessary response to what happened. Penalty taxes on banks are just another weapon in the wealth re-distribution arsenal for the liberal tax and spend machine. It will do absolutely nothing to fix the problem. In fact, faced with higher taxes, banks will create even crazier more risky ways to make money.
What do you think?
Guest Blogger – Jeff Hine