French President Sarkozy has seen how banks have responded to the financial crisis of their own making with extravagant bonuses for the very employees responsible for huge losses that led to central bank interventions and much taxpayer funding at stake. To put it starkly, he doesn't like it. So he has proposed a solution.
According to BNA's Daily Tax RealTime, he has announced plans for a proposal for bonuses modelled on the recent coordination among countries in dealing with tax havens and banking secrecy. The proposal, to be fleshed out at the September meeting of the G-20 governments, calls for a coordinated effort by the G-20 governments to reign in bonus behavior. Each country would agree to impose a tax on bonuses, to be levied at the same rate across the group. In addition, each country would agree to an overall limit on bonuses, calculated as a percentage of the bank's revenues. The tax would be dedicated to financing guarantees of deposits.
One can imagine the serious lobbying in the US against such a proposal. Whenever there is talk of using the fact that the government has bailed out big banks to control some of the behavior that caused the bailout to be necessary or that represents an unseemly means of making a profit off customers (speculative use of derivatives, "high frequency trading" by big banks that essentially makes a profit by trading on client data in ways that individuals cannot duplicate, risk taking on the assumption that losses would be socialized, lack of sufficient regulation of capital reserves, etc.), the banks lobby and Congress caves. Banker friends (or friends of bankers) tell me that "the bankers deserve the big bonuses, because they do difficult work."
Of course, I tell my friends that what everybody deserves is decent wages for work done--no more, no less. But most ordinary workers get shafted these days, while the bosses and the bankers, and managers ride home with the moolah. Workers need to get more of the pie, one way or another. Unions would help, but the laws don't make forming unions very doable. A tax that acts as a restraint on bonuses while setting up a reserve fund to pony up the money when the banks' bets go awry would be one way to deal with the problem.
One thing is certain. We need to move ahead with various new rules to address what went wrong in the September Massacre under Bush. In addition to consider a workable way to restrain the outrageous bonuses for speculative behavior that Wall STreet seems to think it's entitled to, we should do the following:
- re-regulate all banks and shadow banks by bringing hedge funds, equity funds and any other entity that acts as a major provider of funding under banking laws;
- regulate derivatives, including severely restricting or curtailing completely the use of customized derivatives that cannot be regulated easily in an over-the-counter exchange;
- split up the "too big to fail" financial institutions by separating investment and commercial banking and other financial activity; and
- amend the bankruptcy laws to permit mortgage loans to be modified in bankruptcy.
There's just no excuse for not doing these things, now. We've seen the disaster that happens from the mayhem let loose by the Reagan deregulation. We barely staved off a total economic disaster, and as it is, ordinary Americans will be paying for this fiasco for several years, with lower purchasing power and inferior quality of life.
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