When $23.7 trillion in government programs were variously created to provide direct (and indirect) support to the financial system it seems everyone involved either conveniently forgot or didn’t know that firms lay aside 50%+ of revenue for compensation as standard operating procedure. If the goal was to allow banks to “earn” their way out of cataclysmic loss rather than to forcibly unwind them, the synthetic creation of bank revenue would lead to only one possibility with regards industry bonuses.
I have to believe a priori that because the system always functioned this way (and there is nothing wrong here intrinsically, it’s a good business to be in), then our policy makers were aware of this fact; to presume any less would be to presume they aren’t individually competent. I believe they are very competent so this leads my conclusions into a rather awkward frame of reference.
Unfortunately, the fact that government officials chose $90 billion as the amount for this new tax (what they are calling the “Financial Crisis Responsibility Fee”) appears almost entirely political as well and simply creates a distraction from the main point. Basically, the administration wants to mirror the tax against roughly 17% most recently projected losses on total TARP outlay. Of course, since TARP only represents <3% of the total, this whole thing starts to look rather retroactive and reactive at the same time.
- Clearly this wouldn’t be happening if it wasn’t an election year.
- Clearly it wouldn’t be happening without populous angst.
- Clearly one-time taxation will not change anything and basically sends the signal: Screw You Wall Street!
Really??
Of the two high level options (“earn out” vs “allow to fail”) we may never know which was the better choice; that ship has sailed. Today in 2010 we’re just trying to cure one of the worst hangovers ever (a $23.7 trillion one) when the only real choice should have been stopping at 2 rather than 20 (or 200) drinks the night before.
Personally, I don’t think it’s necessarily a bad move by government, I simply question the execution, timing and short-term nature of it. If this were indeed a crisis responsibility fee and officials were aware of the more obvious repercussions inherent to their policies…then we should have addressed these issues while writing term sheets for TARP, PPIP, TALF and the myriad of other programs (not to mention quantitative easing). I lament that we clearly continue to “retro-reactively” make policies as new political symptoms of the disease appear. All of us on Wall Street, Main Street and Pennsylvania Avenue would be far better off if we could for once keep the focus to systemic issues rather than evanescent ones.
By Jason Paez
About Jason Paez
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