Thursday, January 14, 2010

Bank Taxes, GM, and Chrysler

Today's story is "Obama to Unveil Proposal on Bank Taxes"  from the WSJ, regarding taxes/fees the Administration will assess to the big financial firms.

"If approved by Congress, the new tax -- which the White House calls a "financial crisis responsibility fee" -- would force about 50 banks, insurance companies and large broker-dealers to collectively pay the federal government roughly $90 billion over 10 years. Of the 50, about 35 would be U.S. companies and 10 to 15 would be U.S. subsidiaries of foreign financial firms.A senior administration official said the largest 10 institutions would pay about 60% of the tax's total cost."

I just want to focus on one quote from the article:

"The taxed firms are expected to pay the cost of bailout money that went to General Motors Co. and Chrysler LLC, which are exempt from the tax. The administration official defended the omission by contending that U.S. auto makers collapsed in part because of a financial crisis of the banks' making."

Wow - talk about a mis-statement of the truth.  That statement could be rewritten as follows:

"U.S. auto makers collapsed in part because of a financial crisis of their own banks' making."


"U.S. auto makers would have collapsed sooner if not for a massive credit bubble driven by low interest rates"

or, as my friend Ted put it:

"U.S. auto makers collapsed because they've made shitty cars for decades and overpromised benefits to unions.

Blaming the collapse of the automakers on the banks ignores the fact that before there was the bust there was a boom!  Automakers didn't collapse in the early part of the 21st century because the Fed fueled a new bubble in the wake of the collapsing internet bubble.  If we'd never had a credit bubble (and subsequent bust,)  the auto companies would have faced their day of reckoning years ago.



Hammer Player a.k.a Hoyazo said...

Yeah, that is a seriously flawed, really moronic statement for anyone to make. GM's market share has been declining for what, 53 straight years? And it's the banks' fault for securitizing mortgages and such? Geez.

mrwiizrd said...


Have you seen this post Arnold Kling made yesterday?

Just curious what your thoughts are given your background?

Kid Dynamite said...

mrwiizrd - my main beef is in his third paragraph, where he's clearly talking about structured products that were rated highly but lost a lot of money. individuals cannot buy those, and the people who bought them on behalf of individuals (professional pension fund managers) were grossly negligent and need to be held accountable.

as for "Safe" - i personally pulled all my money out of money markets - which actually do have risk, and kept it in near zero yielding deposits instead, because i wanted no risk at all. this penalizes me, because others buy the risky money markets, and get bailed out by the government anyway when they lose money.

as an extension of Kling's thoughts, i'd refer to municipal bonds. it flat out SHOCKS me that so many entities continue to crank out AAA paper (NYC? how can that possibly be??) when they are running mammoth deficits. there is probably some implicit assumption there that there is a gov't backstop - but i would not want to make that bet in my portfolio

Anonymous said...


I think much of the talk about taking plain-vanilla banking money out of TBTF institutions won't do much to harm the TBTF's investment operations where it appears much of the risk/failure operations are.

Instead, I am guessing a more effective mode of protest would be to force 401k managers to not do business with the investment operations at TBTF institutions.

The other crazy idea that fits into the above investment protest above would be crafting an ethical risk model that financing institution can choose to follow in order to attract customers that don't want to fund TBTF institutions in any way.

Forgive me if the idea sounds half-baked because I don't know enough about the industry.

Thoughts? Questions?

Kid Dynamite said...

i think you'd have a hard time forcing your 401k manager to trade in the way you want them to - but you can certainly try.

capital is the blood of the bank - if you remove the capital, it definitely hurts the bank.

Jeff said...

Ted's got it right...