Tuesday, January 12, 2010

Mind-numbing stupidity on bonus taxes.

Holy Hell, I worry about people throwing away money on an MBA at MIT if this is the kind of professor they're offering. Honestly, is there anything more offensive than extreme mental laziness from someone who's spent their entire life "studying?"

MIT professor Simon Johnson is kicking off "Annual Whip-Up Populist Anger About Wall Street Bonuses" week, which should kick into high gear in the next few days. I fully expect this man's stupidity to be topped by the masters of unintentional comedy in Congress.

So what's Johnson's background? Oh THERE it is-->> He's a former "Economist" for the International Monetary Fund, an organization that throws away money better than almost anyone.

He mentions Fed assets purchases, expansion of FDIC guarantees, TARP, etc as reasons why bank employees should receive no bonuses for their 2009 performance, seeing as it was largely on the back of taxpayer-funded bailouts. Actually he goes further, to argue that the whole compensation model at the banks was due to the taxpayer funds and should be in some way clawed back. Fine, he's welcome to be outraged that money was being spent on compensation rather than flowing to the bottom line and rebuilding the capital cushion. But it's not the banks' fault that the government offered these loans on flexible, non-punishing terms, and in reality the banks would NEVER have taken the money if compensation models were to be wrecked like Johnson suggests.

Johnson, ever so eloquently:

"All the money they made in 2009 was, umm, due to this, the..the uh way they were saved and it should have been retained by the banks" to flow through to the bottom line, where it would have built capital cushions to adsorb future losses.

"I'm afraid that we have to have, an extraordinary windfall tax of bonuses...and I would stress that this is not a tax that can be paid by the banks...this is a tax on everyone who receives a bonus from these banks...at steeply progressive rates, or nobody gets the message"

So there you go, he is suggesting massive "progressive" windfall taxes on bank employees, regardless of the banks having paid back the TARP loans PLUS dividends!

When Aaron Task asked what would constitute the "windfall" level of earnings, this idiot says "I'm open, I'm open to discussion, listen obviously you've got to bring in the lawyers to work out the details..."

The man simply doesn't GET IT, like others who think they will actually be able to levy these absurd 50% an higher "windfall taxes." When London announced plans for bonus taxes of that sort, firms like Goldman Sachs immediately picked up the phone and threatened to leave the city, citing the OTHER billions in taxes they currently pay the UK government.

It's really sad in a way, because this guy brings up good points such as allowing Goldman and Morgan Stanley to convert to bank holding companies with access to the Fed window. That might have been the most ridiculous accommodation made by the government. But it doesn't mean you can play armchair quarterback this far after the fact and attempt to "tax the money back." That's a European concept, and this guy Johnson is a European.

The fact remains that most of the biggest banks have repaid TARP loans. Those that enjoyed a boost in depositor confidence thanks to higher FDIC guarantees could see higher FDIC insurance fees in coming years, which might be appropriate. But it's lunacy to think that you will EVER get 50, 60. 70% taxes from these people. They'd QUIT, and rightly so. Then what will they pay in taxes? Nothing.

Thomas Sowell wrote in his new book, Intellectuals and Society, that intellectuals like Johnson are people whose work "begins and ends with ideas," as opposed to physicians and engineers whose ideas must culminate in actions (bridges and patient healing) in order to be validated. For intellectuals like Johnson, he starts with an idea like the "windfall bonus tax," but he'll never see it through to fruition. Instead he'll accept handshakes in the faculty lounge, appear on a few more TV shows, and maybe rake in a few "consulting" fees advising politicians on ways to whip up yet more populist anger.



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