Friday, January 15, 2010

Prop Them Up, and Knock 'Em Back Down

"[G]overnment's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." -Ronald Reagan

In 2008, the government convinced the American people that our financial system was on the verge of collapse.

In 2009, it assured us that it averted such a disaster.

In 2010, President Obama wants to tax the banks into the stone age.

Talk about smoke and mirrors! I have no doubt that policy makers legitimately believed that swift actions were necessary to maintain the flow of credit and prevent another Great Depression. Unfortunately, that apparent necessity gave way to politics as usual. The government is now transforming the TARP from a shield used to block financial Armageddon, and into a spear used to attack the banks—odd, since TARP's premise was that the banks are vital economic components.

The bottom line is that the Democratic leadership is fighting for political survival, and the banks are as good a bogeyman to target as any. Their primary policy objectives of economic stimulus, health care reform, and cap-and-trade have fallen flat, so they're resorting to economic populism—find someone that most people hate, and punish him.

Well, this new tax will punish the banks—along with their customers. Loans are terribly difficult to procure as it is because banks—still in survival mode—want to preserve their capital. So, if the government forcibly extracts more capital from the banks, does that mean the banks will increase or decrease their lending? The answer must even be obvious to those who support this terrible idea, but apparently they prefer populist theatrics over good policy. Hopefully this intensifies the drubbing they will incur during this year's midterm elections.

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