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Inductive reasoning forces the conclusion that dynamically linking bankers and banks taxes to unemployment levels will result in reduced unemployment through greater lending to small businesses.
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Total Votes : 2

887795.  Tue Feb 21, 2012 10:16 am Reply with quote

I've been pushing this idea for a while now, but even the few of my smartest friends who get it, shrug their shoulders at the implementation - its too difficult going against the bankers power. I disagree, if the Arab Spring can push against the bullets of dictators, we can push against the pin-stripes of the entirely self centred.

My idea is a direct analogue of the engine governor:

Image from

Where the rotating shaft represents the unemployment level, higher rate pushes out the weights which increases bankers top-rate tax.
If you are mechanically minded this conveys the idea, if not - don't worry!

I'll start with an axiom: Money is power.
I'll continue with logic: Power can be directed by taxes.

My simple starting point is this: The bankers broke the economy, tax them until it is fixed.

As Mervyn King said in August 2010, "there are around a million more people out of work than in the period prior to the crisis".

The simplicity of my point overcomes the befuddlement of Project Merlin, no opportunity for banks to posture and tell us targets have been met when they clearly haven't. Quite simply there are no targets - simply choose an economic indicator and link their income tax to it. Do it, then tell them to fuck off and get on with it. Simple. No arguments.
Realise also that these targets were negotiated over months by the banks. It must be deduced that the desired target (of Vince Cable?) was much higher, or else the negotiations would not have taken so long.
Unemployment level seems the simplest and most obvious indicator to link.

I assert that linking bankers income tax to unemployment levels must have a great influence to increase the flow, and decrease the cost, of finance to SMEs.

As Mervyn King said, "By far the most effective way of helping SMEs quickly would be to provide incentives for lending by existing banks, because they can assess credit risk in a way that no other institution could do in the immediate future."
Set the top-rate of income tax for bankers at 10 times the percentage unemployment rate.
Currently this would give a top-rate of 84%.
At 2007 levels this would be about 50%.
How's that for an incentive to lend to SME's?

Most people simply baulk at this idea - its so way out there - but if you ignore those feelings and analyse it you will soon realise that this approach simply can't fail.
One argument I've heard against it is that bankers will leave the UK - but the banks will still be full of our money, they can't take it with them.

A persuasive argument I've found is this: If we'd done this in the 1930's, would unemployment be anywhere near as high today?

The institutions and the individuals would have to have the same goals - so simply present the cost of Jobseekers allowance to the banks - replacing the bank levy - giving a new bank levy of about £5 billion per year.
One might also consider a tax on bank shareholder dividends linked to economic health - but I haven't considered details of this.

So the incentives for bankers and banks to get unemployment down to 2007 levels would be a reduction of tax from 84% to 50% and £5 billion to £1.7 billion.
Full employment would see them paying zero tax. If that isn't an incentive ...

Reduced Gambling equals Reduced Capital Reserve, leads to Economic Growth
Speculation by banks on derivatives requires them to hold capital reserves to cover this risk.
Reducing this gambling, and invest in businesses instead, would result in less requirement for capital reserve, further freeing capital for lending to SMEs, resulting in even more growth.

887809.  Tue Feb 21, 2012 10:42 am Reply with quote

There's a lot wrong with the ideas you present.

Firstly, this notion that "it was the bankers wot done it" is a false one because there were plenty of other people involved as well.

What about all the people who borrowed more than they could pay? What about all the financial advisers who pushed through applications that broke the rules? What about all people who jumped on the idea of buy to let mortgages and then abandoned properties when this market went through a bubble burst, leaving banks with even further debts than anyone should have expected?

I'm not defending bankers, but then again, who are "the bankers"? Is it simply the chief executives? Is it all senior staff, including those who work in sections that have nothing to do with loans or derivatives?

Personally, I hate the ridiculous bonus culture that grew in the past 20-30 years where instead of a bonus which is a percentage of your wage, your bonus can now be the main part of your income, which is proportionally higher than it was just a few years ago. That's more to do with controlling wages and renumeration committees.

Finally, why punish someone going into the banking profession now for something they weren't involved with, how do you control that tax? To implement an income tax that's reliant on shifting figures and is based on a "blame" principal would result in litigiations, more expensive tax collection (as it would have to be tailored to individuals rather than simply income levels).

Getting away from the tax question and the blame concept, there's also the point that lending to SMEs is not as simple as simply chucking money at them, the banks were forced to build up their reserves, and at the same time reduce their toxic debts, so they are putting SMEs through the kind of tight checks they should have had previously.

Simply lending money to an SME will not make it necessarily successful, and it won't necessarily lead to a faster reduction of unemployment. You could end up punishing individuals for something they have little control over.

887810.  Tue Feb 21, 2012 10:44 am Reply with quote

Aw, how cute.

the fundamental problem, though, is that your basicl premise, apparently important enough to put in bold, is over-simplified bollocks. And, as such, none of the rest makes any sense at all.

But I have a distinct sense of deja vu here.

So I will just say that I am an intellectually dishonest liar here and now, to save you the bother.

But, perhaps you might like to explain, for the benefit of cerebral charlatans such as I, precisely how you arrived at the conclusion that bankers are entirely to blame?

Personally, I think the best way to solve the economic problems is to put a tax on people talking in such certain terms about things they patently know cock-all about.

887813.  Tue Feb 21, 2012 10:52 am Reply with quote

Oh yes, then we have the other fun aspect of the banker-bashing doublethink.

One of the main reasons for the crisis, we are told repeatedly, is those greedy, greedy bankers lending money to all and sundry.

Now, we are told that the way to recover our economic health is for those greedy, greedy bankers to lend money to all and sundry.

We can't have it both ways. Money can't be lent, or invested, in large amounts in a responsible fashion of the quality of the proposals being put to the banks by those seeking the funding do not fit the risk profile.

Or, to put it another way, banking can't be both the cause of, and the solution to, all our problems simultaneously.

887832.  Tue Feb 21, 2012 11:30 am Reply with quote

It might not be such a bad idea to automatically regulate the economy by 'negative feedback', as exemplified by the engine governer illustrated above.
I'm not sure which vector of the economy should be factored negatively, whether price index, wage index or unemployment, I suppose it depends on the type of economy.

Negative feedback ain't so bad as it sounds, it is the basis of all good automatic control systems.
The history of these devices is fascinating, starting with the self steering gear for sailing boats, developed by one of da Vinci's apprentices, and the fantail windmill regulator.

887910.  Tue Feb 21, 2012 3:24 pm Reply with quote

BoE Financial Stability Report (pdf, page 135): "stronger lending [to SMEs] should support recovery, bolstering banks’ balance sheets".

887924.  Tue Feb 21, 2012 5:07 pm Reply with quote

Neotenic wrote:
So I will just say that I am an intellectually dishonest liar here and now, to save you the bother.

Thank you.

887925.  Tue Feb 21, 2012 5:15 pm Reply with quote

The Farmer knows how to grow wheat, but not how to mill.

The Miller knows how to mill wheat, but not how to grow it, nor how to bake bread.

The Baker knows how to bake flour, but not how to grind wheat.

The Farmer, Miller, Baker "system" is very simple. If it collapses, are the bakers customers to blame?

887927.  Tue Feb 21, 2012 5:42 pm Reply with quote

If they've been overbuying bread for no reason and letting those breads go to waste, and by their overpurchasing created a run on the bakery.

The baker is making more money, and by his increased orders, the miller makes more money, and by the miller's increased orders, the farmer is making more money.

Then, the overgrowing and harvesting of wheat creates a problem in the field which means the farmer is forced to cut down drastically on the amount wheat he can grow and harvest, and this means there is now not enough bread for people to simply survive on.

The miller now has to consider buying his wheat from other farmers, and because they know the demand is there, they can charge higher prices.

If the farmer refused to harvest more wheat than was necessary, the miller would turn to other farmers outside the area. If the miller refused to mill more flour than was necessary, the bakery would turn to other millers outside the area, and the customers just want to buy whatever they want.

Unless you have a global agreement among all farmers to limit how much mills can buy, or a global agreement among all millers to limit how much flour the bakers can order, local regulatgions tend to hamper local economic growth.

Are the customers really blameless in all of this?

887948.  Tue Feb 21, 2012 7:30 pm Reply with quote

The customers were all specialists in other areas, so simply did not, and could not be expected to, know of the imminent system failure.

The customers did not spontaneously start overbuying, they were encouraged and conned into thinking it was a good idea over a long time.
The customers relied on the system specialists on advice on how to interact with the system.

The specialist of the system should have seen the collapse coming, and many did. But greed ...

Then all the citizens of the city had to pay huge sums of money into the "bread system" because without it they would die. The specialist in the system insisted they should be paid the same huge amounts as they got before.

887956.  Tue Feb 21, 2012 8:40 pm Reply with quote

As I said before, the whole idea of over inflated pay is certainly not something I support, either now or ever before, so I'm not here to defend that side of things.

Having said that, to simply blame all the problems on high pay is wrong, because pay makes up an incredibly tiny proportion of the problem.

You tried a simple bakery analogy and I showed how it's not as simple as simply blaming bakers/millers/farmers, so to stretch that analogy out to argue your position is moving the goalposts.

If you're going to include a whole lot of specialists in other industries then you have to wonder how many of those industries were reliant on the business sent their way from the "bread industry", you also have to wonder how many of the specialists in other industries invested their money in bread, and if the economy of the city is heavily reliant on the bread industry, how much of the infrustructure was paid by tax from that industry.

It's never that simple and easy.

887997.  Wed Feb 22, 2012 4:59 am Reply with quote

Yeah, I most certainly do not agree with this premise that customers are entirely blameless, innocent parties in the whole affair.

If nothing else, banks don't stimulate the demand for their services - during the boom years, nobody was saying 'oh, the bank will lend me £250,000 - what shall I spend it on?' No, the demand came from people who wanted to buy a new home/car/holiday/TV, and they went to the banks for help.

Indeed, if you asked someone in 2006 what the big problem with bankers was, you would likely have been told that it was they were not lending enough, particularly to people like first-time buyers.

And, indeed, a goodly part of the reason the model of lending based on money borrowed from the wholesale markets and securitising the loans grew to be as large as it did is because, for a good 20-30 years, it worked - interest rates, defaults and repossessions declined to record levels, even as the amounts being borrowed mushroomed. Banks not gettting in on that action would have been raked over the coals by their shareholders - and, thanks to the demutualisation frenzy, those shareholders also included more and more 'ordinary' people than ever before.

And I don't seem to recall much in the way of shareholder revolts when the likes of RBS and Halifax posted their bumper profits and paid out those handsome dividends in the first half of the noughties, do you?

The banks have acknowledged their complicity in the crisis, and have looked for other ways to make their money instead. The government has acknowledged its complicity in the crisis, and been replaced, on both sides of the Atlantic. The regulator has acknowledged its complicity in the crisis and has been reformed.

But what is holding us locked in this vicious tailspin of obsession over the events of 2007 and 2008 is the dogged refusal of the public at large - and angry, self-righteous commentators in particular - to accept their complicity, dust themselves down and get on with it again, rather than sitting on the floor, complaining loudly and pointing fingers at anyone other than themselves.

888041.  Wed Feb 22, 2012 9:25 am Reply with quote

This is another thread that should be in WFHIT, not Interestrings.

888054.  Wed Feb 22, 2012 9:50 am Reply with quote

Agreed RLD and I will move it.

"There is always an easy solution to every human problem--neat,
plausible, and wrong."

This quote appeared in the essay "The Divine Afflatus," originally published in 1917, and reprinted in 1920 and 1949.

888066.  Wed Feb 22, 2012 10:07 am Reply with quote

CB27 wrote:

I'm not defending bankers, but then again, who are "the bankers"? Is it simply the chief executives? Is it all senior staff, including those who work in sections that have nothing to do with loans or derivatives?

You may infer from "top-rate of income tax set at ten times the unemployment rate".

I think if every bank employee of every bank was concerned about the real economy, then the real economy would start growing rapidly enough to see significant falls in unemployment within ... ?

Even if it doesn't it won't cause any harm, except to bankers - and that doesn't count! :)


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