Taxing Problems

While it may help soothe internal feeling about bankers by taxing them heavily for a short period, the reality is that the problem of banks running extreme risks in their business is not solved and we run the risks of other problems.

John Varley, CEO of Barclays, who did not use taxpayers' money to prop up their company in the Crunch, has said that using tax as a stick short and long term is not a solution. His argument is that it drives 'talent' away from Britain. Personally, I really don't care if unaccountable people who thrive on big bucks set up their own island somewhere in the Pacific to go race their fast cars and talk about the size of their wallets or purses. But I do care that if we do not fix the fundamental problems in the financial system, it makes not a jot of difference to the banks where they locate their staff just as long as they can earn big money - and so driving people away from the UK doesn't actually help us.

If the Taliban all dropped their weapons tomorrow, turned themselves in and embraced Christianity without a further shot being fired we might think this a victory but it isn't going to happen on the current tactics employed. Likewise, banking will find a way to continue what it does unless we tackle the underlying problems - it will also find a way to continue doing what they do to earn billions in scam profits and reward a thin wedge of staff beyond all sense of reality in some way or another. They can afford to as there are huge profits at stake and, frankly, we have shown that we cannot do without the banks. A compromise will be found or loopholes used - either way, banking will get what it wants in some place or another.

The UK Government's headline-grabbing move to tax bankers and high earners generally will not have the desired effect. Firstly, only £550m is expected to be raised on the windfall tax and secondly, high earners will find loopholes in the 50% tax on £150k or above - accountants and lawyers are hard at it as we speak, communicating openly on how to 'mitigate tax' on websites as legitimate as the IOD's.

Tax is a useless and archaic system in driving behaviour. As with speed cameras, it is a way to make money out of transgressions but it does not stop dangerous driving which can be done even at low speeds. So too, heavy tax on bankers merely makes a few bob to assuage public opinion but it does not stop the banks trading products that will cause the next bank meltdowns and even harder economic times while staff cream off ridiculous profits. In fact, unless we fundamentally reform what banks do, before we have paid off the bills for this time around, the next bill will be on us. You see, taxing them this way ultimately will get transferred to us anyway by the fact that they will continue to do what they do to cause financial meltdowns.

If the tax burden gets too high, ultimately it will drive people out of the country. The most able to pay will leave, transferring the burden back onto the people who did not cause the problem. The non-domicile rules will ring fence high earners at one end of the spectrum and banking havens will arise nearby fairly soon.

Fundamental reform of banks is what is needed. I applaud the splitting of investment and retail banking as a start - too often staff in retail banking pay with their jobs for the idiots in the investment banking side and the cash is used to hide the activities of the investment arms. But trading debt should be rigidly reformed so that complex, structured products cannot be used to hide poor asset valuations and debt management, creating a convoluted web that no one, even in the banks, understands. Wholesale money markets should not be used to prop up banks' activities, it is not a question of ratios it is far more fundamental than that.

Until we get some people with real sense and courage into the banking industry, regulators and Government who aren't so rich that their views are biased then we will always have this stupid attitude of tax being the tool to solve any problem.

The problem is that taxpayers have to pay for the mistakes. If we, the taxpayers, held people accountable for the money they use from our personal wealth pots, then people like Andy Hornby, Fred Goodwin, Alistair Darling, Gordon Brown and Hector Sants would be flipping burgers at McDonalds learning the basics of business by now - paying tax like the rest of us and ranting at the their former colleagues in the banks.

On The 'Ead, Son!

What do brilliant footballers have in common with star investment bankers? I will leave you to decide.

However, in the opinion of John Varley, CEO of Barclays, that is how we should regard investment bankers. No, forget permed hair and screaming girlies when touched by the opposition, what he means is that if we want serious profits then you have to pay obscene bonuses in order to retain the best. His erstwhile and also stupid colleague at Barclays Capital, Stuart Gulliver, likens these faceless superstars to Hollywood filmstars. Again, I have the image of limos, lapdogs and throwing phones - maybe I am not far wrong.

It really shows how far from reality banking really is. Are we to be believe our long-term tax bill is actually like the entrance fee at a football ground to watch these banking stars perform? Is it the same as dedicated followers buying their season tickets? Or are long-term tax bills to pay off the cost of bailing out bankers simply what they are - us paying for their appalling mistakes?

It is the reason why the banking system should be over-hauled and many executives should be removed from their posts because they have no idea of the responsibility they have. It is like the whole gravy train of investment banking is there purely for some sort of entertainment of a small number of clever, greedy people who invented it and that we, the taxpayer, underwrite the whole thing. And it is ever more chilling that the very people Brown and Darling are paying to advise them of how to solve the banking crisis are investment bankers - it's like paying the Taliban to buy more guns to shoot at us to kill more soldiers.

Even incredibly failed banks that we now majority own like RBS will pay their stars bonuses this year. The bonus pool is growing as the whole show is back on the road in earnest and profits are back in the bag. The very same sorts of profits which were made before - the unreal kind which are conjured up out of nothing in the elaborate world of inter-banking musical chairs known as trading.

I have said it before and will say it again, these bankers have too higher opinion of themselves and what they do. They are out of touch with reality, have no contrition or remorse for the untold financial damage they have caused and they think they have carte blanche to live in a false world where we should pay them homage to their 'skills' rather than hold them accountable for the losses and hardships they cause.

In each case, they do not give two figs for the masses of low level staff they have fired because of the mistakes of a few greedy people and not one of them looks at the mess in the toxic debt situation or economy and feels any kind of connection.

Well, they can have their vast bonuses if they like as long as they pay back what they owe us. Not like football or Hollywood, is it, boys? No, that's make believe entertainment, this is reality. You owe us and we believe you should not a get a penny more until you have paid your dues. Try that for size.

The principle of what they do, we are told, underpins our economy - we would have no credit if this did not occur. Indeed, all the banks missed their lending targets and so they need to make more money to get the whole credit engine working again, so the argument is that we should allow them more latitude in bonuses to 'stimulate' the economy.

But am I the only one who sees the flaw in the plan? We have ring fenced £584bn of 'Toxic Debt' that we, the taxpayer not the banks, are personally liable for. We have paid out some £100bn in capital, more in loans and guarantees - we are in for a potential £1.3 trillion in total and we sit here sucking it all in and believing this is a good thing and that our economy depends on this. We must be stupid.

The reality is that the banking system is flawed and that it has a fundamental, in-built weakness of logic that people assume can be ignored because the likelihood of a 'perfect storm' occurring to cause a credit crunch to cause £billions in losses could not occur.

Well, like a black swan, it did. It can happen again and surely I am not the only schmuck who sees it?