A License To Fail

I am surprised that Finance Minister Flaherty is opposed to the growing political movement to tax the world's financial institutions. Actually I completely agree with his (and the government's) position on this, but it does seem odd for this government to especially disagree with any US government position.

From this article we see that the head of the IMF believes that this levy on the banks to create a bailout fund is complementary to effective government regulation. It isn't. It is little more than an admission that most governments believe regulation -- their regulation -- will once again fail, and they don't want to use taxpayer dollars to fund the inevitable bailout.

Worse than that, not all financial institutions are equally susceptible to failure since they are not all active in the same mix of business activities. The risk they take on is very different. That is one reason the Canadian banks came through the crisis so well. Yet now these other countries with high-risk financial institutions want a levy on Canadian banks. As an investor in this sector I am appalled at this since the levy will lower the value of my holding while doing little or nothing to protect me and others.

Better would be if these levy-happy governments take strong action to restructure and regulate the institutions within their purview. Their willingness to impose this levy shows they will not do so, or at least they know that what action they will take will have little success. I have to wonder just what conversations are going on behind the scenes between politicians and bank lobbyists that would dissuade governments from imposing stricter measures on the industry. After all, the levy would take the heat off the recalcitrant bankers, allowing them to return to business as usual.

This has some similarity to the media tax in Canada where every blank CD you purchase carries an additional charge that, supposedly, compensates the entertainment industry (though rarely if ever the artists) for your ripping of MP3's and pirating songs and movies. What? You say you don't do these things? Too bad, you still have to pay. The bank levy is like that, and each of us will pay if it goes ahead.