Vampire Squid Is the US Government, Not Goldman

And it's set to grow bigger with the imminent passage of financial "reform" bill.

I'm almost ready to give up and stop wasting my breath.

As the so-called financial "reform" is being pushed as if it's a good thing - the "reform" that will give the Federal Reserve, the very institution (privately held, just to remind you) that has been the cause of boom and bust and of untold sufferings by the consumers for nearly 100 years, the very role to protect the consumers, that will create $50 billion bailout fund for so-called "too big to fail" and for so-called "investors" so that they don't lose their money, the questions of the timing of SEC leak to New York Times on Goldman Sachs and the ulterior motive of the Obama government have all but disappeared. (What a surprise.)

Now this corrupt Senator from Montana who is also the chairman of Senate Banking Committee assures us that there will be a bank tax.

Max Baucus: A bank tax is coming (David Rogers, 4/26/2010 Politico)

"It was a short hallway conversation but spoke volumes about the dilemma facing Democrats, hungry for new revenues after emptying the cupboard on health care reform.

"“I don’t think there’s much doubt that there will be a bank tax,” Senate Finance Committee Chairman Max Baucus told POLITICO. And more than ever, the Montana Democrat signaled that Congress will also crack down on wealthy hedge fund and private equity partners who shelter their income as capital gains — taxed at half the top 35 percent rate.

"Three times in recent years, the House has voted to rein in the so-called carried interest provision — only to meet Senate resistance. That’s changing with the pressure to find revenues to pay for other priorities such as a $35 billion measure extending popular tax provisions for businesses and families.

""I’ve asked my staff to look at alternatives ... Carried interest will probably be part of the offsets,” said Baucus. “We were thinking of putting it on later as part of tax reform. But we’re here; we’re here now.”

"Wealthy Democratic donors are sure to scream; Baucus concedes he could face opposition from his own party moderates. But isn’t the chairman himself the “very soul of the moderate Democrat?” a reporter asks. “I’m a ‘Do-the-Right-Thing’ Democrat,” Baucus grinned. "

Like giving another raise to your girlfriend, Senator Baucus? The article goes on and on but you get the idea. Do-the-Right-Thing Democrat and some Republicans (here's one, as usual) will shove the finance "reform" bill down the throat of the public, who, this time around, may remain stupid enough to think it's a good thing. It will punish the bad banksters like Goldman Sachs, won't it?

Keep hoping, sheeples. It's another tax bill, just like the health care insurance "reform" is just a gigantic tax bill, just like the so-called job bill is a tax bill. Just like all these bills, the financial "reform" bill will suck the money out of you. Bank tax? Added cost of banking will be passed on to the account holders, and that's you. Remember what happened when the Congress passed the credit card "reform" bill to "protect" you? The APR shot up, and many people lost credit lines. Some protection.

The Vampire Squid "wrapped around the face of humanity, relentlessly jabbing its blood funnel into anything that smells of money", a famous phrase by a liberal/progressive writer for the Rolling Stone magazine Matt Taibbi, is not really Goldman Sachs; it is the US federal government under this particular administration.

In the meantime, government union workers demand a huge tax increase so that they continue to get paid a generous pay and benefits, and a designer cupcake is all the rage. If you think your head is splitting, you are not alone.

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Now Obama Wants to Limit Bank Proprietary Trading

Taxing the liabilities on the bank balance sheet is not enough for him. He wants a bigger show-down with the nation's bankers to show to the American people how he is fighting with evil, greedy bankers everyday so that our financial well-being is "secure". (Just like our physical well-being has been "secure" because of Patriot Act, I suppose.)

Obama to put limits on bank trading (1/21/2010 Financial Times)

"President Barack Obama is set to toughen his approach to Wall Street regulation on Thursday, announcing limits on the size of proprietary trading operations in the second broadside against banks this month.

"Mr Obama will make his remarks after a meeting with Paul Volcker, the White House advisor and former Federal Reserve chairman, whose more far-reaching vision of curbing banks’ riskier activities has been sidelined until now in favour of reforms drafted in the Treasury

"“A couple of months ago the president began discussing with his economic team the need to include in financial reform more specific and stronger provisions to limit the size and scope of financial institutions to cut down on excessive risk taking,” said an administration official on Wednesday.

"“The proposal will include size and complexity limits specifically on proprietary trading and the White House will work closely with [the House of Representatives] and Senate to work this into legislation moving on the Hill.”" (The article continues.)

WHO IS TO DECIDE WHAT IS EXCESSIVE RISK TAKING? A proprietary trading czar?

Major U.S. banks, particularly Wall Street banks like Goldman Sachs (who is announcing the earnings on Thursday premarket, by the way) and J.P. Morgan Chase have large proprietary trading operation where they risk their own money (as opposed to customers' money) and trade in various financial markets - stocks, bonds, options, commodities, futures and other derivatives.

Does Obama want to become a trader, on top of being a car salesman, residential mortgage broker, and insurance agent? Good luck with that. How about being the President of the United States, whose responsibilities are clearly stated in the old document that he swore to uphold (in a mangled oath, if I remember from a year ago).

(If you dare limit the size and complexity of proprietary trading by Goldman Sachs or J.P. Morgan by some kind of bureaucratic, arbitrary decree, I have a feeling that that's when the stock market will lose much of its liquidity and .... splat! In this ugly social mood, I wouldn't dare do that, Mr. President, as the stock market going higher in the last 10 months is one of the few good things that have happened in recent memory of many average Americans who have 401K and IRA. For many, that may be the only good thing.)

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Obama Supporter Buffett Is Against Obama Bank Tax

Warren Buffett agrees with me. (But he is invested in Goldman Sachs and Wells Fargo, so he is not impartial, I guess.)

Buffett Says He Can't See Rationale for Bank Levy (1/20/2010 Bloomberg)

"Jan. 20 (Bloomberg) -- Warren Buffett opposes President Barack Obama’s proposed levy on financial institutions because firms including Goldman Sachs Group Inc. and Wells Fargo & Co. already repaid bailout funds.

"“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”

"“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” said Buffett. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”"

I am all for the idea of creating a special tax on Congress for their incompetency and injury they inflict on Americans, intended or unintended.

Buffett also asserts that the rescue was unnecessary for most of the banks that received the TARP money, even though he was on record saying he decided to invest in Goldman Sachs because he expected the government to help financial firms.

If the banks didn't need TARP money, why didn't they say no when they met with then-Treasury Secretary Hank Paulson on October 13, 2008, you might ask? For one, they were closeted in a room at the Treasury Department and were told they couldn't leave the room without first signing a one-page document that stated the amount of "help". It was not like Paulson was holding a gun against their head (although we don't know for certain), but I wish someone (like Wells Fargo CEO) had called the bluff and stayed in that room. I am curious to know what would have happened.

If Obama wants to punish a bank whose bloated ($2 trillion) balance sheet is loaded with assets with dubious quality (agency bonds, mortgage backed securities, even a piece of real estate), who continues to provide loans to bankrupt or near-bankrupt companies (AIG) and who uses those assets to back the liability (US dollar) that many, many people around the world count on as their assets, he doesn't need to go no further than at the door of the Federal Reserve.

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Not Thrilled With Banks, But Against Obama's Bank Tax

I am.

President Obama, in his effort to appear as if he sides with the populace and to capitalize on the popular anger and resentment toward Wall Street bankers, has proposed a 0.15% tax on the liabilities of the nation's big banks (about 50 of them) to help fill his budget shortfall. He declared, "We want our money back."

Now that's my first problem right there. Who are "we"? That seems to be "we" in the government. Whose money is it? The money is our, i.e. taxpayers' money which the government, both under George Bush and under Obama, has squandered on companies like AIG, GM, Chrysler, Fannie and Freddie against a significant opposition from the U.S. taxpayers (who, alas, don't count in politics).

Obama wants to use this selective taxation as a form of punishment for supposedly causing the financial crisis and getting large bonuses and as a deterrent for future risky behavior. Since bankers, particularly Wall Street bankers, are the people everyone seems to love to hate, he can't lose for singling them out, can he?

The proposed tax, which requires Congressional approval, would be applied to financial institutions whose liabilities exceed $50 billion. Not only the banks who already repaid TARP would be taxed, but those firms who never received a penny from the government would be taxed. $50 billion balance sheet is puny these days: big Wall Street banks have their balance sheet in $1 to 2 trillion, and many well-run regional banks in tens of billions.

Why should Obama confine "financial institutions" to banks and insurance companies anyway? Remember in September 2008 when SEC first banned the shorting of "financial institutions"? It was just banks at first, but the banned short list quickly grew to include any company that had a lending arm. Auto companies got included, so were some of the high tech companies like IBM. Many manufacturing companies issued bonds guaranteed by FDIC, including GE and Deer, exposing the taxpayers to potential loss. What about them?

Speaking of tech companies, many cash-rich techs actively manage (or at least they used to) their cash/cash equivalent in various financial instruments - derivatives, swaps, futures, options. What about them? Motorola, for instance, used to have their net profit solely derived from financial income.

Speaking of risky behavior, what about huge hedge funds and private equity firms? Like those select hedge funds who were let in on the shorting opportunities by the Vampire Squid (aka Goldman Sachs)? Or endowments at nation's top universities which bet on derivatives only to spectacularly lose, contributing to the financial chaos in 2008?

What about people who took out home loans or borrowed on their credit cards? Would Obama tax the liabilities of these borrowers for their risky behavior of taking on a large debt?

Lastly, who defines what's "risky"? And why should it be punished? If he believes what the financial institutions did was criminal in nature and therefore should be punished, why doesn't Obama instruct his Attorney General to indict the banks and prosecute them?

The arbitrary and punitive nature of this proposed tax is what irks me. It shows this administration may be quite willing to devise any scheme to arbitrarily target any industry, company, or individual. Why single out only the banks and insurance companies? There are whole bunch of other entities with equally risky behavior, and they are not confined to the private sector either. Actually, the public sector has even riskier players. Here's two that come to my mind immediately:

The Federal Reserve: for having pursued the low interest policy that created the speculative frenzy in various asset classes; recklessly expanding the balance sheet over $2 trillion with toxic junks that no one wants as it assists the federal government's fiscal policies; and

State and local governments: for having created their budgets year after year on the assumption that the housing prices will go up forever; for having invested millions of taxpayers money in highly sophisticated and risky financial derivatives without even knowing what they are.

However, the riskiest and most reckless of all is Obama's own government that is taking on an unmanageably large debt that cannot possibly be paid back.

Now how should we punish this risky behavior?

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