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bogbrush

Fixing Banks Behaviour The Free Market Way

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I see Cap'n Darling is at it again, telling banks to behave and restrict bonuses. Crash is promising to pass some more laws to sort them out.

Don't these guys get it? They will always be a step or two too slow for these boys. New laws can be circumvented, or challeneged in the Courts if they contravene human rights (which I suspect restricting a persons right to agree their own rewards might do).

The laws already exist to prevent the problem. Simply make sure that the Boards of the banks are told that since extravagent bonuses rewarding short term results are an agreed part of irresponsible activity, that sanctioning them will be regarded as sufficiently reckless as to cause the Directors to be held personally liable for the consequences. Trading while insolvent can render the Directors to personal liability.

If the issue is accountability or irresponsibility, fix that. Trying to pass laws to make irresponsible but highly intelligent people behave against their self interest is futile. You have to fix the root cause of the problem, get them to want their people to behave responsibility.

Edited by bogbrush

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Banks understand economic signals. Well, at least those with zero latency.

Tax leverage. Call it a risk premium: after all, the risk has now been demonstrated!

Maybe, I'm not familiar with the proposed workings. Sounds like it might not carry the threat of personal liability though.

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It is in the interests of every UK taxpayer that the banks pay as much out in bonuses that they can.

I have no issue with the bonuses, only with Directors discharging their existing duty if I'm expected to pick up the tab.

That said, your comment is quite wrong. It would be equally in the interests of the economy where they to pay the extra profit to shareholders in the form of dividends.

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I see Cap'n Darling is at it again, telling banks to behave and restrict bonuses. Crash is promising to pass some more laws to sort them out.

Don't these guys get it? They will always be a step or two too slow for these boys. New laws can be circumvented, or challeneged in the Courts if they contravene human rights (which I suspect restricting a persons right to agree their own rewards might do).

The laws already exist to prevent the problem. Simply make sure that the Boards of the banks are told that since extravagent bonuses rewarding short term results are an agreed part of irresponsible activity, that sanctioning them will be regarded as sufficiently reckless as to cause the Directors to be held personally liable for the consequences. Trading while insolvent can render the Directors to personal liability.

If the issue is accountability or irresponsibility, fix that. Trying to pass laws to make irresponsible but highly intelligent people behave against their self interest is futile. You have to fix the root cause of the problem, get them to want their people to behave responsibility.

I agree

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I have no issue with the bonuses, only with Directors discharging their existing duty if I'm expected to pick up the tab.

That said, your comment is quite wrong. It would be equally in the interests of the economy where they to pay the extra profit to shareholders in the form of dividends.

This might not be true from the perspective of total tax revenue though.

- Dividends and capital gains might not be taxed at the same rate as employment income.

- There may be more income paid to employees of all banks based in the UK than there would be dividend and capital gains tax paid UK domiciled owners of UK banks.

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I have no issue with the bonuses, only with Directors discharging their existing duty if I'm expected to pick up the tab.

That said, your comment is quite wrong. It would be equally in the interests of the economy where they to pay the extra profit to shareholders in the form of dividends.

On the assumption that the bonuses are paid through PAYE, it is much the most efficient way of collecting the tax.

As distasteful as it is, every £1.00 not paid in bonuses the taxpayer will be borrowing about 65p.

Dividends attract no employers/employees NI and together that is about 25%. Dividends at the higher rate are also only taxed at 25% not 40% soon to be 50%.

And the taxman gets the money as it is paid, not a year later via a tax return.

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The free market way to fix bank's behaviour would be to let them fail (and maybe then fully nationalise them to protect the public - which I suppose is not free market but hey-ho).

The politicians go on about how the banks should have learned from their mistakes - short term bonuses whatever. It seems to me the only thing the banks have been taught is that they will not be allowed to fail, hence they can behave as recklessly as they like.

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The free market way to fix bank's behaviour would be to let them fail (and maybe then fully nationalise them to protect the public - which I suppose is not free market but hey-ho).

The politicians go on about how the banks should have learned from their mistakes - short term bonuses whatever. It seems to me the only thing the banks have been taught is that they will not be allowed to fail, hence they can behave as recklessly as they like.

Mervyn King was lambasted for bringing up the issue of moral hazard when he dragged his heels on the rescue of Northern Rock. He was right then and he has been shown to be right now.

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On the assumption that the bonuses are paid through PAYE, it is much the most efficient way of collecting the tax.

As distasteful as it is, every £1.00 not paid in bonuses the taxpayer will be borrowing about 65p.

Dividends attract no employers/employees NI and together that is about 25%. Dividends at the higher rate are also only taxed at 25% not 40% soon to be 50%.

And the taxman gets the money as it is paid, not a year later via a tax return.

big assumption.

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On the assumption that the bonuses are paid through PAYE, it is much the most efficient way of collecting the tax.

As distasteful as it is, every £1.00 not paid in bonuses the taxpayer will be borrowing about 65p.

Dividends attract no employers/employees NI and together that is about 25%. Dividends at the higher rate are also only taxed at 25% not 40% soon to be 50%.

And the taxman gets the money as it is paid, not a year later via a tax return.

1. You're forgetting the Corp Tax offset.

2. Don't overlook other knock-on transactions. It's not like the money vanishes.

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On the assumption that the bonuses are paid through PAYE, it is much the most efficient way of collecting the tax.

As distasteful as it is, every £1.00 not paid in bonuses the taxpayer will be borrowing about 65p.

Dividends attract no employers/employees NI and together that is about 25%. Dividends at the higher rate are also only taxed at 25% not 40% soon to be 50%.

And the taxman gets the money as it is paid, not a year later via a tax return.

The top rate of dividends is also going up to reflect the 10p increase. So it will some like 35% instead of 25%.

28% Corporation Tax. Followed by 35% dividend tax.

So not nearly as much of a loss as you claim.

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The top rate of dividends is also going up to reflect the 10p increase. So it will some like 35% instead of 25%.

28% Corporation Tax. Followed by 35% dividend tax.

So not nearly as much of a loss as you claim.

Don't think the top rate changes for this tax year.

I have not forgotton about CT, but CT is much easier to hide from than PAYE. especially if you have losses from previous years to carry forward and all of the banks have more than enough losses to carry forward.

Even if CT were paid it would be paid 9 months after the end of the banks current tax year.

PAYE gets paid now.

Employees could hide the earnings tax free in pensions but then so can dividend recipients.

Either way the substantive point is that the taxman is going to get a lot less this year and future years in bonuses. How much of that permanant loss to the tax base has been written in future budgets is the real issue. From Browns appearance on Andrew Marr yesterday the answer is not much, as he describes recent events as a "one-off"

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The free market way to fix bank's behaviour would be to let them fail (and maybe then fully nationalise them to protect the public - which I suppose is not free market but hey-ho).

This would be a true free-market solution.

In the mena time, throw all the bankers in jail for fraud.

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I see Cap'n Darling is at it again, telling banks to behave and restrict bonuses. Crash is promising to pass some more laws to sort them out.

Don't these guys get it? They will always be a step or two too slow for these boys. New laws can be circumvented, or challeneged in the Courts if they contravene human rights (which I suspect restricting a persons right to agree their own rewards might do).

The laws already exist to prevent the problem. Simply make sure that the Boards of the banks are told that since extravagent bonuses rewarding short term results are an agreed part of irresponsible activity, that sanctioning them will be regarded as sufficiently reckless as to cause the Directors to be held personally liable for the consequences. Trading while insolvent can render the Directors to personal liability.

If the issue is accountability or irresponsibility, fix that. Trying to pass laws to make irresponsible but highly intelligent people behave against their self interest is futile. You have to fix the root cause of the problem, get them to want their people to behave responsibility.

Darling has absolutely no intention of doing anything to restrict bankers bonuses. Nor I suspect would the government apply the existing wrongful trading laws which are almost never applied against Directors no matter how recklessly they behave. His pronouncements on the subject are just the usual pre conference guff that Labour ministers churn out when they want to convince the activists, and maybe the wider public, that they are taking the issue seriously. In fact Darling and most of his colleagues in government are probably itching to get on the non Executive Director gravy train as soon as they get turfed out of office next year.

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