Like most negative news these days the stock market simply turns a blind eye and spikes higher. Today is no different as a potentially damaging proposal from the IMF is being floated. From Dow Jones Newswire:
“Shares of banks across Europe give a muted reaction to an International Monetary Fund proposal to double-tax financial institutions to prevent and pay for future crises, to be presented to the G20 in a meeting Friday.”
But what would this solve? Creating a “bailout fund” of any kind does nothing but incentivize firms to be lackadaisical with regards to risk management. This is no different than the spoiled teenager with a trust fund and a credit card. There are no consequences to recklessness….This sets the same kind of precedent without actually tackling the underlying problem of too much risk.
What has this world come to where poor behavior is rewarded with bailouts, stimulus and government assistance? These firms have demonstrated time and time again that they are poor risk managers. Therefore, I believe the only way to remove the systemic risk is to regulate how deposit taking institutions take risk. Like children who have proven they cannot play nice with others, it’s time for restrictions and regulations to play a bigger role in the lives of the banks.
A tax on banks does nothing to solve the actual problems.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.