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Fees Placed on Large Banks Would be a Deterrent for Avoiding a Rerun of the Foreclosure Crisis in Future

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By : adam smith    99 or more times read
Washington is thinking about imposing a levy on jumbo banks to recoup the $120 billion that had been spent to save the financial system in bailouts. It is a good beginning but perhaps the matter should not stop there. The Obama administration could do well to impose a tax on the gargantuan bonuses that the bankers who have been dipping into the bailout funds, are planning to pocket in the forthcoming weeks. If executed the policy would be sound and fair.

The Treasury is badly in need of funds. Imposition of a fee would also make the banking lobby give a second thought to the manner in which they conduct business. A bold step like imposition of levy would achieve more swiftly what long talks and prevarications on the regulatory rule revisions has been unable to do so far.

The imposition of a permanent fee on the largest banks of the country would bring down the risks of further risk taking on their part. One should be quite clear on the point that it is this reckless loan taking that has cost the nation far more than $120 billion. While calculating one has to take into account the deepest recession faced by the nation since the 30’s. In the melee 7 million jobs have vanished.

The profits that the banks have raked in during the past year have not come from lending to small business houses. They were able to trade thanks to the cheap financing the Federal Reserve doled out to them.

The crisis took place because the banks had become too fat to fail. They had chased profits by taking unholy risks leading ultimately to the freezing of credit. The government was compelled to bail them out for the sake of the entire financial system. Although the bailout pulled back the “fat cats” from the brink of the precipice they have swollen up further by swallowing their smaller brothers. It means that in another round of trouble they would have the power to wreak even more havoc.

Fees placed on the bigwigs in the banking industry would put a halt on their consolidation spree. It would not be profitable to bail them out and instead the focus would be on the smaller banks. If the latter failed they would not be able to drag down others with them.

The Obama government has not specified the details of the levy – its size or type. There are talks about imposing tax on the profits of these large banks basing it on the extent of the assets.
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