jmkeynes

Lehman Is Just the Thin Edge of the Wedge

The financial press spends 99% of its time debating whether taxpayers should or should not bail out financial institution X.

Despite all the electronic ink that has been spilled, the tax payers have become liable for Fannie & Freddie and we will, no doubt, become liable for more institutions in the future.

So, since it's a given that taxpayers will be required to bail out financial institutions that are too-big-to-fail, too-politically-well-c... or whatever, I say we turn the discussion of WHICH TAXPAYERS should be on the hook.

For example, the Fed is pleading with a number of financial institutions to get them to take over Lehman. And Lehman is just the thin edge of the wedge.

So, instead of pleading with financial institutions, the government should be considering new taxes that will make those responsible for the credit crisis pay up.

Personally, I favor a retroactive financial institution CEO tax. Let's have congress pass new tax legislation that will give the IRS the mission of leveling taxes on financial institution CEOs over the past ten years.

After we've taxed the CEO incomes, we can institute net wealth taxes on everyone who's become rich over the last ten years by running up the housing bubble.

We could start by retroactively taxing the capital gains on home sales over the past ten years. These homeowners have been the principal beneficiaries of the housing bubble, so let's let them pay their fair share for dealing with the financial crisis that has resulted from the housing bubble.

What we shouldn't do is assume that tax payers who have not gained in any way from the housing bubble should be made to pay for the mess created by the housing bubble.