Paul Wilmott on Britain's Windfall Banker Tax

They actually did it in Great Britain…

From the New York Times:

In Britain the first shots have just been fired by Alistair Darling, the chancellor of the Exchequer, our very own, very unlikely Wyatt Earp. On Wednesday he introduced a windfall tax of 50 percent to be paid by banks on discretionary bonuses above $40,000. (France is considering a similar tax.) So if a banker receives a million-dollar bonus, his bank will have to hand over $480,000. And he still pays income tax on the full million.

The idea is nice and simple. It is intended to encourage banks to retain cash, perhaps as a buffer against hard times. This makes a pleasant change from the depressing use of taxpayers’ money for the same purpose, which seems to be the current policy.

The White House is watching this development very closely and our banks know it.  This is the genesis behind everyone’s sudden insistence that they are healthy enough to pay back TARP.  It is also why Goldman Sachs just laid out its all-stock bonus policy for this year.

The priority for Wall Street firms right now is disentangling from the government and biding their time til the crisis abates so that the water coolers filled with champagne can once again be wheeled back in to the office.

Source:

Gone With The Windfall by Paul Wilmott (NYT)