Ok, this blog was not intended to be a political rant. There is just so much stupidity going on in Washington that I just can’t refrain from commenting. I had hoped to use this space for some good financial common sense, to address questions my clients ask, to address tax issues and the overall economy. But Washington is like that tooth ache that will just not go away. It’s a pain that keeps you up at night and invades every aspect of your life. What ever happened to the land of the free?
The proposed tax on bonuses will assure that banks and other institutions that need help from the government do not take the funding and that the talent that is desperately needed at these institutions will hit the door at the first opportunity
Once again, this is bad law. This is a terrible precedent to set for two reasons: First Congress rushed to approve law that granted the bonuses, and then acted outraged when the bonuses were paid. If we do not honor these bonuses we will turn contract law on its head. It is also unconstitutional to not honor the contracts. Second, if congress will not stand behind contracts that it endorses with the legislation it passes what are our treasury securities worth? NOTHING!!! Who is going to buy them? “China, we will pay you 12% interest on these bills, but we are going to pass a law after we get your money to withhold 90% of the interest as a tax.” Who will trust our government? “The US government will enter into a deal with you but we are going to figure out how to take it back after you have done what you agreed to do?” Come on, the ire should be directed at congress not the poor saps at AIG that entered into legally binding contracts. That may have been stupid but it was not criminal (I must admit that at this time of year I have not researched this point beyond what I have seen in the media). What congress is doing should be criminal.
Congress should have broken this company up and not put a penny into it from the beginning. Keep the profitable units, provide guarantees for the junk and let them go. I do not believe in the too big to fail bunk. Failure does not mean it is going to go away; just that it will have a different structure.
What troubles me most is that I am not sure if congress is this incompetent or if what they are doing is intentional so they can act outraged and pass more bad, (read socialist) tax law. I fear it is the former.
