First, Britain said it would impose a 50% super-tax on their bonuses. Then, Sarkozy said he would do the same thing. Angela Merkel merely said that she found the idea ‘charming.’
As for the US, the argument goes on. Goldman has tried to head it off with various gestures. Its top man said the firm wasn’t just trying to make money; it was doing “God’s work.” No kidding. We couldn’t make this stuff up.
How Mr. Blankfein knows what God wants him to do, we can’t tell you. But it was certainly a bold public relations move to suggest it.
More recently, top executives agreed not to take cash bonuses.
The Financial Times calls it a “war on greed.” But it’s a bogus war. What is really going on is that both sides are conspiring to share money that doesn’t belong to them. The Wall Street Journal, for example, revealed more of the real dealings between AIG and Goldman. AIG had guaranteed billions worth of Goldman’s dodgy mortgage deals. If AIG went down, Goldman would lose a lot of money. So, when the feds stepped in to “save western civilization as we know it,” they were really saving Goldman. Western civilization would have been better off if they had all taken their losses and gone to wherever willing investors and lenders sent them. Instead, the feds put up the taxpayers’ money…and the bankers got their bonuses.
The show must go on. And now, the government pretends to punish the bankers, the bankers pretend to suffer.
In the first place, a 50% tax is not that extraordinary. The top marginal rate is nearly 50% in many places already – including the US. Add the local tax to the federal levy and you barely have half left.
In the second place, if the bankers don’t take big cash bonuses they’ll take their compensation in some other manner.
According to The Financial Times, rough handling by English tax collectors is causing many bankers to leave the country. But there’s more to it than just the taxes. Bankers are leaving the UK because the opportunities for them are better elsewhere.
Here we come to one of the world’s big trends – one that will have profound consequences for the entire world. There may be a depression in the US and Britain…but it hasn’t slowed the movement of money and power from the mature, developed economies – notably the aforementioned Britain and America – in the direction of the emerging markets. The emerging markets are growing faster; everybody knows that. According to a Goldman study, nearly half the world’s economic growth is now occurring in just four countries. And neither the US nor Britain is on the list. Nor is any other developed country. The four are the BRICs…Brazil, Russia, India and China. They were given a big boost by the Fed…which has kept the price of credit in the US artificially low for almost an entire generation. This increased consumer demand in the US for foreign products, indirectly transferring a substantial part of the US GDP to the emerging market exporters.
This year, nearly twice as many IPOs were completed in Hong Kong as in either New York or London. Why? Because there is more new economic activity in Asia than in the mature Anglo-Saxon markets. And because there is more money available in those emerging markets than there is in the West.
This trend could come to an end at any time. But it is unlikely. The industrial revolution favored the West. The next phase of global development seems to favor the new, emerging markets. They don’t have the legacy costs and corruptions of mature industrial societies. No giant military establishments. Minimal social security and public health care systems. Smaller welfare, education and health bureaucracies. Fewer lobbyists and entrenched special interests. Fewer retirees. In short, fewer parasites.
Emerging markets are now playing catch up. Sometime in the future, some of them may take the lead – surpassing the US and Europe in military power, national income, growth, even quality of life and income per capita. Then, they too can begin ruining themselves. But that is still far, far in the future. We’ll have many a laugh between now and then…