Tuesday, January 12, 2010
Taxing the banks
I don't know the details yet, but it certainly makes sense in principle to impose a tax on companies that can expect to be bailed out if they lose big bets. Relating the tax to the costs they impose (via risky bets) also potentially makes sense. And even though the federal government may have done OK ex post on some of the TARP transactions, this doesn't change the fact that ex ante it took uncompensated risks to the banks' benefit due to the financial system externalities.