The fate from the financial reform legislation in the Senate apparently depends on regardless of whether it contains a tax boost. The conferees hastily reconvened to remove one tax objected to by Senator Brown. Okay. That was an excellent move. But let’s not forget a couple of basics: (1) The imposition of massive new regulations on the banking and financial program will raise costs that might not be referred to as taxes, but will have a comparable effect. (2) The incidence of that cost-tax probably won’t be what was intended. Banks, like other businesses, will likely pass most from the additional cost onto their buyers.
The cost-tax burden of this legislation will probably exceed the burden of previous related legislation since a primary objective of this legislation was to stick it for the banks. The legislation was deliberately punitive, developed to appeal to populist impulses. Cost was not considered an essential evil; it was an intended evil.
A massive new consumer protection bureaucracy may do some excellent. It may preclude certain economic items that might have done some harm to some individuals. Creating it harder and more expensive for banks to engage in derivatives trading might lessen some risk. But the question in both instances is, at what cost?
It’s difficult to have faith that the ratio of costs to rewards is going to be low when higher costs, along with the hoped-for rewards, were an objective from the legislation.
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