Better to be Small

President Barack Obama’s proposal to tax bonuses given by banks who received government bailout money may have an unintended bonus. The proposal would have huge popular support in the midst of all the anger being targeted toward Wall Street (www.nytimes.com/2010/01/15/us/15tax.html) The proposed tax would apply to bank, thrift and insurance companies with more than $50 billion in assets. It would not apply to certain holdings, like customers’ insured savings, but to assets in risk-taking operations. The silver lining in all this may be found as the banks attempt to circumvent the tax, which of course, they certainly will. One solution to avoiding this tax would be to keep assets under the threshold of $50 billion. Companies could splinter off “subsidiaries” in a reversal of the way they consolidated during the late stages of the 20^th century. The result would be fewer companies “too big to fail”.

By Sam DelPresto