Senor Chevalier

Yikes - couldn't fathom the very last one either. Took a guess and fluked it, so nobody need ever know...

Yeah, but was there an undertone of: "people, let's not forget it's not just banker to55ers, but people that actually matter got hurt too..." I guess you'd have had to be there.

Whilst the time period to full implementation appears long, once a new set of rules is announced, banks often do start to align themselves with the new rules early. For example on the Basel capital adequacy rules, the new rules become the yard stick by which rating agencies, commentators and investors begin to measure banks. Being one of the few banks that does not comply, means that there is a cost / shock coming which does not play well with the stock market. Once the stock market is marking down the share price, then there is probably more to be gained by getting on with it than to delay and go down to the wire. Clearly not a perfect mechanism and may or may not apply to this particular set of changes, but there is some reason to expect that any new rules will be largely implemented ahead of any official timetable.

Well I thought Dinner was great fun. More of an experience to do once than somewhere to go back to. Surprised by the flat champagne - that's hard to get wrong surely...? Never heard of Pollen St Social... will look into it. My fave restaurant at the moment is actually Zucca on Bermondsey Street. A lot, less swank than the others on here, but simple delicious food and reasonable wine list.

MM. You've only just discovered Chez Bruce. Where have you been? Next you'll be telling me you haven't been to Dinner yet.

You're right. Some banks sailed through the crisis and had their models vindicated. Those that worked in them may have been upset to miss out on a number of opportunities in the good times that others were availing themselves of and received a more pedestrian income as a consequence, but the cautious approach has been vindicated now. Shame they are lumped in with other bankers, generally vilified, subjected to bank payroll taxes etc along with other banks. Less fun in the good times and punished all the same in the bad times... Oh well. Anyway, I wouldn't hold your breath waiting for their leadership on this DJ... But if there is a genuine "stick" of loss of business or ultimately failure without bail out then this behaviour would become the key to success / profitability...

Fine, but the regulation should set a minimum threshold which may not necessarily be sufficient to convince me as a borrower to lodge my hard earned with a particular bank, especially if there is no safety net for the banks.

Yep supposed to. Problem is how you set the level of capital requirements so as to be achievable without putting too many banks out of commission and without causing debt costs to soar hurting Joe Public. In any case, whatever level of safety is built in to the system, the correlation between risks in the system (e.g. asset values) means that capital in the system can easily be eroded when things turn (as would be the case now if bank loan assets were all revalued at a market rate). Regulation of this sort should only have an effect on banks too irresponsible to operate a prudent business model off their own volition and transfers responsibility from banks to regulators. If banks have to compete for deposits and are allowed to fail if they get it wrong, then operating a prudent business model becomes a necessity rather than a constraint to be structured around by financial innovators who will always find a way to arbitrage regulatory models.

The simple examples work well when everyone who borrows puts the money back on deposit in the same banks. In reality people borrow because they need the money for something. But I guess the argument is that inevitably the money ends up in one bank or another sooner or later and the interbank lending system (when it works) is supposed to glue it all together and keep the merry go round turning. In any case, in all these examples, even though money is borrowed deposited and re-lent several times, the total amount of borrowing is equal to the total number of lending is it not? So we are back to a system that would work as long as banks maintained their equity capital ratios and were judicious in who they lend to. The other issue is the systematic accumulation of risk as assets are lent and relent a number of times especially where asset values are highly correlated. But again if banks equity capital is high enough and if banks were able to fail and had to compete for depositor cash by dint of their creditworthiness (or pay materially more for FSCS membership) then surely things ought to get better over time...

Thanks Loz - had a feeling I might have been missing something. Here's the bit I now still don't get. How does this power to "create" paper money fall to individual banks? I mean say I want to take out a mortgage of 100K. Barclay's can't just print 100k and hand it to my vendor can they? I guess they borrow that cash from another Bank using my mortgage as collateral until eventually the chain in effect leads to borrowing from the bank that takes the deposit that my vendor has made from the sale proceeds. I think I'd better pipe down and leave it to the grown ups until I've digested a few more of the cartoon guides...

I think you've lost me. Banks can only loan money that they have to lend, whether it is their own funds or it is money that has been lent to them by depositors etc. So how can they lend 10x what has been lent to them? Where would the money come from? The loans they can make are funded by deposits and the banks' own equity. Because they on-lend the majority of deposits, they are also exposed if depositors suddenly ask for their money back and the loans they have made cannot be called. Banks can also borrow money by issuing debt and borrowing from each other rather than taking retail deposits, but it is broadly the same. The assessment of bank risk in my mind is a function of: 1) how much of their own money is in their lending pot, versus deposits etc. 2) the quality of the borrowers on the loans they have made 3) the mismatch in term between deposits and loans, e.g. all deposits are instant access whereas loans are long term I don't see any lending 10x what they have been lent magic cash creationism in the business model. The recent problems occurred when some of them pushed (1) too far, i.e. had almost no equity buffer and funded themselves almost entirely with debt, and when (2) they ignored creditworthiness of borrowers so that some loans made had little prospect of being repaid.

Banks take the money that is deposited with them (which they do not own) and lend it to others at a premium allowing interest to paid on deposits and their operating costs to be covered. If they were only able to lend what they had (their equity) then debt would be incredibly expensive. And then what would banks do with deposits - lock them in a vault and charge depositors for safe custody? Or should banks not take deposits? I don't think that's the answer. Banks should be allowed to operate their business model as they see fit. Their leverage ratio should be published so consumers can determine whether they are a safe pair of hands. In accepting that Banks do take some risk then they should be capable of failure without systematic upset. As for step to local banking. I have been trying to get a mortgage for a slightly unusual property (self-build) and have given up on all the big banks as they were hopeless despite speaking to the call centre, relationship manager, underwriter, mortgage specialist etc ad tedium. I have now ended up dealing with a small Yorkshire-based building society and when I call them the person that picks up the phone (or their colleague) are the people dealing with the application and able to make a sensible judgement on the merits of the application. It's amazing - I say hi it's me again, and we get straight down to it without some ridiculous pets' maiden name identity check. A very refreshing experience and a reminder that in all the progress in banking services we've actually taken a retrograde step. Banks will continue to focus on profit as you say, but consumers can as ever vote with their feet... Oh and the 50% tax rate should be dropped as discussed above... in fact the whole tax system should be overhauled and simplified to balance some key principles: Maximising tax revenue Seeking an equitable distribution of tax burden (balance between taxing income, wealth and consumption) Ensuring that tax rates are consistent between different forms of income or capital growth Ensuring taxation is progressive without discontinuities Minimising complexity and overhead of operation Ensuring that work always pays Having regard to competitive position vis-a-vis other countries Frankly they should be able to get it all down to a few pages of A4.

So DJ, when you get back from your "stuff" you can perhaps help me reconcile your various comments in this thread: Access to loans/debt is restricted to the richer in society People are enslaved by their mortgages... (aren't these cheaper than ever?) Banks should not be allowed to lend without greater capitalisation I'm confused. Are you saying that banks should make fewer loans, whilst lending more, without enslaving people through debt? I do think we need to return to an old fashioned model of banking through a larger number of smaller banks / building societies within which judgement can be made by individuals as to which potential borrowers represent a good risk. They can then operate their business as they see fit, operating for profit or their members, lending to people with a sound business plan or with sufficient collateral. Rather than the automated, tick box, call centre, shrink-wrapped model of banking in the main operates today which is designed to deploy products in large volumes, but lacks judgement and falls over when someone can't tick all the boxes and misses systematic risks when all the boxes are ticked.

It needs to go. I'm not going to bang on about taxing wealth here, but it is a tax that largely misses the richest guys who structure around it and as Arthur Laffer would point out the amount it will raise is debatable. I assume that if there is a change they will also take the opportunity to fix the tapering out of the personal allowance which was an undisputedly moronic change that was introduced at the same time to give a marginal tax rate of around 80% to those in the zone. Again hitting one group of people (who do OK, but are not stinking rich) disproportionately compared to people with far higher incomes. You'd think that when setting tax rules some input from people with a basic regard for maths would be sought to cull the nonsensical "out of the box" thinking that emerges from political brainstorming exercises. Especially after the 10p tax fiasco. There's really no excuse.

Costa del Sol is full of chavs. I had Andalucia in mind.

That's not what was being argued. Christ there's no finesse with some of you lot is there. It is black or white. There's no room for poise, for adjustment, for rebalancing. Or maybe you worry that making a moderate argument will be seen as indecisive and wishy-washy. So what are your thoughts on inheritance tax. Given you feel so strongly I assume you would suggest that was dropped altogether and the shortfall made up through an increase in income tax. Show me your petition - where do I sign? Is that what you're saying LittleMissNoodleDoodle?

Yeah, but let's take such a person. A teacher perhaps, married to a civil servant, approaching retirement. They live in an ordinary terraced house in London. Which for reasons they have nothing to do with, happens to be worth ?800k. Such a tax would erode the value of their house. They'd be forced to move. Unfair. To a point I agree. Certainly it would be profoundly unpopular. And given our politicians have to win popularity contests rather than get measured objectively on whether they make the right decisions for the right reasons to get the right outcomes this will never happen. But to be honest I'm wondering what on earth these home owners are doing are doing. Why haven't they sold their house to some young idiot prepared to pay for it. And with the proceeds bought a villa in Spain, a farmhouse in Wales and a yacht... Inertia is a terrible thing - sometimes people need a kick. More seriously, I agree it is a bit mean to tax such people. But I also think it is a bit mean that people starting out now have little prospect of home ownership. So the question is what's more mean?

....and I think asset prices are over inflated beyond the reach of most folk.

Sure - course it should. People should live within their means and that goes for governments too. It has become incredibly bloated and horribly inefficient. I also concur fully with simple flat tax on income. However, I think we are currently in a hole.

Groan - it is neither circular, paradoxical nor necessarily unfair. Tax needs to be raised whether on income or wealth, so this is all about distribution allocation. Just because I suggest lower income tax which would allow people to accumulate assets which could at some point (scale) be subject to a form of taxation is not circular. It would not lead to the same outcome so can't be circular and if it did then it couldn't be unfair. So who's the one with the paradox? What about the idea I suggested about having an allowance that exempts assets worth 3 x lifetime tax paid from a wealth tax. So it is only unearned assets that are hit - more of a windfall tax. That deals with the fairness angle surely and the double taxation myopia that is afflicting a few people on this thread.

Yes my left wing socialist agenda pushing to reduce tax on income strikes again. Frankly I don't know my left from my right, I am just calling it like I see it. Right now I am told there are 30m tax payers in the country of which 27m pay less than ?6k in tax each year, which means that from a tax revenue perspective there are: 3m people contributing; 27m people who are roughly around breakeven given their use of public services schools, hospitals etc; and the remainder of the population who are net recipients. So there are 3m people burdened with the obligation to fund the running the country through a drain on their income. And the go to strategy if the tax revenue is found lacking is to whack income tax up further. And if the balance of population were to shift shifts, towards more unemployed / children / retired people etc and fewer income generators then your suggested response is to whack income tax up further still. According to MM at no point does it become unfair and preferable to seek a different means of taxation. This is clearly absurd. The correct answer is clearly that at some point, raising income tax further is a bad idea - we can debate whether that point has been reached yet but there is a point. Even if for you that point is at 100% income tax, then what do we do beyond that? My suggestion of an asset tax may not be the answer and may have unintended consequences, and if the costs outweigh the benefits as you suggest then I'll drop it like a stone. I want to find something that works in practice rather than pursue something for philosophical reasons as you imply. However the suggestion is borne out of trying to find an alternative to absurdly high income tax and high asset prices conspiring to make it hard for people who are not lucky enough to be given a head start in life rather then through any sadistic tendencies. I'm not hearing anyone suggest any other way of unburdening those that are working and funding the country. Surely reducing income tax and making it easier to accumulate would incentivise hard work and enterprise. How do we capture that benefit? Edit: Oh and Loz, you say that bringing down property prices would have no benefit, but surely it would benefit lots of people wouldn't it? All those that want to buy a property or a bigger property with disbenefits to the downsizers and those using equity release to fund their spending habits.

Your mother sounds lovely and I certainly wouldn't want a wealth tax to go anywhere near her house. I was suggesting a tax that applied on incremental wealth above a threshold, and so it would not be possible for assets to be taxed out of existance and would in fact take an infinite time line to erode them to the value of the threshold in ever decreasing bites... ...but in any case, I am 100% with you on a simple tax system with the same rates applied across the board, rather than the myriad complexity we have today with the countless work arounds and loopholes that are misued and abused and with people paying tax, receiving rebates, being taxed on the rebates etc, etc. I also agree of course with the practical realities and limitations to implementing any new system, and it might be that the conclusion is that it all sits in the too difficult box, but I think it is worth initially considering ideas and principals without letting implementation cloud the argument or else nothing would ever change. And whilst I know that the practicalities will scupper my arguments here, I would think that in terms of priciples most rational people would vote (1) in answer to my (1) or (2) question above... Go on, vote (1) or vote (2). A single character response is fine.

Trying to design a fair system starting with a blank piece of paper is one thing, but implementing a change to a new system is unfair on those that have overpaid through the old system as you point out. As one of them, I concur entirely. Ideally it would be good to find consensus on the principles before moving to calibration and then implementation and having to deal with transitional grandfathering isses, but as a starter for 10. Take people with net assets worth more than ?500k. Subtract 3 x lifetime tax paid. Take the resulting figure subtract ?125k and then and levy a tax of 5% per annum on the remainder if it is positive. Reduce income tax. The 5% could be phased in over a period of years. Capital Asset tax and income tax should be consitent with eachother to avoid differential treatment of one over the other. Any asset tax overpaid as assets then fall could be offset aginst future income tax. I think this could raise considerable tax and even if it didn't would serve to bring down asset values including property so that it was more attainable to all which is a justification in itself. In fact if property prices come down then nobody gets taxed by this mechanism (certainly not the honest pensioners, just the super-rich) and we are presumably all happy...?

Hi MM. I agree that I've tried to move the argument over. The mansion tax is clearly a blunt instrument. I'm trying to broaden the discussion out to whether the balance between taxing income and taxing wealth is correct and whether there is ever a point where there would be merit in taxing wealth in preference to income, though I suspect people will be difficult to draw on this point. I think this "agenda" is closely related to the "mansion tax" or the thrust behind it. But we can deal with it in a separate thread if that sits better with you. I actually don't particularly want to hit people that have worked hard and paid their taxes. But there are plenty that have assets worth far beyond what they have earned, be it through inheritence, capital gains, more favourable tax regimes or tax avoidance. In another recent thread I made the point that an exemption from a wealth tax could be set by reference to lifetime tax paid to address this very point. I am not necessarily suggesting to set the tax at a level that would impact a ?750k house. I haven't begun to think about implementation / calibration. But I do feel the balance is wrong and that there are plenty of people with far more in assets that have paid far less in tax and their comes a point at a certain level where such wealth should be taxed. Any such tax should only apply to the incremental wealth above a certain threshold, in any case, so my folks would not have much to pay and if they had to contribute a little so that this generation's teachers and civil servants got a fair deal then so be it. Tbh depressing house prices is probably of more use than the tax per se and would not make victims of pensioners. As for whether setting a tax at such a level would benefit Zeban or LadyD - I have no idea, possibly / probably. For my part, I would be a victim of such a system as a payer of the tax. Not great for me at all given I started with nothing and have earned all that I own and paid considerable tax along the way. Perhaps setting inheritance tax at 100% is the better way to go...? Edited typos in bold

H: In taxing the wealthy, the only difference between higher income tax and a property tax is that the property tax also hits people who live in high value houses who don't have an income. Predominantly this is pensioners. SC: Predominantly, perhaps but not exclusively and if the tax were escalating it would apply to anyone who had proportionately more wealth than the tax they paid and there are various measures that could be applied to mitigate the impact on pensioners. The idea does not have to be a non-starter because of one possible side effect. Your argument about degrees of and measurable contributions is all well and good but is a calibration point. Let's get the principal straight first. Say we needed to raise more tax than the current amount. Do we apply ever increasing income tax? Or does there come a point where taxing wealth as an alternative stacks up? Let's look at a more extreme case. Imagine we need to set income tax at 80% or even 100% to generate the required tax haul. (yes, yes ridiculous). But if this were the case then there would be no incentives to work - the rich stay rich, the poor stay poor. Does there ever come a point where in your view it might be appropriate to tax wealth over income? Or in your view is it sacrosanct / and income is the only way to go. If we can agree that there comes a point (somewhere before income tax of 100%) where it would be better to tax wealth than income then the question is where is that point and have we reached it yet? So is your view: 1) Yes I concede at some point a shift to taxing wealth is appropriate but we are not there yet; or 2) No, at no point would it be appropriate to tax wealth. These are mutually exclusive, exhaustive options, so please answer 1 or 2 so we know where our dividing lines are for clarity's sake. There is something we need to consider and I'm not sure what the right words for it are, but it is probably something along the lines of "life trajectories" or some other suitable jargon. We need to consider some archetypal people today and contrast with their predecessors. For example, my parents, retired, currently in their 60s, mother a primary school teacher of state employ, father a civil servant earning less than mother. They have a house probably worth ?750k, bought in 1981 (third home) with a 15% deposit and mortgage of c. 3.5x income. Interest being deductible against tax at the time. Now retired drawing state pension. Let's look at the same archetypal couple today. Perhaps first property at 35 with little hope of capital appreciation, more likely the opposite, can't get enough mortgage, interest non-deductible, state pension in the future? Don't bet on it... Realistically these people have no chance whatsoever. What do you suggest? Yes house building and job creation outside London and I agree with all that but I don't think it is realistically enough. The balance is skewed - that's all I am saying. If we could find a way to all agree that our property is worth half what we currently think then things would be easier and your pensioners could stay put, but I'm not sure how we get there. PS: I am ignoring the words "pensioner", "punishment" and "envy" in your responses from now on. I think you have some reasonable points and together we might be able to arrive at a sensible position but the dramatic rhetoric is frankly a distraction from getting to the bottom of this.