Goldman Sachs is Latest Bank to Threaten London
Goldman Sachs (GS) has joined JPMorgan Chase (JPM) in threatening to hotfoot it out of London over the U.K.'s proposed "supertax" on banker bonuses. Reports The Daily Telegraph, the favorite destination for these media leaks:
[Goldman] is understood to be considering its options in the wake of the U.K.'s windfall tax on bankers' bonuses, a new 50pc top income tax rate, and increased banking regulations.The world's most powerful investment bank has asked an internal team to examine various strategies, including whole divisions being uprooted and taken offshore.
Not wanting to be left out, sandwich chain Pret A Manger, Camilla Parker-Bowles and the Thames also warned they could quit the capital. Ho hum. At least London Mayor Boris Johnson sounds as if he's taking the threats seriously:
"I am extremely anxious about rumours in the City that seem to confirm that the recent knee-jerk and ill-thought-out tax grab by the Government to punish bankers is causing some of our most important institutions to consider their options."Of course, Johnson sounded a different note only a few short months ago in excoriating bankers for, well, getting fat bonuses. In a column, he even felt peppy enough to single out Goldman for its dastardly deeds.
Hypocrisy? Not exactly, although Johnson treads a fine line. The mayor, a Tory, has previously defended the City, even butting heads with his own party leadership over the banker tax. As fence-sitting goes, it's no worse than the routine triangulation that all politicians perform as a matter of course. Johnson is playing to the peanut gallery, which wants banker blood. Meanwhile, he's also acting out his official duties in channeling the interests of wealthy corporate patrons that happen to generate a lot of revenue for London.
More notably, Johnson evidently believes you can fairly be against greedy bankers and dubious of the plan to impose a one-off 50 percent tax on big bonuses. And he's right.
If there's a reason to oppose the supertax, it's not on moral principle. The levy is aimed at discouraging banks that borrowed money from taxpayers from lavishing bonuses on the very people that helped cause the crisis that necessitated the loan. On that score, huzzah! And despite Johnson's pantomime fears and as I argued previously, there's little reason to think that global banks with major operations in London are suddenly going to decamp for Gibraltar.
The best reason to oppose the tax is that it won't work. At least not as a long-term deterrent to irresponsible compensation practices. The problem is rather more complicated than that. It involves issues of competition, corporate culture, lax regulation and many other factors (including, yes, garden-variety greed) beyond the ken of even well-intentioned tax policy. Indeed, the U.K. has already applied a much better corrective in starting to break up big banks.
So am I with Boris on this one? Nope. In keeping with British public school tradition, a good caning is in order. Barbaric, sure. But no more than your average credit default swap. Thwack.