How much are European taxpayers paying in reduced taxable income?

There is a photo that I cannot let go; that of four European leaders, sitting in a row boat, in a small lake, close to shore, surely surrounded by dozens of security officers and photographers… and they all carry life vests. The only objective reason I can think of for taking that security precaution, is that they might suspect that one of them harbors suicidal instincts and wants to take one of the others down with him… and, if so, perhaps life vests should be prohibited, so as to allow the good-riddance to operate.

And I react the same way when over and over again I hear about how important it is that tax payers should not have to pay for bank failures, without any consideration to whether those bank failures have helped to produce enormous taxable incomes or not.

A damn nannie mentality has taken over bank regulations and is destroying Europe (and others)… it does not even reflect the risk aversion of an average nannie but the risk aversion you get when adding up the risk aversion of two nannies. Absolutely insane!

As a result banks in Europe are now allowed to make much higher risk-adjusted returns on equity for exposures considered as safe from a credit perspective than on exposures considered as risky. And that completely ignores the fact that it is primarily the access to bank credit of the risky borrowers, the small businesses and the entrepreneurs, which will decide the sturdiness of tomorrow’s economy.

If I was a finance minister of any European country I would in fact want to allow the banks to leverage their equity the most, precisely when lending to small business and entrepreneurs… and not like now when they are allowed to do that lending to infallible sovereigns, to members of the AAAristocracy and to the housing sector.

How much less taxable income, how much less availability of jobs results from the regulatory risk aversion in banking is anyone’s guess… but I assure a lot more than any taxes that would temporarily be saved by forbidding banks to take those risks that bankers are anyhow also adverse to take.

The poor, “the risky” and the future are subsidizing the bank borrowings of “the absolutely safe”. Now how about that?

Governments guarantees to help bank creditors if banks fail, which in all essence is a support subsidy to the banks.

And, if banks fail, and government needs to pay up, it is argued that it is the taxpayers who must pay… and we usually leave it at that. 

But, when taxpayers pay, it is actually all who pay, and that means, in relative terms, especially the poor; because the wealthy have more deposits in the banks which are saved; and because the poor would probably be the one most to benefit with the taxes that could be collected, if the support subsidy was not needed to be paid.

But regulators also allow banks to hold less equity when lending to those from a credit point of view perceived as absolutely safe, than when lending to those perceived as risky; and that signifies that the support subsidy is effectively bigger for those perceived as absolutely safe than for those perceived as risky.

Finally, what has already made it, namely the history, has a lot more possibilities of being perceived as absolutely safe, than what needs an opportunity to be, namely the future.

All that translates into that the poor, those perceived as "risky" and the future, are subsidizing the bank borrowings of the “absolutely safe”… now how about that? And, if that is not a cruel way of fostering inequality, what is?