Pre-Funded Bailout Fund...Sounds Familiar

This, of course, is old news but politicians that clearly don't understand what happened in 2008 are still clamoring to tax banks to build up a fund that ostensibly will be available for bailouts in future crises. Barack Obama wants to do it globally a) because he knows that if we just did it here, it would just send business offshore and hobble our banks, and 2) because isn't a globally imposed government solution really just the best course for anything? Well, today, the EU's Michel Barnier is the latest to lend his voice to this silly idea. Regardless of what you think caused the financial crisis and what the remedies ought to be, let's look at the "future bailout fund tax" in theoretical terms, or out of context of the financial crisis.

What this bank tax represents is a pre-emptive funding by potential failed companies to protect the vulnerable from losses (let's be very clear, in the event it ain't going to be shareholders or bondholders who will get the money, it'll be "the victims" or alternatively, people who vote in great numbers). This arrangement - pre-funded by the private sector, administered by the government, to protect the "vulnerable" - is exactly what we have in the Pension Benefit Guarantee Corporation...and it is a disaster - the bailout fund needs a bailout. Just as we are now seeing the failures of regulation in the oil industry as we simultaneously seek to impose more regulation on the financial industry, we are looking to setup new bailout mechanisms just as our old bailout funds are in shambles. To steal a line, we are in the very best of hands.