Italy shocks banks with 40 percent windfall tax for 2023
aljazeera.com
aljazeera.com
https://www.theguardian.com/business/live/2023/aug/09/italy-...
"We've never had it so good" ...
Next up, the energy sector.
With that said, I'm no different and I wish the same happened in my country. I am however aware that my feelings are short-sighted.
I think this is a slightly reductionist view, but the effect is the same and unpacking it here won't change anything.
In the least snarky way possible, can anyone think of an example where capitalism promotes or encourages long-term thinking?
In 1759, Arthur Guinness signed a 9,000 year lease for his brewery.
https://www.historydefined.net/how-the-guinness-brewery-sign...
> Guinness actually doesn’t pay any rent for its iconic St. James’s Gate Brewery in Dublin. That’s because the site has been owned by the Guinness family since 1876, and the current lease runs until 2031.
From 1759 to 1876 is 117 years.
FWIW, as far as I can tell, a 9,000 year lease would have conflicted with the rule against perpetuities. Certainly Cadell v Palmer (1833) set the limit as "lives in being plus twenty-one years[1]" and I gather from https://www.lawreform.ie/_fileupload/Reports/rRuleAgainstPer... that something similar have applied in Ireland at the time of Guinness, certainly by 1833.
As an interesting observation, Arthur Guinness II lived 1768-1855 and 21 years later is 1876. I'm now curious about the actual text of the lease, but I can't easily find a copy online.
[1] For the life of a person currently alive or in gestation, and for 21 years after their death. See also https://en.wikipedia.org/wiki/Royal_lives_clause with a recent notable use in the US at https://en.wikipedia.org/wiki/Central_Florida_Tourism_Oversi... .
I've confirmed it with several sources, from several different legal systems:
> The rule is not concerned with the duration of interests. A lease for 999 years does not violate the rule; nor does an estate in fee simple, which may last for ever. The rule is satisfied if an interest must 'vest' within the per- petuity period, even though the interest may last beyond it. - http://classic.austlii.edu.au/au/journals/MelbULawRw/1969/19...
> Although a lease may be given for an unlimited term or even in perpetuity, the reversion is clearly not obnoxious to the rule, since it is a vested interest. - in LEASES AND THE RULE AGAINST PERPETUITIES, https://openyls.law.yale.edu/bitstream/handle/20.500.13051/1... (there are many concepts and words I don't understand)
> It’s not related to the rule against perpetutities at all. The rule deals with interests in proprerty which are floating around in a trust, waiting to be vested in someone. They can only float around unvested like this if the terms of the trust require that the must vest in someone within the perpetutity period. - https://davidallengreen.com/2023/03/happily-ever-after-disne...
I was particularly happy about a comment in that last link: "When I was a law student I think I understood the rule against perpetuitities for about an hour – luckily that coincided with my exams."
There have been significant windfall taxes before and (in my country (UK), at least) I can't recall any disastrous long term indirect effects.
However, we're aware of the long-term effects not taxing banks enough brings about, so trying something different seems like a good idea, even if we don't know all of the effects until later.
Everyone I know is going without due to rising costs in everything, but some how banks are making record profits.
Tax the life out of them.
Banks are technically private but won't be valued as much without government protection. So, to some extent, it's not wrong for the government to tax them more than other private companies.
However, a negative consequence of this tax it reduces the bank's incentive to lend money to small and risky companies/startups. This is equivalent to increasing capital gains to 40% - why invest in risky assets if I know I will ever only receive a small percentage of my profits (if any)?
What about contagion to other sectors Oil & Gas?
Retail players (P&G, Unilever, Nestle, Etc.)?
More discussion over here: https://news.ycombinator.com/item?id=37049786
Nobody forces you to accept bad deals. By the way, do you have time to talk about this amazing money-doubling service I've created?
Lol, have you ever been to Italy...? Banks will not lend to you unless you're quite rich already. Catholicism says debit bad, and the country is pretty conservative as a whole.
Italian banks making money implies two things: them screwing consumers (famously called literally "available cattle", il parco buoi, in local finance circles) and rich people getting richer.
the way "islamic banking" was envisioned, they created a problem then suggested an alternative which is the same thing, just with arabic names.
there is something called "shariah compliant banking" but "islamic banking" on its own is a misnomer and doesn't exist.
don't believe me, here is a video of Dr. Mohammad Shahrour on the subject.
https://www.youtube.com/watch?v=dEk_8-jaSUs
its really short but brings home the idea.
your next question might be "so...whats islamic banking then". the answer is simple. when you can't fight in a free market so what you do is change the market so that customers automatically opt for your "superior" product as opposed to the competition.
You can read up on this by finding "why need for islamic banking" arose. the problem didn't exist till then so someone just literally invented it and then sold a solution
https://en.wikipedia.org/wiki/Riba
> While Muslims agree that riba is prohibited, not all agree on what precisely it is.[2][3] It is often used as an Islamic term for interest charged on loans,[Note 1] and the belief this is based on — that there is a consensus among Muslims that all loan/bank interest is riba — forms the basis of a $2 trillion Islamic banking industry
This is enough to negate what you said here:
>it does not. there is absolutely no basis for "islam forbits interest".
Could you explain what you mean here?
>the problem didn't exist till then so someone just literally invented it and then sold a solution
What problem didn't exist and what was invented and what was the solution?
Italy is a highly conservative country.
Not sure if that explains their financial problems, probably not.
on edit: An Italian coworker just pointed out he wouldn't say Italy was very conservative, which I guess in a lot of ways is true - especially when compared to U.S and some other countries.
Maybe actually the 'Conservative' - 'Liberal' labeling doesn't work well in this case, for example Italians believe in free health care and in my experience do a better job at it than Denmark. In the U.S free health care is "anti-conservative"
> Not sure if that explains their financial problems, probably not.
I would say Switzerland is pretty conservative as well (if not more in some aspects but less in others)
Obviously I'm painting with a very broad brush. There are virtuous businesses, like anywhere; and it's still a G8 country with a massive economy. But it's not a country that, as a whole, values economic risk-taking. Somewhat ironically, I think we were more daring when the overall system was less free-market-oriented (the Italian State used to own a lot of large "strategic" businesses directly, up until the '90s), maybe because rich folks had to show they were better than the State at running things.
On social issues, it's a different (and very complex) story.
That’s true. A lot (most?) of Europe seems to be like that, though
you just need to have roughly 30% of the house cost cash and a stable job that pays enough, but with a 1.3k net salary (median income) and 30k you can totally buy a 110k home
talking about the north, if you live in the south just move already xd
From Wikipedia: "The present era of banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe."
. . .
"The word bank was taken into Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths."
Catholicism isn't about "debit bad", it is about "interest bad" and this only applies to catholics owning banks. Historically this has left jews in Italy running banks and abusing its citizens (that cattle, or more accurately "goy" in native language of those bank owners) just fine since centuries.
Please remember that the Vatican created its own bank (financial group) to escape the jewish monopoly on banks. Within the catholic circles you'd hear them now promoting Santander as catholic-friendly option in Europe for normal citizens to escape that monopoly. Money lending isn't an issue within European catholic groups as long as it avoids going overboard with interests.
> money to start businesses
What proportion of bank lending is that? Close to insignificant.. Pretty much all small businesses/low collateral loans are backed by governments which are already pure profit for the banks
However, there is also an argument that across the system, bank net interest margins were actually abnormally low for much of the period of zero/sub-zero interest rate policy. Essentially there are two reasons for this:
- There was a pretty effective zero (or close to zero) bound on the interest rates they could pay on deposits. Even before rates were negative this would have compressed net interest margins as banks typically paid below the policy rate on much of their deposit base historically.
- Large amounts of central bank liquidity added to the system (through all the various programmes - LTROs etc) allowed weaker banks to fund themselves more cheaply, leading in turn to lower interest rates charged on lending than a market without this additional liquidity would have led to
In a way, you can see this in the fact that the stock market consistently priced banks at a meaningful discount to book value for a long period of time.
The effects of this net interest margin compression were also not spread evenly across the sector. Weaker banks arguably suffered from these effects much less than stronger banks and perhaps even saw a net benefit.
This kind of return on ultra flexible accounts is basically unheard of in most of Europe in recent memory as far as I know (born & lived in Europe as recently as 2019). What you describe are called Certificate of Deposit (CDs) in the U.S. and you can get 5.50% for those in August 2023 [1].
https://www.moneysavingexpert.com/savings/savings-accounts-b...
Considering how much of an upfront investment (not just in pure cash, but also in agreements, infrastructure and operations) becoming anything more than a basic savings bank is, the risk is very great.
Likely existing players can go pretty far before before the risk/reward of creating a new bank checks out.
The real question is why those existing banks aren't trying to undercut each other. Maybe there's some pressure and risks that make them behave this way in the current economy, or maybe it's good old price fixing.
Or maybe another way to look at it this: the invisible hand of force is yet another invisible hand operating in the markets.
It's not really fair for the state to impose huge regulatory hurdles that make competition impossible and then for leftists to go 'hurr but what about the invisible hand meme now???', when that obviously relies on FREE MARKETS, which we increasingly do not have.
The vast majority of deposits come from companies and ultra wealthy individuals. Your average human customer is a borrower.
You also have to remember the regime we were and are in: 2 years ago, banks borrowed or paid depositors .5% and charged borrowers 1%. A shitty .5% gross margin.
Now, if they borrow at 4% and charge 6% that's 4x the return (2% Vs .5%). But it's also (a) move average historically and (b) smaller as a spread.
Do the banks get a "windfall subsidy" when they have bad years?
Is that like "windfall taxes" where the banks buy shares in the government and get repaid later?
If it helps society to be more productive in the long-term, yeah (in an indirect way)?
Where were you in September 2008?
Is that sarcasm? Cause yeah, they generally do…
"Congress approves $700 billion Wall Street bailout" - https://www.nytimes.com/2008/10/03/business/worldbusiness/03...
July 20, 2008 -> "...it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation..." - Henry Paulson
November 20, 2008 -> "...We are working through a severe financial crisis caused by many factors, including government inaction and mistaken actions, outdated U.S. and global financial regulatory systems, and by the excessive risk-taking of financial institutions..." - Henry Paulson
Should the Silicon Valley banks that have recently failed also pay a windfall tax? And if not, why tax success? Because it's clearly not a 'windfall' if it only goes to people that made good predictions and not ones that made bad predictions.
No, never happened as far as I can remember.