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The Contender
Con (against)
12 Points

A windfall tax should be levied upon publicly-financed investment banks

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Voting Style: Open Point System: 7 Point
Started: 10/17/2009 Category: Politics
Updated: 7 years ago Status: Voting Period
Viewed: 1,350 times Debate No: 9720
Debate Rounds (2)
Comments (1)
Votes (3)




Everybody agrees that it is good news that a number of the investment banks that were bailed out by the taxpayer have now recovered from their positions of imminent bankruptcy and have recently reported massive profits. (1)

The bad news is that they haven't learned from their mistakes. When these banks were on their knees begging the governments of UK and America to rescue them from the financial mire they had created for themselves through their collective greed and incompetence, they promised to mend their ways and no longer chase quick profits in order to pay themselves monstrously vulgar and obscenely lavish annual bonuses.

So, the governments of these countries, perhaps naively, accepted that the investment banker's word was their bond and spent trillions of taxpayers' hard-earned dollars on re-financing the failed banks. Furthermore, they agreed to defer the introduction of any new regulations designed to prevent the future pursuits of misguided short-term investment schemes and excessive remuneration packages. (2)

But, of course, while thousands of formerly profitable businesses have gone belly up and unemployment continues to soar and hundreds of thousands of decent, honest families' houses have been repossessed, the duplicitous spivs in the City and on Wall Street are once again gorging on fois gras and caviar canap�s and quaffing magnums of vintage champagne in London and New York's swankiest hotels and restaurants.

What they are, in effect, doing is giving the finger the taxpayer and saying:

"We've had your cash and we are now spending the proceeds of your investment on Ferraris and helicopters and mega-yachts while you, on the other hand, are living in relative poverty as the result of our profligacy and greed. What's that? You don't like it? Tough - there is nothing you can do about it because even if we do our brains again and cause another recession as a result, we know that the government considers us too big to fail and they will bail us out again. In other words, no matter what hardships scum like you have to suffer as the result of our grasping ineptitude - greedy, imprudent bankers like us will still get our feckin' bit, don't you worry about that. Now get out of my way you dreary little proles."

So, isn't it time that we stood up to these bandits in bespoke business suits and forced the banks to repay their governments' generosity and trust in them by implementing a windfall tax (of 50%, applied retrospectively over 5 years) on their profits? This would enable society as a whole to benefit from the lower taxes and the higher investment in public services that this extra income would thus allow and disincentivize bankers to prioritise their own short-term personal greed over the long-term security of the banks, and by extension, therefore, the wider economy.

Thank you.




The facts related to this debate are not what Pro supposes. In general, I think the banking industry needs regulation, and I think entities too big to fail ought to be broken into smaller pieces. However, Pro has offered a narrow resolution about investment banks and that is what we shall debate.

1. There were three investment banks prior to the financial crisis of a year ago. They were Lehman Bros., J.P. Morgan, and Goldman Sachs. Lehman Bros. went bankrupt. J.P. Morgan and Goldman Sachs were converted from being investment banks to being conventional banks. Currently there are no investment banks. Therefore the resolution, having no object, is meaningless.

2. Pro offered no evidence that either Goldman or JP Morgan "were on their knees begging to be bailed out." The evidence now seems that it was the government who wanted them to take bailout money. Goldman took only $10 billion and Morgan $25 billion, which are not very large amounts for institutions of their size. The government wanted Goldman and Morgan to take the money so that they could cover the true true disasters, like AIG and Citibank, as just being part of an overall industry problem. I think AIG and Citibank should have been forced into bankruptcy, but that's irrelevant to our current debate. Pro has only made claims about "investment banks" and the resolution is only concerned with investment banks. Goldman and Morgan did not beg for money.

"The chief executives of the nine largest U.S. banks had no choice but to accept capital infusions from the Treasury Department in October, government documents have confirmed. ... Obtained and released by Judicial Watch, a nonpartisan educational foundation, the documents revealed "talking points" used by former Treasury Secretary Henry Paulson during the Oct. 13 meeting between federal officials and the executives that stressed the investments would be required "in any circumstance," whether the banks found them appealing or not."

3. Goldman and Morgan wanted to pay back their bailout money quickly, but the government would not allow them to do so. "JP Morgan feels comfortable they have convinced both the Treasury and Fed that they should be allowed to repay the money along with the first group of banks." Note *allowed to repay* That is further evidence that they were not begging for the money in the first place. However, they have since repaid the bailout with substantial interest. [Pro's (2)] Therefore they are not publicly financed. Since Goldman and Morgan are neither investment banks nor publicly financed, the resolution to place windfall taxes on publicly financed investment banks is meaningless.

4. The resolution proposes that a tax be "applied retrospectively over 5 years." (retrospective: 2 : affecting things past : retroactive Due to a dust up with a king some time ago, the U.S. Constitution forbids retrospective laws, also called ex post facto laws. Beyond the Constitutional prohibition, there is a very strong principle of law that citizens have a right to know in advance what laws apply to their affairs. The resolution is a gross and unconscionable violation of this principle. It is unfair in the extreme to retroactively change the rules of the game.

5. Pro offered no evidence that the investment banks "promised to mend their ways and no longer chase quick profits ..." The reference he provides says the two banks in question oppose certain regulatory changes proposed by the current administration, but it makes no reference to any promises or commitments the banks had made when bailed out. Did Pro just imagine that Goldman and Morgan must have promised something? What?

6. Pro proposes a windfall profits tax of 50%. These companies ordinarily pay about 35% of profits in Federal taxes. When state taxes and regulatory fees are added, it is possible that they would be at or above 50% taxes already. The United States has the second highest taxes in the world, higher than China, for example. Pro has therefore not establish that his proposed tax would be an increase. If it is an increase it is is not the wildly onerous penalty he supposes. My point is that the government is doing enough to "punish" businesses with taxes under ordinary circumstances. Being too big to fail transcends national boundaries. However, it would reduce the ability to regulate them.

7. Pro argues that compensation a the two banks is excessive. I'm inclined to agree, but that's up to the stockholders of those companies to decide, not me or Pro. I also think rock stars and athletes are overcompensated, but hat too ought to be left to the free market. Pro has correctly claimed hat these companies are making gobs and gobs of money, so their employees are earning their salaries.


Pro has a right to be angry about something in the financial industry, but the resolution he supports is way off base. There currently are no investment banks, there are no publicly-financed successors to investment banks, they made no promises, and retroactive penalties are unconstitutional and grossly unfair.

The resolution is negated.
Debate Round No. 1


First of all, I would like to say how pleased I am that Mr. Latham decided to accept this debate as I recently took the time to post a serious debate only to get an opponent who replied with a load of old nonsense in return. True, I won the debate, but I would rather lose to a worthy opponent than win by default. Nevertheless, I will still try and win this one by addressing Mr. Latham's rebuttals as follows:

1 – The term investment bank seems to still being used in the media to describe banks, or the divisions of banks, that deal with institutional investors and high net worth individuals rather than provide bank accounts, loans and mortgages for ordinary customers. In any case, when these banks were bailed out they certainly were known as investment banks.

2 – There is only one thing that bankers hate more than paying tax and that is what they would describe as "government interference in their affairs". That is why some banks were reluctant to take the public cash offered them – they suspected that the government would demand some control over how their business was run in the future. However, given their woeful record of catastrophic mismanagement over the preceding years, the government had no option but to persuade them to accept the money and ask them to use it to recapitalize themselves. The reason why some banks had to be coerced into this is that the banking industry which is a public utility as well as a commercial venture and a collapse would have caused a total economic meltdown.

It is also true that Goldman and Morgan took relatively little compared to others such as Bank of America. On the other hand, banks such as Barclays Capital took absolutely nothing and even bought much of Lehman's business off the administrators. However, the point is that the banks that were loaned money took it on the understanding that they would use it to recapitalize in order to prevent any repetition of the financial chaos that had ensued - it was certainly never intended that profits earned on the loans would be distributed between the very bankers who were responsible for the collapse.

3 – Goldman wanted to repay their loans as quickly as possible so that they could release themselves from any government intervention and thus be free to pay themselves huge bonuses. This is why Goldman's 30,000 UK employees will get an average �500,000 ($820,000) each, although in reality, the bonuses will not go to the back office boys and girls or the folks that work in the post room or staff restaurant, but instead be will be divided between the top traders in multiples of tens of millions. That is exactly the type of bad management decision that caused the economic collapse in the first place – the banks should be using that money to recapitalize themselves in case the recession is ‘W'-shaped and they need cash to sustain themselves through more lean times. The fact is that these banks were financed by the public and have a duty to act responsibly in return. They have not discharged this duty and should, therefore, suffer the consequences in the form of a windfall tax.

4 - A windfall tax may be unconstitutional in the US – my opponent is American and I am not so I will not argue with him on that point. However, a windfall tax was applied to the banks in the UK in 1981 under similar economic circumstances.

5 – A condition of the bail out of the banking industry, the top executives did, indeed, agree to limit their pay – in other words "mend their ways". They have reneged on this agreement but the government must take some of the blame for this because they should never have trusted them in the first place – they should have made it a legally binding agreement – after all, a typical bankers' whole raison d'�tre is to let nothing stand in their way of making as much money for themselves as possible – they have no sense of social responsibility, indeed, it could be said that their consciences are their accomplices rather than their guides!

6 - The 50% would be taken on post-tax profits. So if a bank announces that it has made a $50 billion profit after tax, $25 billion will then be due to the government and $25 billion will be for the bank to either recapitalize themselves or, as is more likely, to pay themselves (still massive) bonuses. This is the reason why regulation to moderate remuneration will still be required.

7 – The difference between an overpaid rock star or sportsman and an investment banker is that if a celebrity chooses to spend his money on private planes and ocean-going yachts and lavish parties rather than invest it sensibly and they go to the wall as a result, it is only they that suffer. However, when banking executives do the same we all suffer.

In conclusion, I accept that windfall taxes are inherently unfair – if they are applied retrospectively to squeeze money out of prudent companies who have made big profits as the result of their own endeavours. That is why I do not propose to apply such taxes to banks such as Barclays Capital who didn't have recourse to the public purse because they were able to sustain themselves through, and even profit from, the collapse of the banking industry. It is only the incompetent, greedy banks that were obliged to go cap in hand to their governments and who now, despite all that has happened, are awarding themselves massive payouts, that should be subject to a windfall tax.

Thank you.


Getting serious debates on this site is indeed becoming a problem. Thanks to Pro for offering a serious and timely topic.

1. We both agree that there were investment banks at the time of the bailout. I provided evidence that there currently are no investment banks because they converted to being more tightly regulated commercial banks. Pro did not provide contrary evidence, but rather argued that even though they are not investment banks they are sometimes erroneously referred to as investment banks by Pro and others. the problem with that is that the intent of the resolution is to punish some banks but not others. If there are no banks that fit the real legal definition, then it comes down to Pro and his allies getting to pick who they want to punish and who they don't want to punish based upon how they feel about a particular bank. An indefinite resolution of that nature is unsustainable because it defies the rule of law. It comes down to "The bankers we don't like should be punished."

The converted banks favoring large investors as customers, but many ordinary people invest of the stock of Goldman and Morgan, either directly or, more commonly, through pension and mutual funds. If the resolution were enacted the stock values would plummet causing great damage to ordinary investors. it's comparable to people investing in a record company that signs up performers who proceed to make a fortune. Deciding that performers and their agents do not deserve such sums may sound reasonable, but it has the indirect effect of destroying the investments who underwrote the venture.

2. Pro started by claiming the investment banks were "begging on their knees" to get bailed out. I provided evidence that they were in fact forced to take the bailouts. Pro then seemed to agree, saying "the government had no option but to persuade them to accept the money." "Persuade" is used in the same sense that Don Corleone used the word.

Contrary to Pro's claim, the government had the option of passing a law to regulate the banks in any way they wish, rather than "persuading" them secretly. However, legitimate regulatory action would have blown the government's illusion of saving the world.

With respect to the present resolution the importance is that if the investment banks were begging, then it it would be reasonable to suppose that the government should demand an get something in return. However, since the "help" was unwanted, it is unreasonable to suppose the banks promised something. Keep n mind we are only discussing the investment banks, operations like the auto companies, consumer banks, and AIG (insurance) were indeed begging for bailouts, and in each of those case the government got de facto control of the companies in return.

Pro continues to assert that there was some understanding with the investment banks even though they didn't want to be part of the bail out. However, he has provide no evidence of that: not a written agreement, not a government press release, not a press report, and not even blogger speculation. Pro's assertion fails.

3. Pro says, "Goldman wanted to repay their loans as quickly as possible so that they could release themselves from any government intervention and thus be free to pay themselves huge bonuses." Sure, but why not? They were immensely profitable independent of the modest bailouts that they repaid by refinancing on the free markets. They obeyed all the laws and regulation that the government imposed. They made no promises other than repaying the loans, which they did. So therefore they earned what they made, and are entitled to distribute it as they wish.

The companies are totally beholden to their stockholders. If the stockholders decide that they can get people at the minimum wage to produce the profits for the company, then they can do so. If they think they have to pay their managers like rock stars lest they leave to start their own ventures, then they can pay them like rock stars.

4. I argued that a retroactive tax is both unconstitutional and grossly unfair. People have a right to know ahead of time what the laws are, and not have the laws changed retroactively. I don't want my taxes of five years ago increased, and doubt Pro would want his increased. Pro said "I accept that windfall taxes are inherently unfair" and explain that is why he would only apply them to the banks he didn't like. The rule of law does not allow you to be unfair to the people you don't like and fair to the people you do like. Government ought to take an obligation to be fair all of the time to everyone. The resolution fails even if we consider only the single factor of changing laws retroactively.

5. Pro again claims that the investment banks agreed to limit their pay, but provides nothing whatsoever to support his assertion. Surely if it were true he could find a contemporaneous folk song or fortune cookie that supported his claim, but he offers nothing. Again, we are talking about the investment banks, not the others who were bailed out. The others are in fact under government pay restrictions. I think it likely those pay controls will cause a loss of talent that puts the companies under for good, but that's a different debate; maybe Big Brother will let up.

6. Pro now clarifies that his tax would be levied retroactively on whatever profit they previously had after taxes. That would effectively put the companies out of business, or at least out of being an investment choice. No one in their right mind would invest in a business that the government has targeted to make sure they never make a substantial profit. Far better to put the money into China, where the basics of capitalism are better appreciated. Now, every time Goldman or Morgan make a huge profit, the government gets half. Effectively destroying the companies means that in the long run the government will get very little. It's bettenot to kill the goose that lays the golden eggs.

7. Pro clams, "if a celebrity chooses to spend his money ... rather than invest it sensibly and they go to the wall as a result, it is only they that suffer. However, when banking executives do the same we all suffer." No, rock stars are paid by fans who get music in return. Bank executives are paid by investors who get profits in return. Pro's whole point is that the profits are very large, so it's clear that the investors are getting what they paid for. Whether the rock stars or bank executives fritter away their salaries is not at issue. The question is whether the enterprise that produces the salaries ought to be allowed to exist, or whether they should be punished for being successful. Bank execs are a whole lot more likely to reinvest their money wisely than rock stars, so there is greater consequent wealth creation from banker salaries than rock star salaries.

There are presently no investment banks, the successors to the investment banks are not publicly financed, there were no agreements with investment banks or their successors about their future operations. Weasels like General Motors are in a different category, and they are currently subject to complete government control, including salaries. Retroactive laws are unconstitutional and completely unacceptable in any democracy. The resolution is therefore built on false premises, and all it would do is kill future tax revenues by destroying important profit-making banks.

The resolution is negated.
Debate Round No. 2
1 comment has been posted on this debate.
Posted by Rezzealaux 7 years ago
"Everybody agrees that it is good news that a number of the investment banks that were bailed out by the taxpayer have now recovered from their positions of imminent bankruptcy and have recently reported massive profits."

I must not be human then. Of course, this is nothing new.
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