President Obama returned to populist rhetoric Jan. 14 when he announced a $90 billion tax on roughly 50 large banks, supposedly to recoup “every single dime” of the TARP dollars used to rescue the financial sector.
Nevermind that a number of those banks including Goldman Sachs, JP Morgan Chase and Morgan Stanley already repaid their TARP debts with interest and were forced to take the money in the first place.
Just recently BB&T’s former CEO John Allison, who “adamantly opposed” TARP, told Fox Business viewers how the government strong-armed banks like his, that didn’t need loans into taking money anyway.
Now Obama wants to assess billions of dollars in yearly “fees” on those firms. Talk about a raw deal.
According to the Wall Street Journal, the six largest banks – Goldman Sachs, JP Morgan Chase, Morgan Stanley, Citigroup Inc., Bank of America, and Wells Fargo & Co. – will bear most of the burden for this punitive bank tax if it is approved by Congress. The tax bill for each bank would range from more than $1 billion to more than $2.4 billion per year for 10 years the Journal said.
Obama claims the 10-year Financial Crisis Responsibility Fee isn’t a “punishment,” but the timing and tone of his announcement suggest revenge, not policy.
In his announcement, Obama derided the “massive profits and obscene bonuses” of banking institutions just days before bonus reports are released.
“My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people – who have not been made whole, and who continue to face real hardship in this recession,” Obama said.
White House press secretary Robert Gibbs echoed Obama in his White House briefing saying “those taxpayers deserve to be made whole.” But the truth is that this tax won’t make taxpayers whole, it may not even lower the federal deficit that much. Instead, taxpayers will get to pay twice: once for TARP and again for the bank tax through higher fees or less available credit.
Showing a clearer understanding of basic economics than the White House, JP Morgan Chase’s CEO Jamie Dimon, Wall Street’s most frequent White House visitor, called the tax a “bad idea.” He added, that the businesses wouldn’t really pay the fees anyhow.“All businesses tend to pass their costs on to customers.”
Harvard’s senior economics lecturer Jeffrey Miron reinforced that point in Investor’s Business Daily. Miron said “higher taxes mean higher costs and therefore higher prices, so customers (borrowers) will bear some of the burden of the tax.” Fees, less available credit or companies shifting operations to other countries are all possible costs to customers as a result of a bank tax.
Then of course there’s the fact that the tax is completely unfair, a point some reporters asked the White House about. CBS’s Chip Reid asked Gibbs if it is “fair” that the tax could hit non-TARP banks or banks that have already repaid the money.
“There are obviously a lot of other banks that were TARP banks and paid their money back. Why is it fair to now go after them if they've paid the money back?” Reid asked.
Gibbs replied “Because of what they caused this economy.” When Reid rightly suggested that’s “punishment,” Gibbs denied it.
The tax will only fall on the 50 largest banks and A.I.G. to “recoup” TARP losses, but some of those losses have been incurred by companies exempt from the tax including union shops General Motors and Chrysler and government-sponsored enterprises Fannie Mae and Freddie Mac.
Despite White House rhetoric blaming the entire financial crisis on Wall Street, many fault the extreme overleveraging at Fannie Mae and Freddie Mac as well as their majority ownership of the secondary mortgage market for spurring the foreclosure crisis which rippled through the entire
But Fannie and Freddie have friends in high places – Democratic political offices mostly. So they’ll continue to hemorrhage billions of taxpayer dollars indefinitely thanks to Obama’s Christmas Eve decision to extend their bailout. Now if he gets his way the banks get to shoulder part of Fan and Fred’s burden under this new fee.
Obama’s just sticking to what he knows: the
Taxpayers don’t need this new bank tax to be “made whole.” What they need is a
Julia A. Seymour is assistant editor for the Business & Media Institute.