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Dr. Peter Morici: President Obama is at it again with his Bank Tax - - pandering to rich and powerful political supporters, while portraying himself the guardian of the exchequer and champion of the little guy.
The president says his proposed tax on the capital of the largest banks and financial institutions is intended to recoup the TARP (Troubled Assets Relief Program - - federal bailout scheme for the financial industry) money that has not or will not be repaid.
That is a flagrant attempt to confuse the public on two fronts.
First, the banks the president would tax are repaying their TARP money with interest to the Treasury. Though not all of the TARP money given to the banks has yet to come back, the government will get it all back with a significant profit because the government was paid such generous interest under the terms of the TARP.
Second, the president misused the TARP money by investing in GM and Chrysler, and GMAC, and that is where the government will lose money.
If President Obama were to tax anything to recoup lost TARP funds, it should be cars. However, that would anger the UAW, staunch supporters of the president and Democrats running for Congress.
The bank tax is in response to public outrage over the $150 billion in bonuses paid in 2010 on 2009 bank earnings. The tax would only raise $9 billion in 2010 - - a pittance compared to the bonuses.
Those bonuses were “earned” trading the $1.5 trillion the biggest banks were loaned by the Federal Reserve at near zero interest rates.
The bankers are screaming about a death wound when the tax is merely a paper cut.
The tax is a bad idea. It won’t fix the banks, who continue trading complex derivatives, energy futures and repackaging old mortgage-backed securities instead of making new loans to worthy homeowners and businesses.
The president’s tax would let the bankers, who contribute mightily to campaigns of congressional Democrats and President Obama, keep their bonuses after they nearly wrecked the global economy with irresponsible risk taking on the public’s tab.
This is horrible public policy and demagoguery.
The proposed bank tax is meaninglessly small, serves no purpose toward reforming the banks, and is merely an attempt by the president to appear on the side of the auto industry and against the banks, when he is really on the side of union organizers and the bankers.
As with the union exemption from the Cadillac tax in the proposed health care reform compromise, the president is putting his political debts ahead of public purpose.
He could propose a 50 percent tax directly on bonuses over $250,000 as the British prime minister plans.
Instead, the president lets the bankers keep their money, and sends Democrats calling for contributions. It’s all very insidious.
Discussing compensation on Wall Street, with Bob Profusek, Jones Day and Andrew Stoltmann, Stoltmann Law Offices:
The Financial Times said in an editorial last Saturday titled: Obama is right to clobber Wall Street: "The American public dreams of putting bankers on trial. The hearings of the Financial Crisis Inquiry Commission, which started this week, are a spectacle that comes close to that fantasy. With camera flashes firing, the bankers’ journeys to take the stand have had the drama of the “perp walk”. The quasi-defendants were quizzed, among other things, on the White House’s new plan, revealed this week, for a $90bn tax on banks.
The proposal is political. That much is clear from the timing. The administration announced it ahead of bank bonus season. With US unemployment continuing to rise, the spectacle of Wall Street plutocrats reporting multimillion dollar earnings from bailed-out companies will trigger geysers of rage. This policy should soothe and exploit that popular anger.
But this is not mindless populism. Crisis interventions made US bank creditors and shareholders hundreds of billions of dollars richer. But, for its part, the commonweal is expected to lose $47bn on its initial $125bn equity injection into the banks alone. The American state has a right to correct that imbalance."
Peter Morici,
Professor, Robert H. Smith School of Business, University of Maryland,
