President Obama wants Wall Street and the largest banks to keep paying for the financial assistance they received in the past two years – even though many of them have already repaid their loans and interest.
On Thursday, Mr. Obama proposed a “Financial Crisis Responsibility Fee” that would be imposed on some of the financial underpinnings of the largest firms – many of which are preparing to give eye-opening bonuses for executives and employees.
According to the White House, the fee would be in place for 10 years or more, depending on how long it takes to repay money owed to the Troubled Asset Relief Program (TARP). If Obama’s plan is adopted, the White House says, 60 percent of the revenue will come from the 10 largest financial firms.
“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 some of the very firms who owe their continued existence to the American people – folks who have not been made whole and who continue to face real hardship in this recession,” Obama said in a statement midday Thursday.
The proposed fee on banks is targeted to recover some $117 billion in TARP losses. But most of those losses have come from institutions that would not be taxed – including General Motors, Chrysler, Fannie Mae, Freddie Mac, and AIG.
The fee would also not be imposed on smaller banks, which are struggling with bad loans they made to commercial real estate lenders.
“The political reality is that politicians need to show they are doing something to respond to the outraged screams from the public,” says Fred Dickson, chief market strategist at D.A. Davidson & Co., a brokerage house in Lake Oswego, Ore. “This is a direct assault on trading profits and bonus pools.”
The proposed fee must come up for a vote in Congress. In the past, bankers have been successful at warding off legislation they oppose. But this year, it could be more difficult, considering the unpopularity of bankers.
“The populist view is that the banks were responsible for a lot of the problems in the last two years,” says Dennis Jacobe, chief economist at Gallup, the polling firm. “There is a populist backlash against banking in general, but also against the government.”
One financial observer, Douglas Elliott, a fellow at the Brookings Institution, expects that Congress will pass the fee in some form. But, he adds, “It will be changed a great deal by the time it comes through.”
According to documents released by the White House, the proposed fee would be levied “on the debts of financial firms with more than $50 billion in consolidated assets.” This would impact companies such as Goldman Sachs, Citigroup, and Bank of America.
“This is really a too-big-to-fail tax,” Mr. Jacobe says.
“While the President says he wants lending to increase, this tax increase will only limit access to credit for American families and small business owners,” Representative Price said in a statement.
Yet the actual dollar amount spread over 10 years is relatively small, Mr. Elliott says.
“I don’t think it affect loan availability so much,” he says. “Some of the costs will be passed through to existing shareholders. Some will come out of compensation,” he says, adding, “I would be concerned if it was a much bigger tax concentrated over a small number of years.”
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