Obama’s New Punitive Bank Tax: Barney Frank Admits It Isn’t About TARP, They Just Need Somebody To Tax

 

The numbers just don’t add up. The Obama administration wants to raise about $90 billion in the next 10 years from an annual fee on the nation’s 50 largest financial institutions. The stated reason: to recoup the cost of the financial sector bailout.

obama-driving-government Yet, TARP banks owe the government only about $60 billion of the original $184 billion lent to them, according to the Treasury Department’s latest figures as of Dec. 31. Many of the largest banks have paid back the Troubled Asset Relief Program funds, often with a profit to taxpayers.

So, where does that $90 billion target come from? JP Morgan Chase CEO James Dimon offered one idea during his testimony Wednesday before the Financial Crisis Inquiry Commission. Dimon said it felt like the banks which have already paid back taxpayers, were being asked to subsidize the bailout of General Motors and Chrysler.

Unlike Wall Street, the auto makers are unlikely to pay back all of their TARP funds. It is estimated that the government’s $50 billion investment in GM alone is now valued at about half that. It also is unclear whether Chrysler will be able to pay back its $12.5 billion loan from the Treasury in full.

In explaining the rationale for the “financial crisis fee,” White House officials have been pretty vague. Senior adviser Valerie Jarrett , using a vocabulary sure to set off alarm bells in the capitalist havens of Wall Street, said the banks had a “collective” responsibility to pay back money given to all financial institutions. She said individual banks, like Goldman, benefited from the bail out of other firms it did business with.

That has a certain logic to it when considering the rescue of American International Group, whose fortunes were intimately linked to a number of Wall Street firms. Goldman and other banks received 100 cents on the dollar for certain investments with AIG. But it is harder to make a case for how the auto bailout directly benefited Wall Street.

That is where Rep. Barney Frank comes in. In an interview on CNBC this afternoon, Frank essentially said the fee was a tax simply designed to raise revenue for the government spending. Frank, who is in favor of Obama’s proposed fee, said the money raised could be used to pay for the war in Afghanistan, repair bridges, fund programs like social security disability benefits or subsidize mortgage-modification programs.

Why are the banks being taxed for this? “It’s entirely legitimate to make them pay for the damage [they] inflicted on the financial system,’’ Frank said. “Getting money from these banks is a good way to expand government revenue without expanding the deficit.”

Wall Street may not like Frank’s answer. But finally, someone is coming clean on what this bank fee is all about.

By Michael Corkery | The Wall Street Journal Blog

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