Thursday, January 21, 2010

Big Banks vs. Obama


The big banks are considering challenging President Obama's proposed tax on very large banks and financial institutions in court as unconstitutional. Let's see if I have this right. The Federal Reserve deciding unilaterally, without public debate, to assume hundreds of billions of dollars of financial companies' liabilities, spent hundreds of billions to buy mortgage-backed securities and potentially expose taxpayers to massive losses: That's totally constitutional. Congress passing a law suggesting that a small portion of the bailed-out financial industry, which is still benefitting from massive government subsidies, pay a fee for running huge balance sheets: That's unconstitutional.

The industry has argued that the Obama bank tax would hurt the recovering economy because banks would pass on higher costs to customers and borrowers rather than eat them. Higher taxes mean less money available for lending. In theory, that may be true. But when you consider the size of the banks, the size of the tax, and the vast sums of money they squander each quarter because of poor lending decisions—the proposed banking tax is a drop in the bucket.

The tax amounts 15 basis points on the net liabilities of financial institutions that have assets greater than $50 billion and that received capital as part of the TARP or issued debt as part of the Temporary Liquidity Guarantee Program, which allowed banks to save hundreds of millions of dollars on interest costs. It would total about $90 billion—$9 billion per year over 10 years. Sean Ryan of Wisco Research in Madison, Wisc., calculated the expected tax hits for several institutions, which he provided to me. The bigger you are, the harder you get hit: Giants JPMorgan Chase and Citi would each pay about $1.5 billion per year, while a merely large bank like US Bancorp would pay about $100 million per year.

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