The government introduced new legislation to tax all “big banks” 0.15% of their assets to recoup about $120 billion in TARP money. What's interesting is that the government is also taxing banks who did not receive TARP money, while conveniently leaving out AIG and the auto industry!
Three Takeaways From Asymmetric Regulation:
1) Because the government is imposing a tax on assets for all big banks, they are encouraging all banks to take excessive risk and accept hand outs in the future. If a non-bailed out bank is getting punished, why not join in on the fun too? Friends at government-owned Citibank all went down to the Rose Bowl using free $500 face value company tickets ($1,000+ in the after market) with tax payer's blessings. Meanwhile another friend who works at a non-TARP bank can't spend more than $100 for a client dinner total, without having to get approval. Message to friend: tell your bosses to party it up if Citibank is having a great time!
2) AIG is exempt from new taxation because AIG is 80% owned by the government. If the government punishes AIG, they are punishing themselves. Federal government employees are raking it in, and I've spent about one hour so far learning how be a $170,000 a year Department of Transportation employee if my blogging career doesn't make it in three years. So exciting to have such a lucrative back up! Back off people, the job is mine!
3) The auto industry, which has paid back absolutely nothing, and is the biggest contributor of the $120 billion in tax payer losses is protected because the rank and file auto worker is deemed more precious than the rank and file finance worker. I'm all for helping out hard working people who had nothing to do with the collapse. But, what did your local TARP bank teller do? Nothing, just like the factory man at GM had nothing to do with the latest horrible design and corporate strategy of the 2010 Buick LaCrosse. Remember when GM executives flew in their private jets to the Congressional hearings? We need to support private jets for auto execs like we need to support higher taxes for more pork spending.
CONCLUSION
The past 24 months has shown you that you must look out for yourself first. When Armageddon hits, nobody else fights for you, because they are fighting for their own survival. Furthermore, if there is a government hand out, be it through home loan forgiveness or TARP money, take it and run. The government will spread out the cost to everyone so don't be the one left paying for something without getting anything in return. Take advantage of the system, because the system will always take advantage of you.
Readers, do you believe the US autoworker is more precious than the US financial services worker? If so, why?
Do worker unions, like the United Autos Worker union play a big part in lobbying the government to take care of certain people over others? Is this fair? Would creating a Financial Services Workers Union help this group of people?
Do you think Congress will pass Obama's tax proposal into law?
What government bailout money have you benefited from?
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Keigu,
Sam Samurai – “Slicing Through Money's Mysteries”
government won’t create jobs (other than federal jobs) and won’t fix our economy. they won’t fix our problems they ARE the problem. I’m still waiting for Americans to “get” this.
@Jason @ MyMoneyMinute
It’s not that the banks are too big to fail, it’s that they are too big to be bailed out…
I agree with fredct, there is nothing unconstitutional about having a targeted tax — government does it all the time. Tax the things they do not want you to be/do, and give tax breaks on the things they want you to be/do.
If the tax is targeting banks with assets over $50b, then that is the government saying we don’t like banks to have assets over $50b. This is just like the insanely high tax on cigarettes — government doesn’t want you to smoke.
I think it’s a sad reflection of our country’s socialist shift & fiscal irresponsibility over the last decade.
NOTHING should be to big to fail. Piecemeal out the failed assets and let those who actually HAVE been fiscally responsible be the winners. Any gov’t injections should be tied to infrastructure investment or as a match to encourage citizens to pay for their own stuff.
Check out the 2-part “MyMoneyMinute Stimulus Plan” I wrote last year and let me know where you agree:
Part 1: https://bit.ly/aTGmrE
Part 2: https://bit.ly/dAoXxO
@The Genius
Genius, I care because I want others who made read this to understand that FS’s stated opinion is entirely undefended and shouldn’t just be taken at face value. I don’t give a darn about small accidents like grammar and spelling. I do care that someone trying to criticize proposed policy as unconstitutional be able to explain themselves.
If you’re asking me what I would do with the banks, what I feel would be the best policy would be to break up the ultra large banks. Bank that gets so large that the irresponsibility of a few executives can put a national economy at risk is just not safe for the American people. But I’m (admittedly) not sure about the legality of that, and from a pramatic perspective, I don’t think it’ll happen. Short of that, I have no issue of the policy of taxing ultra-large banks to discourage their formation and keep more competition in the markets.
@fredct
Love the debate! Fredct, if you don’t have to dispute an argument FS never made, why the hell do you care? Are you the guy on message boards who point out spelling errors and generally annoy people?
Why don’t you contribute to the discussion about bank taxation? You’re a curious fellow.
@Financial Samurai
P.S. yes, its your site, you can say whatever you want. Its your constitutional right (speaking of) to free speech. But refusing to explain your statements nonethless exposes the apparent lack of truth behind them.
@Financial Samurai
I love the idea that I have to dispute an argument you’ve never made. If you want to have an actual discussion of the matter by explaining your rationale, I’d be happy to.
In the meantime all I can say is that its no different than any other tax or fee that may be levied. The others have stood the constitutional test for decades, and there’s no reason I am aware of that this idea wouldn’t also.
@Financial Samurai
Things aren’t unconstitutional because you don’t like them. They’re unconstitutional for a specific reason. The idea of something being ‘too obvious to argue with you’ is oxymoronic.
Legal-wise it would be nothing more or less than a fee on banks with assets above a certain level (from what I understand of it). Care to provide a reason why that would be unconstitutional? If you can’t provide an explanation or defense of your assertion, then you shouldn’t make it.
Fredct – The great thing about having my own site is that I can say whatever I want, just like you’re free to go visit elsewhere if you disagree. Would love to hear your rebuttal. 750 words would be a great! thnx
@Financial Samurai
Discriminating based on what? Private businesses do price discrimination all the time… child discount, senior discounts, early bird discounts, saturday-stay-over discounts, business fares, group rates, frequent user discounts, online purchase discounts, etc… all of these are discrimination based on certain criteria, which benefit some and disadvantage other ‘innocent people’.
Other than description based upon certain protected criteria (race, gender, etc), no, discrimination is not illegal. You probably are exposed to it multiple times per day, all completely legal.
Fredct – It’s too obvious that taxing banks which didn’t take TARP is unconstitutional for me to argue with you. Feel free to write your own post to argue why you think it is OK. Would love to read it!
@fredct
Not sure whats going on, but that was supposed to be a reply to ‘spiteface’, saying that you did not defend your assertion that its “unconstitutional”.
Fredct – Isn’t it obvious that discriminating against innocent people is unconstitutional?
Absolutely. I may be a couple days late on this one, but its the first thing I noticed.
I’ll even amend that. Any banks that went before Congress AGAINST the bailouts and TARP in general (before the legislation was passed), should be immune to any taxes or fees to recoup those losses — even if they were forced by Bernanke to take the funds (I think BB&T would fit this bill).
@Financial Samurai
I’m don’t think I’m being inconsistent (not trying to be). I’m just looking at the big picture here. The taxpayer is down $85b for TARP money used to supposedly bailout banks (not counting autos) that you (or Warren) are now arguing didn’t even need it.
Either way, taxpayers need to be made whole — _someone_ needs to repay the lost $85b.
From the article: “So far, the Treasury has given $247 billion to more than 700 banks. Of that, $162 billion has been repaid ”
Let me be real clear here: If the banking industry needed the taxpayer to step in to save their ass, then the banking industry (together, what’s left of it) needs to pay it bank now that their ass has been saved. I don’t care if the banks want to work this out between themselves who should pay what — but they (the industry) need to pay it back.
@Financial Samurai
As far as I can tell, the tax only applies to banks with assets valued at over $50b. This would not apply to the credit union down the street.
The tax is targeting, specifically, the ‘too big to fail’ banks that presumably were the recipients of TARP. I haven’t seen a list of banks affected, and compared that to whether or not they needed to be bailed out. Regardless, TARP is losing money — I’m guessing by bailout-out institutions that were just beyond saving. The surviving members of that industry, together, need to pay it back IMO.
Listening to the Warren Buffett of today, it’s like we didn’t even need bailouts at all. Such a massive shift from the Warren Buffett a couple of years ago. It sure sounds like it was Warren Buffett that needed to be bailed-out, and now he doesn’t want to pay his part back (through his holdings).
This entire deal stank from the beginning, and is starting to stink worse. Main Street couldn’t have gotten screwed any worse.
Warren said: “I don’t see any reason why they should be paying a special tax” — my answer to him is that I can give him 85 THOUSAND MILLION ($85b) reasons why they should have to pay a special tax.
BG – And yet you gave BOAML, Citi, and Wells Fargo 60 thousand million ($60b) last Nov/Dec 2009 when they raised money from you to pay you back (TARP), so they can pay themselves bonuses. Please explain yourself as it is inconsistent. Not all big banks with assets over $50b took TARP either.
@Financial Samurai
So…if the tax is killed, then that means the taxpayer is on the hook for the lost upteen gajillion dollars.
I don’t see how this can be interpreted in any other way, except as welfare for the banks. Distribution of wealth indeed. As for the Freddie/Fannie comment — those are quasi-government agencies, so the taxpayer should rightfully be on the hook for their losses.
And that statement about “Most of the banks didn’t need to be saved”?!?! Is he trying to rewrite history or what? As far as I remember, Congress was told by the _bankers_themselves_ (and Buffett) that we absolutely had to have this bailout — the we MUST PASS THIS PLAN. That this was an “Economic Pearl Harbor”. Unbelievable.
My respect for him just dropped a few notches.
BG – It’s true, some banks such as Wells Fargo absolutely did not need it. Hank and Ben forced the 7 banks to all take it, so as to not single out the weak banks (BOA, Citi), and thereby cause a bank run.
Let’s not kill the tax, let’s tax the banks who took TARP, or who are still owned by the gov’t (Citi), and NOT the banks who didn’t take gov’t money! Why is this so bad?
Here it is folks! Warren read our post, and is in agreement and Opposes Obama Bank Fee!
Buffett Opposes Obama Bank Fee, Likens Plan to Taxing Congress
January 20, 2010, 01:09 PM EST More From Businessweek
By Andrew Frye, Betty Liu and Jamie McGee
Jan. 20 (Bloomberg) — Warren Buffett opposes President Barack Obama’s proposed levy on financial institutions because firms including Goldman Sachs Group Inc. and Wells Fargo & Co. already repaid bailout funds.
“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”
“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” Buffett said. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”
“Most of the banks didn’t need to be saved,” Buffett said. “Including Wells Fargo.”
@BG
I agree with this statement of yours “I’ve said it before, and I’ll say it again, you can’t have capitalism if mismanaged companies are not allowed to fail. We are not allowing ‘too big to fail’ banks to die, therefore this is no longer capitalism and the rules have changed.”
@Monevator
Bankers have lost an equal fortune in this downturn. Look at the share prices of many banks where much of their wealth is tied.
I guess the post is controversial, but it’s my honest opinion. As for the Alexa ranking, I need all the help I can get!
@The Genius
Nice! Send a link. I guess given The Samurai Fund is a $100 million shareholder of BRK-A, maybe Warren read the post, and is fighting for capitalism and honesty!
If that is the case, then banks should be nationalized, ala Ireland. This way profits are not privatized for the few, while the losses are spread out for all.
@The Genius
Huh? He’s the one that started the idea. Maybe it’s related to loosing the Senate seat in MA. Maybe this means he’ll move left of center, like Clinton did.
(Sorry, just to clarify my unclear first paragraph, I mean other people understand taxes have gone up to pay for the deficits run up in the downturn or whatever. They realize there is a price to be paid for things. Bankers, who are the most culpable, in my experience are the most outraged at the price to be paid, irrespective of whether it’s targeting them or not).
Did someone send Obama a link to this post? He just came out saying that he OPPOSES the Big Bank Obama tax, saying it’s unfair to punish banks who paid back TARP!
It was not a case of picking favorites at all. The bail out was needed. It’s not a case of better it’s about saving the economy and jobs.
These taxes are partly a sort of stick, I agree, and only bankers really care about them because bankers only care about their income, as a rule. It’s not a surprise, perhaps, that those most motivated by money should congregate in the most money-driven arena but it has unintended consequences.
Also, as we’ve discussed many times bankers are completely incapable of seeing how their behaviour and practices caused the crisis (rather than preventing it – what happened to ‘as safe as the bank’?) , that they have just ridden the liquidity issued to solve the crisis to huge profits, and that getting rich on the back of both with personal bonuses offends everyone else.
Finally, these taxes drain some of the excess profitability out of banking that enables those bonuses. In time, regulation will probably do the job too.
Still, good controversial post Sam — all helps with the Alexa ranking eh? ;)
@Credit Card Chaser
I don’t think there was dishonesty here (for the most part) — the mortgage ‘products’ that the banks were pushing were ‘No Documentation’ loans, especially in the bubble states of CA and FL.
As for the statement that banks should be allowed to take whatever risks they want without oversight — I would only agree with that statement if, and only if, these banks are also allowed to fail on their own. Since we have established precedent that the US government is going to be bailing out the companies on their bad gambles (at least cherry-picked banks will be bailed out), then we need to protect the taxpayers by forcing banks to not take on unacceptable levels of risk.
I’ve said it before, and I’ll say it again, you can’t have capitalism if mismanaged companies are not allowed to fail. We are not allowing ‘too big to fail’ banks to die, therefore this is no longer capitalism and the rules have changed.
Forcing the bailed out industries (banking representing 70% of all TARP funds) to pay back every penny of taxpayer losses, could undo this mess and get us bank onto the road of capitalism.
FYI — there are some inaccuracies in the numbers. AIG (along with the banks) are required to pay the tax, and it is only the auto-industry that is not required to pay the tax. The auto-industry only represents 17% of the spent TARP money.
yeah, things are messed up and we’re going to have to fight harder to avoid bank fees.