Barack's Big Bank Bamboozle

Barack Obama used his weekly address yesterday to expound on his scheme to assess a fee of 0.15% on banks with at least $50 billion in assets (excluding capital reserves and deposits) to ensure all TARP moneys are returned to the government. (Full transcript.)

Even though these financial firms were largely facing a crisis of their own creation, their failure could have led to an even greater calamity for the country. That is why the previous administration started a program – the Troubled Asset Relief Program, or TARP – to provide these financial institutions with funds to survive the turmoil they helped unleash. It was a distasteful but necessary thing to do.

Many originally feared that most of the $700 billion in TARP money would be lost. But when my administration came into office, we put in place rigorous rules for accountability and transparency, which cut the cost of the bailout dramatically. We have now recovered most of the money we provided to the banks. That’s good news, but as far as I’m concerned, it’s not good enough. We want the taxpayers’ money back, and we’re going to collect every dime.

That is why, this week, I proposed a new fee on major financial firms to compensate the American people for the extraordinary assistance they provided to the financial industry. And the fee would be in place until the American taxpayer is made whole. Only the largest financial firms with more than $50 billion in assets will be affected, not community banks. And the bigger the firm – and the more debt it holds – the larger the fee. Because we are not only going to recover our money and help close our deficits; we are going to attack some of the banking practices that led to the crisis.

What the President is saying is that he plans on taxing these large banks to make sure that every penny the government has lent will be paid back. What he’s not explicitly telling us is that all the financial institutions he’s targeting (other than Citigroup) either already repaid their TARP obligations or had never received TARP loans. If these banks have already made good what is there to recover? Well, that would be the monies lent to GM, Chrysler, and Fannie Mae and Freddie Mac — who are not expected to repay what they’ve received. The government already owns 60.8 percent of GM and the United Auto Workers own 17.5 percent. (Canada and its Province of Ontario own the remainder.) We certainly can’t expect the US government to repay itself and the recent health care cave-in to unions proves the UAW would never be called upon to help fund its windfall extorted from GM bondholders. Fannie Mae and Freddie Mac were given access to over $400 billion, more than double that offered to Citigroup, Bank of America, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley combined. As this New York Times story suggests the government not only will never receive payback but probably doesn’t want to.

One reason that Fannie and Freddie will never return to their earlier forms is simple mathematics: to become independent, Fannie Mae and Freddie Mac must repay the taxpayer dollars invested in the companies, plus interest. Even if the firms achieve profitability, it could take them as long as 100 years — or longer — to pay back the government. And almost no one expects the companies to return to profitability anytime soon.

Moreover, the takeover has provided legislators with a long-sought ability to influence the mortgage marketplace directly and pursue social goals like low-income housing.

“There is a commitment to restructure these companies, and we are going to want to keep a hand in the things that matter, like affordable housing and making sure that the housing economy doesn’t become a threat to the entire economy again,” said Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee.

Let’s give Representative Frank an “A” for honesty. He readily admits that government control of Fannie Mae and Freddie Mac allows for future social engineering. We’re all supposed to forget that it was that same sort of government intervention in the lending markets, led by the same Barney Frank and by Chris Dodd, that caused the crisis that necessitated the bailouts to begin with.

What we’re seeing is a shake-down. Obama is using a populist contrivance to advance his goals. His “let’s get the banks” rhetoric resonates well with the uninformed who are incapable of seeing the real objective as another union payback and an opportunity for further government manipulation of housing markets. It worked so well the first time, you know.

Yesterday’s speech was entitled, Getting Our Money Back From Wall Street and in it Obama said, “If the big financial firms can afford massive bonuses, they can afford to pay back the American people. [...] Those who oppose this fee have also had the audacity to suggest that it is somehow unfair. That because these firms have already returned what they borrowed directly, their obligation is fulfilled.” I would argue it is audacious to pretend we haven’t gotten our money back from Wall Street, that they haven’t already paid back the American people, and to imply this tax is a means to do so. Those less generous may even say it’s a prevarication. I’ll simply call it “The Big Bank Bamboozle.”