NEW YORK (CNNMoney.com) -- The Obama administration wants to slap big banks and insurers on the wrist with a new tax. Oh wait, it's not a tax. It's a "financial crisis responsibility fee."
The move, which the White House says could cost the financial industry $90 billion over the course of 10 years, will probably satisfy some of the calls for a proverbial pound of flesh from look-at-me members of Congress and their angry constituents.
According to the results of an admittedly unscientific poll on our site, 64% of the readers who responded to a question about the bank tax said that the government should impose some sort of fee on banks to get back bailout money.
I agree that financial firms that did act irresponsibly and then needed the government to prop them up should pay for their transgressions.
I also think that any claims from the big banks about how a tax would be bad for the economy also have to be viewed with several billion grains of salt.
"The banking industry will scream that if they're taxed more they will lend less," said Daniel Alpert, managing director with Westwood Capital, an investment bank in New York. "But they're not lending away, nor should they be. There aren't many attractive opportunities out there."
What's more, Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) appear set to disclose in the coming days that they have enormous pools of money set aside for 2009 bonuses and other compensation.
So the notion that these banks can't afford a tax is a crock. It's astonishing that some bank CEOs are still so tone-deaf that they don't truly seem to understand why the public is so angry. My seven-week-old son cries less than JPMorgan CEO Jamie Dimon.
Still, this tax might be going a bit too far. For one, many of the biggest bailout recipients have already paid off their debt.
Last June, Goldman and JPMorgan returned the $10 billion and $25 billion in funds they respectively got as part of the first round of the Troubled Assets Relief Program.
What's more, Goldman paid an extra $1.1 billion to redeem warrants issued to the government while the Treasury Department generated more than $900 million by auctioning off warrants that it received from JPMorgan.
Of course, the combination of TARP, the AIG bailout (which helped Goldman in particular) and the Federal Reserve's policy of 0% interest rates and various lending programs all helped create an environment in which the banks were able to quickly return to some semblance of health.
But the biggest problem with the proposed financial sin tax is that companies that didn't take a dime of bailout money in the first place may be forced to pay it as well. And that's ridiculous.
Sure, the White House is spinning the tax as a way toward reducing the massive budget deficit. But this is about retribution, plain and simple. The bailout rage has reached such a fever pitch in Washington that politicians seem to think that penalizing companies merely for being big is a good idea.
"It's very much a situation where politicians are responding to a public outcry, which understandably they have to do," said Denise Farkas, chief investment officer at Sigma Investment Counselors, a wealth management firm in Southfield, Mich. "But I feel like I'm watching a game of Whac-A-Mole. There is no comprehensive strategy other than to tax this and tax that."
According to Obama's proposal, financial institutions with more than $50 billion in taxable assets would be required to pay up to the IRS. So the four banks I've already mentioned should have to pay it as well as other big TARP recipients such as Wells Fargo (WFC, Fortune 500) and PNC.
It is not yet clear how many firms would have to pay the tax. The White House merely said that the fee would be a 0.15% charge assessed against covered liabilities, a number that subtracts insured deposits and Tier 1 capital from a company's assets. This implies that the banks with the highest amount of leverage would get hurt the most.
To that end, the administration said it expected 60% of the total revenue from the tax would "most likely" come from the 10 largest financial firms.
But if the sole determining factor of whether you are required to pay some sort of "financial crisis responsibility fee" in the first place is simply size and not actual culpability, then some big financial firms may also be unfairly penalized.
MetLife, the insurer that has a large bank holding company, would appear to fit the criteria set forth in the proposal. But MetLife did not receive any TARP funding and also passed last year's government-mandated stress test of large financial institutions. MetLife (MET, Fortune 500) was not immediately available for comment.
Hudson City Bancorp, a Paramus, N.J.-based bank cited frequently in this column for being a well-run, risk-averse bank that shunned TARP funding also has assets of more than $50 billion.
A spokesperson for Hudson City said the bank was not aware of whether it would be required to pay a "financial crisis responsibility" tax. Based on the bank's most recent quarterly numbers though, Hudson City (HCBK) seems to have what the White House would define as about $31 billion in covered liabilities.
Using the White House's proposed fee, Hudson City could be on the hook for $47 million in taxes. But why should Hudson City have to pay for the sins of its bigger banking cousins headquartered on the other side of the Hudson River?
It gets worse. The government is exempting several other big beneficiaries of federal aid who also share some blame for the financial crisis.
Mortgage giants Fannie Mae and Freddie Mac, which are now essentially government-run, won't have to pay the tax. Neither will the two bailed-out automakers General Motors and Chrysler. The thought is none of these four companies are financially viable enough to afford such a tax.
That may be true. Still, doesn't that also mean they are getting a free pass even though they also share a portion of "financial crisis responsibility?"
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