Taxing Banks

The news today is that the Obama Administration wants to hammer the "fat cat bankers" with a tax in an effort to recover the money lent out under the TARP program. Officials in Washington have engaged in finger-pointing following the announcement with Barney Frank stating "They got us into this mess, its their fault, they should be taxed. They acted irresponsibly, greedily, and recklessly."

My feelings regarding Mr. Frank aside, this is one of the most ridiculous pieces of proposed legislation ever conceived. The issues with this proposal are as follows: the President has stated that one of his main objectives for this year is to generate job growth through continued economic stimulation and increased lending activity from the financial sector. What bank is going to lend when it is being taxed by the Federal Government for a program that many were forced to participate in?

Additionally, the proposed tax will not be limited to banks who took money from the government; any bank with over $50 Billion in assets (which is quite a few) will be taxed 15 basis points (or fifteen hundredths of one percent) of total assets for a period of TEN YEARS simply because it is a bank and because it is their fault we are where we are. That may not sound like a lot, but go ahead and multiply .0015 by $50 Billion or $100 Billion or even $1 Trillion as some of these banks have. You will quickly see why Washington is interested in this tax.

But that isn't nearly as bad as the other clause in the proposal. See, TARP was originally only intended for financial institutions who had an overabundance of assets which had uncertain values. But it quickly morphed into a program that lent to AIG, GM, Chrysler, and individual homeowners (many of whom had purchased homes they never should have even looked at). The problem is that Washington is trying to strike a deal with labor unions for its healthcare overhaul and politicians do not have the backbone to tax labor unions for their expensive health plans and tax their companies for poor operation. GM, Chrysler, AIG, and homeowners will not be taxed for the money they took. Because all of this is the banks' fault, they will pay for GM and Chrysler and AIG and underwater homeowners, it is their fault that all of these groups are in trouble. It is their fault that GM and Chrysler and AIG made moronic strategic decisions. It is their fault that people took easy money and bought homes they could never afford. Its all their fault.

Just to be clear, this isn't Alan Greenspan or Ben Bernanke's fault for cheapening the dollar, artificially lowering interest rates and encouraging lending to people who were not credit worthy. This isn't Barney Frank and Chris Dodd's fault for defending Fannie Mae and Freddie Mac's lending practices. This certainly isn't their fault for desiring to have every American in a home, regardless of income or credit-worthiness. This isn't their fault. It's not their fault that Fannie and Freddie could lend to terrible borrowers at obscenely low rates that no healthy, smart financial institution could ever dream of. It isn't their fault for lending obscene amounts to people that no healthy, smart financial institution would ever touch.

None of these parties are responsible for their decisions and actions. It is all the banks' fault. It's the banks' fault for everything.

Listen, I am not going to sit here and say that all banks acted with utmost discretion and intelligence, with an eye to the future. I know there were terrible things going on on wall street. I know there was predatory lending going on. I know that cheap money and greed are deadly combinations. I am not a wall street apologist. But I do know that wall street acted on what was going on the market and the market was being led by two institutions who had federal backing who made some of the worst financial decisions of all time. I do know that those institutions were encouraged by the government to engage in those practices. I do know that wall street saw these loans, knew that they had to be bad, and packaged them together and sold them to the highest bidder. But the only reason these instruments sold was because they were supposedly "government backed."

But just remember. It's all wall street's fault. They are to blame and it's time for them to pay up......