Big Banks Threaten Constitutional Challenge to TARP Fee

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by nanute | January 18, 2010 at 04:31 am
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Some Estimates As High As $75 Billion-$125 Billion To Save Industry, Reports CBS' Sharyl Attkisson

Some Estimates As High As $75 Billion-$125 Billion To Save Industry, Reports CBS' Sharyl Attkisson

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The brazenness of the financial services industry knows no bounds.

The latest sighting comes in the form of a leak (or a plant? of the fact that Securities Industry and Financial Markets Association which is considering mounting a constitutional challenge to the proposed TARP fee of 15 basis points of uninsured liabilities announced last week.

The New York Times sets forth the logic, such as it is:

Wall Street’s main lobbying arm has hired a top Supreme Court litigator to study a possible legal battle against a bank tax proposed by the Obama administration, on the theory that it would be unconstitutional, according to three industry officials briefed on the matter….a bank tax might be unconstitutional because it would unfairly single out and penalize big banks.

Source: nakedcapitalism.com

Just when you thought that the titans of the financial industry couldn't possibly be any more brazen and tone deaf, comes the revelation that the industry that single handedly created the meltdown of the banking sector, and the over all economy, comes word that they are considering a Constitutional challenge to bank fees. Not just any bank fees mind you, bank fees specifically targeted to the bailout and rescue by the taxpayers via the TARP.

Expect opponents of any tax mechanisms imposed on business to come to the defense of the banking industry post haste. In fact, some are already contending that the fees are counterproductive, and will only be passed on to banking customers in the form of higher lending fees.

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1
Karl Gotthardt - albertacowpoke
Karl Gotthardt - albertacowpoke

at 04:38 on January 18th, 2010

Thanks for this nanute.  I think banks have already threated increased lending rates to make up for the losses of this tax. 

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Karl Gotthardt - albertacowpoke
Karl Gotthardt - albertacowpoke

at 04:44 on January 18th, 2010

A5s we get deeper into the realization of the folly of the government bailout of banks and financial institutions – some of which were forced – the government is playing its big card now by proposing taxing many of the largest banks in America, where some like Bank of America (NYSE:BAC), J.P. Morgan (NYSE:JPM) could get crushed from the foolish idea, along with the consumers they serve, who will end up having to pay for the tax on the banks; assuming it really ever becomes policy.

Estimates at this time are it would cost Bank of America and JPMorgan Chase over $1.5 billion each if the tax is implemented, which would ultimately be passed on to consumers, raising the cost of doing business with the many banks in America, along with the overall cost of living.

All of this is an attempt by Obama and his administration to deflect the focus of the people from him and his clueless policies, and onto the banks which should have never been bailed out in the first place. This is being hailed as a way to give the taxpayers back their money, even though their money shouldn’t have been used this way at all.

Source: americanbankingnews.com


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nanute
nanute

at 04:57 on January 18th, 2010

That's certainly one perspective: Blame it on Obama. Everything is his fault now. In reality the people that argue the banks should have been allowed to fail are from the Chicago and Austrian School of thought. I don't think it would have been such a great idea to let the system collapse and ripple throughout the rest of the economy. Could things have been done better, with more oversight and transparency? For sure. I'm not happy with the reluctance of bankers and their apologists arguing for less scrutiny and transparency. And I not very happy with parts of the administrations response to regulatory reform.


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Hugh Askew
Hugh Askew

at 05:13 on January 18th, 2010

Had the banks been allowed to fail - it wouldn't have been BO's fault. GB would have been excoriated forever, the bad debts would have been flushed out of the system, and the entire banking industry - worldwide - would have had to rework their business model.

Painful? Beyond belief.  The current arrangement on the other hand, guarantees we will be paying for it forever - or until the US economy collapses - and that won't be fun either.


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Hugh Askew
Hugh Askew

at 04:58 on January 18th, 2010

"All of this is an attempt by Obama and his administration to deflect the focus of the people from him and his clueless policies......."

But see, if you are the average guy, BO promised he wouldn't raise your taxes. This way, he can blame those nasty bankers for taking your money.

The bankers? Lock them in a room with Barney Frank for the rest of his term.

1
YankeeJim
YankeeJim

at 08:00 on January 18th, 2010

Bring it on. Personally, I want to see the USA outsource banking to Canada.

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nanute
nanute

at 10:27 on January 18th, 2010

This "tax" that is being proposed, is really a form of insurance in the event that the banks with the largest exposure( derivatives and mortgage back securities) still on the books,will pay to minimize costs to the taxpayers. Now, you can argue that all taxes are bad, especially when they are imposed on business. Or, you can look at it from the taxpayer pays for the losses every time the too big to fail banks get into trouble again. I'd much rather see the banks pay for their mistakes than to expect the taxpayers to pony up every time a problem arises.

Rest assured, regulatory reform and transparency is not in the cards from this administration, or in any possible Republican administration. In fact, the loudest critics of the proposal are coming from the market oriented side (read conservative), of the argument. 

Let the market dictate the outcome? If you are willing to bet that the total economy will not fail along with the financial sector, better stock up on rice, beans and ammo. In that regard, maybe that's why the tea party(bag) crowd already has a leg up on the rest of us.


1
Hugh Askew
Hugh Askew

at 11:02 on January 18th, 2010

Yeah, kinda like Social Security was kind of an insurance, until the government/courts said it wasn't.

0
nanute
nanute

at 11:16 on January 18th, 2010

apples and oranges. You want to get rid of SSI?

0
Hugh Askew
Hugh Askew

at 11:30 on January 18th, 2010

Not the issue.

Issue is saying it isn't a tax.

If it walks like a duck, talks like a duck, and smells like tax, it probably is.



0
nanute
nanute

at 12:18 on January 18th, 2010

call it what you like. If it is used to insure risk for lousy investments, and minimizes taxpayer liability, I'm all for it.

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snuffysmith
snuffysmith

at 20:58 on January 18th, 2010

I don't blame them. And can't wait to see the constitutional challenges to the health bill if it ever gets past.

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snuffysmith
snuffysmith

at 10:41 on January 19th, 2010


A bank levy will not stop the doomsday cycle

To end the doomsday cycle and prevent even greater damage to the real economy, we need dramatic reforms.

First, we must sharply raise capital requirements at leveraged institutions, so shareholders rather than regulators play the leading role in making sure their money is used sensibly. This means tripling capital requirements so banks hold at least 20-25 per cent of assets in core capital.

Second, we need to end the political need to bail out every institution that fails. This can be helped by putting strict limits on the size of institutions, and forcing our largest banks, including the likes of Goldman Sachs and Barclays, to become much smaller.


 

Source: ft.com






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nanute
nanute

at 12:41 on January 19th, 2010

Snuffy,

Thanks for the links/info. I don't think anyone is arguing that the fees being proposed are a solution to the systemic problems associated with the financial segment of the economy. I think it is a perfectly reasonable approach to expect the at risk companies to fund that exposure in the form of a tax, or insurance premium. This will NOT solve the problem, I agree. But it will have an impact on risk management, and more importantly, will minimize the cost to taxpayers when, not if, the next wave of crisis occurs.

The financial industry has such a stronghold on both parties in Congress, that to expect meaningful reform via re-regulation is dubious at best. In an interesting yesterday on CNN, here's David Frum arguing for restraint with Elliott Spitzer and Naomi Klein:

FRUM: The fix is here. There's a -- let's do -- there are technical fixes, the kinds of things I've said about the way banks hold their securities.

And then, be careful about doing too much, because you can throttle something that I think is precious to everybody, which is the creativity of the system.

SPITZER: Well, let me respond. I got it. Not to make this partisan, but...

(LAUGHTER)

... statutes don't work. Enforcement does.

We have had for 15 or 20 years an absence of enforcement, except with a few nodes of activism, which gets beaten down over time.

What we need is adherence to very simple principles of ethics and transparency in the marketplace. And then, it would work.

ZAKARIA: On that note, we are going to take a break and come back, and discuss all of this and more. We will be right back.

[...]

ZAKARIA: And we are back with our star-studded panel -- Eliot Spitzer, David Frum, Naomi Klein and Steve Dubner.

What should be the purpose of financial regulation moving forward?

KLEIN: And this isn't a free market system. That's what's been revealed in this crisis. It's a classic, crony capitalist system, where favors are traded amongst the elites.

And, you know, I have to -- this idea that we are going to squelch creativity, you know, I think there's definitely been too much creativity in the realm of derivatives trading. I mean, we would all do with them being a little less creative, and maybe go into the arts, you know, take up creative writing.

(LAUGHTER)

This is not helping. But the idea...

ZAKARIA: Because the bonuses are huge in the arts.

(LAUGHTER)

KLEIN: But the idea that we suffer from an under-reaction...

SPITZER (?): If you (UNINTELLIGIBLE) long enough they are, if you have possession of the tapes (ph).

KLEIN: The idea that we suffer from an under-reaction to this crisis -- an over-reaction to this crisis -- to me is absurd. I mean, this has been the most incredible under-reaction, if we look at what we have some consensus about in terms of what caused the crisis.

The over-leveraging of the banks, the fact that derivatives are not regulated, the fact that the banks are too big to fail, the fact that they've become so intermingled -- we have not dealt with a single one of them, a single one of them, a year-and-a-half later. We have not reacted.

And in the meantime, we've put around $14 trillion on the table and used none of the leverage. And the whole premise of banking is that, when you're handing out money, you can put conditions on it. You can ask for all kinds of things. And it is just extraordinary that they blew that moment of leverage. crooksandliars.com

0
snuffysmith
snuffysmith

at 10:44 on January 19th, 2010

How the big banks rigged the market


But the process cannot end here. Irritating as it may be to Mr Blankfein, a one-off bonus tax is not going to change anything in the medium to long term. Levies such as that in Sweden mark a recognition that the profits and remuneration policies of the banks are more than a fleeting problem. But forcing bankers to strengthen balance sheets with money they would rather put in their own pockets addresses only part of the problem.

The next stage must be scrutiny of the structural distortions that allow these institutions to rack up such huge profits. Broadly speaking, the leading players in at least three areas of investment banking – wholesale markets, underwriting and mergers and acquisitions – have been operating natural oligopolies.

Their profits have been in significant part a reflection of the absence of robust competition. There are different reasons for this in the different areas of business – what economists call asymmetries in some and market dominance in others. But as long as they are not addressed, the banks will make profits – or more accurately, extract rents – out of all proportion to any contribution they make to the wider economy.

During the good times no one worried too much about these oligopolies. Markets were booming and the investment banks persuaded policymakers that they made a big net contribution to economic dynamism. That myth has now been exploded.

The absence of sufficient competition has been raised by Lord Turner, the chairman of Britain’s Financial Services Authority. He has suggested a transaction tax to deal with the problem in wholesale markets. Christine Lagarde, France’s finance minister, has recently circulated a more detailed paper to governments and regulators. But too many policymakers have so far ducked the issue.

Even if the banks can be forced to take fewer risks they will likely continue to make excess profits. The issue is one of competition rather than regulation. A possible answer might be a move by competition authorities to lower barriers to new entrants. More likely, a serious examination would conclude that the excess profits are best dealt with through taxation.

Many in Mr Blankfein’s world want to pretend the backlash against the banks is a conspiracy between the mob and populist politicians. They hope, and expect, the pressure will go away when prosperity returns.

Tax and regulation should not be used as weapons to settle scores, however tempting that might be. But the banks have had it too good for too long; and the rest of us are now paying the bill. Institutions in the vanguard of spreading liberal market economics around the world were all the while making fortunes in markets that were rigged to their advantage.

 

Source: ft.com

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First Flagged at 4:38 AM, Jan 18, 2010 by Karl Gotthardt - albertacowpoke
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