President Obama on Thursday announced his bank fee on major financial institutions, arguing that Wall Street helped cause the economic meltdown in the fall of 2008, and so must help recoup losses from the $700 billion bailout from which they benefited.
“We want our money back, and we’re going to get it,” Obama said at the White House.
The fee, which will need to be passed by Congress, is expected to bring in $90 billion in the next 10 years, and $117 billion over 12 years.
Obama cast the fee, which will apply only to the largest financial institutions, as fair given the fact that the $750 billion TARP program was only needed in the first place because Wall Street firms were being “overwhelmed by the consequences of their irresponsible decisions.”
He accused the financial industry of “triggering a financial crisis that nearly pulled the economy into a second great depression.”
Critics of the president’s decision said that he was painting too simple a picture.
“There’s a long line of culpability for the financial crisis, and it’s not all big banks,” said Tony Fratto, a former Bush administration and Treasury official.
The fee is also being questioned by those who say that the financial institutions have for the most part paid back the money they received from TARP, and are being forced to pay back the government for investments in the U.S. auto sector and AIG* that hold little to no prospect of being repaid.
“The large banks have ‘paid’ a lot,” Fratto said. “They rescued other failing banks, and they paid back taxpayers at a profit. Furthermore, they contributed to ‘Fed’ profits — where do you think that $45 billion came from last week?”
The Obama administration’s rationale for the penalty is that the largest institutions on Wall Street helped bring about the economic collapse that required the government to step in and help them as well as the auto companies and Fannie and Freddie.
“The banks that are in question were significantly responsible for an enormous degree of the reckless risk-taking that was borne throughout the entire economy,” said a senior White House official, speaking to reporters Wednesday evening on the condition that he not be identified.
The TARP money assistance was aimed at institutions that were deemed “too big to fail.” In other words, taxpayer dollars were given to institutions such as AIG and Goldman Sachs because the Bush administration feared that if those companies collapsed, they might bring down the entire U.S. economy.
“Even those these firms were facing largely a crisis of their own making, their failure could have led to an even greater calamity for the country,” Obama said.
The aid, the White House official said, “was designed to help out our economy as a whole, not to benefit a particular or specific institution or their executives.”
“So it’s our view that the fee that is put forward here is in many ways a minimum, a minimum of what is owed back for the rather significant costs that are borne in many aspects by the taxpayers,” he said.
UPDATE – 4 P.M. – The White House laid down a clear challenge to Republicans, daring them to oppose the bank fees.
“If you want to be on the side of big banks, then — this is a great country — you’re certainly free to do so,” said White House press secretary Robert Gibbs. “There will be a vote and we’ll get to determine who’s on what side.”
There are serious doubts about whether the president’s proposal would pass out of the Senate.
But in Massachusetts, the Democratic candidate to replace Sen. Ted Kennedy, attorney general Martha Coakley, is also using the bank fee issue to hit her opponent, state Sen. Scott Brown.
“Now is the time for Scott Brown to tell us what side he’s on, and who he wants to fight for,” Coakley said in a statement.
UPDATE – 6:18 P.M. – The Brown campaign, asked to respond to Coakley, says the Republican candidate is “opposed to higher taxes, especially in the midst of a severe recession.”
“Raising taxes will kill jobs. Martha Coakley’s tax-raising policies will make it harder to get our economy back on the right track,” said Tara Donoghue, with the Brown campaign.
*TARP money did not go to Fannie Mae and Freddie Mac, as the article originally stated.