So President Obama wants to slap a guilt tax on banks. Well if he’s going to do that, then slap one on Barney Frank. And Chris Dodd. And ACORN. And a whole laundry list of others responsible for causing the financial meltdown.
In true scapegoat-the-capitalist style, the president wants everyone to think that only the big bad banks and insurance companies were at fault for the 2008 meltdown. Thus his proposed “Financial Crisis Responsibility Fee,” or guilt tax as Obama advisor Warren Buffett calls it, to be imposed on all financial institutions with more than $50 billion in assets.
It’s yet another classic case of mucking up capitalism with socialistic policies and then blaming capitalists for the devastation that the socialism wrought.
In a normal world the name of the tax would be something dry-sounding like “contingency fee” or some such designation. But the vengeful Obama people really want to lay a guilt trip on the banks with a “responsibility fee.”
Has there ever before been an explicit guilt tax levied in the free world? The only one I can think of were the reparations imposed by France on Germany after World War I. Ascribing guilt was routine in other societies, such as China in the 1960s where certain people were designated “capitalist roaders” if they exhibited even a whiff of capitalist tendencies.
This “you’re guilty” labeling by the Obama administration is bad stuff. So is the tax itself. It’s ostensibly aimed to raise money to pay for TARP. But most financial institutions to be hit with the tax already have paid back their TARP money with interest, or they never even received TARP funds in the first place. Making a mockery of the purpose of the tax, the institutions that haven’t paid back their TARP money—the auto companies—are exempt from it. So are Fannie Mae and Freddie Mac, which were at the epicenter of what led to the financial meltdown.
It’s bad enough to single out an industry for a tax because it distorts markets and misallocates resources away from the industry being taxed. To tax a subgroup of an industry is even worse; they’ll pass the costs onto their customers, driving business to non-taxed entities in the industry.
So, about putting a responsibility fee on Barney Frank, just kidding. Don’t levy such a fee on anyone including the banks. But if Obama ever did succeed in the latter, to make it fair he’d have to slap that fee on all the major players who were a party to the financial meltdown. The following would be a good start:
● Barney Frank. As the poster boy of government meddling in the mortgage market gone awry, the Massachusetts congressman would be first in line for the hypothetical guilt tax. He, Sen. Chris Dodd and other colleagues were outspoken opponents of attempts to rein in Fannie Mae and Freddie Mac. He kept repeating that Fannie and Freddie were not facing a financial crisis.
As for Obama’s responsibility fee on banks, Frank said “It’s entirely legitimate to make them pay for the damage (they) inflicted on the financial system.” Barney, don’t you see the irony?
● Fannie Mae and Freddie Mac. They willingly complied with the government’s demands to buy up more subprime assets. Their lobbying arms fiercely resisted attempts to further regulate them. Fan and Fred really worked the politically correct this-is-good-for-minorities angle in order to get their way, even though the targeted groups had weaker credit histories.
● HUD. In 2004 the Department of Housing and Urban Development ordered Fan and Fred to substantially step up their buying of subprime and Alt-A loans and securities, making them become the largest buyers of those securities, according to Helen Thompson, writing in The Political Quarterly.
● Jimmy Carter. His presidential administration presided over the Community Reinvestment Act, which cracked down on banks that weren’t lending enough to “low-income, minority, and distressed neighborhoods” i.e. borrowers with weaker credit histories.
● Bill Clinton. Under him, stricter CRA rules went into effect mandating that banks had to prove they were lending enough to low- and moderate-income borrowers. “Innovated or flexible” —i.e. less-stringent—lending practices were also authorized.
● ACORN. It and other housing activists used the CRA to pressure banks to extend mortgages to people with poor credit and/or little or no money for a down payment—i.e. subprime borrowers who accounted for the bulk of the foreclosures and subsequent financial meltdown.
● Alan Greenspan, Ben Bernanke, and other Federal Reserve governors. In the early to mid-2000s, the Fed kept interest rates low at a time when it should have been tightening. The excess liquidity fueled the housing bubble. And through its bailouts, the Fed also fuels the moral hazard problem.
Of course, there are lots of other culpable parties—Wall Street, housing speculators, shortsighted homeowners, real estate agents, and mortgage lenders and brokers. But as Peter Wallison of the American Enterprise Institute notes, they were responding to the extraordinary demand for subprime loans, a demand created by government policy.
In a free society no one should be forced to pay a responsibility fee. But here’s an idea: a responsibility donation. The proceeds could fund a training center providing remedial instruction on bad things that happen when the government meddles too much in the mortgage market. Barney Frank and Barack Obama should be the first enrollees.
Patrick Chisholm, a former Christian Science Monitor columnist, runs PolicyDynamics.Org and is founder & creative director of Accentance, Inc. E-mail: pat@policydynamics.org.
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