Obama Cracks Down

A couple of years ago, many of the giant financial institutions in this country were in trouble. Their greed and mismanagement had put them in the position of possibly failing, and destroying the American economy. Even though the government bailed them out with the $700 billion Troubled Asset Relief Program (TARP), their greedy actions were one of the major causes of the serious recession still affecting this country.

It was hoped that once these financial institutions were on firmer ground they would once again begin making low-interest loans to small businesses (and large) and help the country to pull itself out of the recession. In fact, President Obama begged them to do that. It would not only have been a good way for them to repay the American taxpayers for saving them, but they could have made a profit.

But that didn't happen. The government had underestimated the greed of those in charge of those financial institutions. Instead, they once again began paying themselves massive bonus -- bonuses like they had received before the financial troubles. The bonuses averaged well over a half-million dollars and for some even amounted to an eight-figure amount.

Frankly, there is no legitimate excuse for their return to their old greedy behavior, especially in light of the fact that American taxpayers (who are still hurting) had saved their asses. Fortunately, President Obama agrees and is willing to act in behalf of the American people.

President Obama said, "My commitment is to recover every single dime the American people are owed. We want our money back and we're going to get it. If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers." He went on to tell the banks, "I'd urge you to cover the costs of the rescue not by sticking it to your shareholders or customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives."

Since it has become obvious that these companies will not be responsible citizens on their own, the President is proposing a new fee (tax) to curb the greed. The fee would last for a minimum of 10 years and is expected to raise at least $90 billion. If the fee raises more than needed to repay the bailout, the extra would be used to help balance the government's budget. This is how CNN says the proposed fee would work:

The fee would be assessed on an institution's liabilities minus its domestic deposits and core capital, which is the firm's cushion against possible losses. It's designed to tax firms with the greatest leverage, which is a proxy for how much risk the firm is taking in the markets.

The fee would be approximately 0.15% of a firm's covered liabilities. So, for example, a firm with $1 trillion in assets minus $100 billion in core capital and $500 billion in deposits, would leave it with $400 billion in covered liabilities. Consequently the firm would be charged approximately $600 million for the fee. (0.15% x $400 billion).

The administration estimates that roughly 50 companies will have to pay the fee, of which 20 to 27 would be banking institutions, according to the official. Roughly 35 would be U.S. companies and the rest would be the U.S. subsidiaries of foreign companies.

Of course the greedmongers are already whining about the proposed fee. President of the Financial Roundtable Steve Bartlett said, "This proposed tax will do nothing more than stifle economic recovery and encumber more pressing concerns, such as covering new regulatory costs." But that argument simply won't wash. They aren't using this money to help the economy or saving it to help cover regulatory costs. They are just greedily stuffing it into their own pockets.

I support the president's new proposal. I just hope that Congressional Democrats have the political will and courage to actually get it passed.