JIM LEHRER: Now: the president’s plan to tax big banks. He made the announcement at the White House earlier today surrounded by members of his economic team.
Mr. Obama was sharply critical of leading firms and said they needed to pay more in order to recoup the cost of the financial rescue plan, known as TARP.
Here is some of what he said.
U.S. PRESIDENT BARACK OBAMA: My commitment is to the taxpayer. My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people, folks who have not been made whole and who continue to face real hardship in this recession.
We want our money back. And we’re going to get it. And that’s why I’m proposing a financial crisis responsibility fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street.
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.
The fee will be in place for 10 years, or as long as it takes to raise the full amount necessary to cover all taxpayer losses.
This will not be a cost borne by community banks or small financial firms. Only the largest firms, with more than $50 billion in assets, will be affected.
And we’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome, but unfair, that by some twisted logic, it is more appropriate for the American people to bear the costs of the bailout, rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.
What I would say to these executives is this. Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I would suggest you might want to consider simply meeting your responsibilities and I would urge you to cover the costs of the rescue not by sticking it to your shareholders or your customers or fellow citizens with the bill, but by rolling back bonuses for top earners and executives.
JIM LEHRER: Margaret Warner picks up the story from there.
MARGARET WARNER: Leading figures in the banking industry called the plan a bad idea.
Steve Bartlett, president and CEO of the Financial Services Roundtable, a trade association representing 100 of the largest financial companies, said in a statement: “Two-thirds of the TARP investment from banks has already been repaid with a large profit to the taxpayer. This proposed tax will do nothing more than stifle economic recovery. TARP was a boost to the economy. This tax is strictly political.”
For more on all this, we are joined again by Binyamin Appelbaum of The Washington Post. He covers the financial industry.
And, Binyamin, welcome.
BINYAMIN APPELBAUM: Thank you.
MARGARET WARNER: Now, that was populist rhetoric we heard from the president. What is driving this proposal, and why now?
BINYAMIN APPELBAUM: The answer to why now seems to be that banks are about to announce very large profits for 2009. And they have indicated that they plan to pay many of their employees very large bonuses.
So, the Obama administration is taking the opportunity to empathize with the anger that many Americans feel about that and to show that it’s trying to do something.
MARGARET WARNER: Now, as the president said, it’s going to be levied on the largest banks, brokerage firms, insurance holding companies, but not the smaller banks, not the community banks, not even the big auto companies which got TARP funds. Why?
BINYAMIN APPELBAUM: They don’t want a tax that would fall on everyone who received government aid. Rather, they want to collect the cost of that aid from the firms that they say caused the crisis.
These the largest financial firms, the ones that played on Wall Street, the ones that, you know, took advantage of the laxity in rules to make huge profits, and then to take huge losses. And those are the firms that the administration believes ought to cover the money that the government has spent rescuing the financial industry.
MARGARET WARNER: Now, the administration said in briefings — and, actually, the president said it as well — in the end, it’s supposed to raise, what, between $90 billion and $117 billion, which is the outstanding TARP funds; is that right?
BINYAMIN APPELBAUM: That’s the amount that the administration projects it will lose from the $700 billion that Congress allocated for the financial rescue.
MARGARET WARNER: So, the question is, it’s over 10 years. Let’s say it’s $100 billion over 10 years. That doesn’t seem like a lot, when you think of the profits of some of these institutions.
How does one figure actually how one big company — let’s say a Goldman Sachs or Bank of America — how much would it really hit them?
BINYAMIN APPELBAUM: Yes. So, in a broad sense, it’s not a lot of money. In its best years, the financial industry makes $200 billion. This is $10 billion a year. It’s a fairly small hit.
But, for some companies, it will actually be pretty significant. And the reason is the way the tax is structured. This is a tax on borrowing. Banks get money for their activities from two sources, the deposits that we put into them or money that they borrow from investors. And this is a tax on the money they borrow from investors.
So, banks, retail banks, like, say, Wells Fargo, which rely primarily on deposits, won’t be hit as hard. They might pay tens of millions of dollars a year. But companies like Goldman Sachs, Morgan Stanley, J.P. Morgan Chase, companies that rely heavily on borrowed money to fund their Wall Street activities, could face a bill of several hundred million dollars a year.
MARGARET WARNER: So, when the president said today that this would also promote reform of the banking industry, are they hoping this — this tax or fee actually provides a different set of incentives?
BINYAMIN APPELBAUM: They don’t view this as a major force for change, but they’re hoping that, incrementally, on the margins, this will push banks to maybe borrow a little bit less, make borrowing a little bit more expensive, maybe think about whether you want to pay a little bit of the tax by reducing bonuses. It’s intended to complement some of the other things that they’re doing.
MARGARET WARNER: And not rely so much on leverage.
BINYAMIN APPELBAUM: Yes, exactly, and reduce the risks that they’re taking.
MARGARET WARNER: Now, what are the prospects in Congress? I mean, in Congress, they seem outraged over the bonuses and the profits.
BINYAMIN APPELBAUM: You know, right now, it is hard to pass almost anything through the United States Senate, so very murky.
MARGARET WARNER: Why? Explain more, though.
MARGARET WARNER: I mean, in the Senate, you have heard even Republicans excoriating the big banks and big financial institutions for the bailouts.
BINYAMIN APPELBAUM: Right, but there is — there’s two reasons.
The first is that the tax is a tax. And the Republicans generally oppose taxes on corporations. They view it as an impediment to economic activity. And we have already heard that view expressed today. Secondly, again, it’s a very closely divided Congress. This is a complicated proposal. And what we have seen in recent months is that complicated proposals don’t do well in Congress.
MARGARET WARNER: That’s certainly true.
Binyamin Appelbaum, thank you so much.
BINYAMIN APPELBAUM: My pleasure.