Not Thrilled With Banks, But Against Obama's Bank Tax

I am.

President Obama, in his effort to appear as if he sides with the populace and to capitalize on the popular anger and resentment toward Wall Street bankers, has proposed a 0.15% tax on the liabilities of the nation's big banks (about 50 of them) to help fill his budget shortfall. He declared, "We want our money back."

Now that's my first problem right there. Who are "we"? That seems to be "we" in the government. Whose money is it? The money is our, i.e. taxpayers' money which the government, both under George Bush and under Obama, has squandered on companies like AIG, GM, Chrysler, Fannie and Freddie against a significant opposition from the U.S. taxpayers (who, alas, don't count in politics).

Obama wants to use this selective taxation as a form of punishment for supposedly causing the financial crisis and getting large bonuses and as a deterrent for future risky behavior. Since bankers, particularly Wall Street bankers, are the people everyone seems to love to hate, he can't lose for singling them out, can he?

The proposed tax, which requires Congressional approval, would be applied to financial institutions whose liabilities exceed $50 billion. Not only the banks who already repaid TARP would be taxed, but those firms who never received a penny from the government would be taxed. $50 billion balance sheet is puny these days: big Wall Street banks have their balance sheet in $1 to 2 trillion, and many well-run regional banks in tens of billions.

Why should Obama confine "financial institutions" to banks and insurance companies anyway? Remember in September 2008 when SEC first banned the shorting of "financial institutions"? It was just banks at first, but the banned short list quickly grew to include any company that had a lending arm. Auto companies got included, so were some of the high tech companies like IBM. Many manufacturing companies issued bonds guaranteed by FDIC, including GE and Deer, exposing the taxpayers to potential loss. What about them?

Speaking of tech companies, many cash-rich techs actively manage (or at least they used to) their cash/cash equivalent in various financial instruments - derivatives, swaps, futures, options. What about them? Motorola, for instance, used to have their net profit solely derived from financial income.

Speaking of risky behavior, what about huge hedge funds and private equity firms? Like those select hedge funds who were let in on the shorting opportunities by the Vampire Squid (aka Goldman Sachs)? Or endowments at nation's top universities which bet on derivatives only to spectacularly lose, contributing to the financial chaos in 2008?

What about people who took out home loans or borrowed on their credit cards? Would Obama tax the liabilities of these borrowers for their risky behavior of taking on a large debt?

Lastly, who defines what's "risky"? And why should it be punished? If he believes what the financial institutions did was criminal in nature and therefore should be punished, why doesn't Obama instruct his Attorney General to indict the banks and prosecute them?

The arbitrary and punitive nature of this proposed tax is what irks me. It shows this administration may be quite willing to devise any scheme to arbitrarily target any industry, company, or individual. Why single out only the banks and insurance companies? There are whole bunch of other entities with equally risky behavior, and they are not confined to the private sector either. Actually, the public sector has even riskier players. Here's two that come to my mind immediately:

The Federal Reserve: for having pursued the low interest policy that created the speculative frenzy in various asset classes; recklessly expanding the balance sheet over $2 trillion with toxic junks that no one wants as it assists the federal government's fiscal policies; and

State and local governments: for having created their budgets year after year on the assumption that the housing prices will go up forever; for having invested millions of taxpayers money in highly sophisticated and risky financial derivatives without even knowing what they are.

However, the riskiest and most reckless of all is Obama's own government that is taking on an unmanageably large debt that cannot possibly be paid back.

Now how should we punish this risky behavior?

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