RebelCapitalist: Financial Information for the Rest of Us | A Wall Street Tax Levy is Proposed

A Wall Street Tax Levy is Proposed - Wall Street Threatens to Sue

Jan 19, 2010 | By: Mr_Blue | Comments | Permalink | Tags: financial crisis, economic crisis, financial oligarchy, goldman sachs

Last week, President Obama announced a new ‘fee’ or tax on possibly 50 of the largest financial conglomerates. On its face it sounds like a good idea (the devil is in the details). Are they finally getting it? We will see. But wait, this week some financial conglomerates floated in the press the idea of suing over this tax levy.

I admit I was very skeptical of this notion when the White House first floated this idea a few days ago. After all they have a good track record with protecting the financial oligarchy. Was this more of the same? Possible not. The administration is calling this tax a fee: “Financial Crisis Responsibility Fee”. Boy, that name is dripping with spin. Name aside, on paper this tax may actually work. Here are some of the details from Treasury Department Fact Sheet:

Require the Financial Sector to Pay Back For the Extraordinary Benefits Received

Responsibility Fee Would Remain in Place for 10 Years or Longer if Necessary to Fully Pay Back TARP

Raise Up to $117 Billion to Repay Projected Cost of TARP

President Obama is Fulfilling His Commitment to Provide a Plan for Taxpayer Repayment Three Years Earlier Than Required

Apply to the Largest and Most Highly Levered Firms

This Financial Crisis Responsibility Fee will be included in the President’s next budget but here is are a few details (as proposed):

The fee would apply to financial conglomerates with over $50 billion in consolidated assets

The fee would cover Goldman Sachs

The fee is assessed at .15% of “Covered Liabilities” per year

Covered liability = Assets - Tier 1 capital - FDIC-assessed deposits (and/or insurance policy reserves, as appropriate)

Based on the definition of Covered Liability, this fee will have a much bigger impact on financial conglomerates that don’t have much of a deposit base such as Goldman Sachs and Morgan Stanley (notice it subtracts FDIC-assessed deposits). IMO, this where the design of this tax is very interesting. This tax is targeting and taxing more risky behavior such as trading/investment banking. The devil is in the details which we wait for and who knows what will come of this once it goes through the sausage grinder.

One more very important thing, as Simon Johnson pointed out: this tax is just a start and not an end. “Too big to fail” will still exist. This tax doesn’t address TBTF.

Here is an example calculation of the tax from the Treasury Department’s press release:

Of course, it is not enough for the financial oligarchy to except responsibility for their reckless actions that triggered this crisis. Yesterday, the floated the idea of suing the government over this tax levy but seem to be back tracking a bit. The law that created TARP (Wall Street Bailout) allows for the government to recoup any costs of the bailout within 10 years. The Obama Administration want to accelerate that timeline with this proposal. Some financial oligarchy/financial conglomerates consider this tax to be punitive.

So what if its punitive? They fu*ked up. Besides, the law allows for such a tax. This threat of a law suit if carried out would be a delay tactic. The financial oligarchy/financial conglomerates have escaped accountability for their role in this crisis. It’s way past time that they start paying for their recklessness.