Against the grain
I guess I am the only person misguided enough to be against the “Federal Crisis Responsibility Fee” to be levied on the largest US banks. Besides the usual suspects, Brookings is in favor and Mankiw gives a qualified endorsement.
To me, though, it's heinous. Here's why:
1. It's supposed to be for TARP recovery, yet remember, money is fungible, these revenues can't /won't be earmarked. It just goes into the giant slush fund.
2. Basic tax incidence theory tells us that a significant part of this tax on banks will be passed on to their customers, presumably the very people the administration is trying to placate with the fee to begin with.
However, let us grant the idea that banks got a TARP gift so it's only fair they repay it. Well,
3. Many big banks have already repaid their TARP funds
4. Some banks were strong-armed into taking TARP funds that they didn't want in order not to stigmatize the banks that did need them.
5. Over 50 billion of TARP money went to automakers GM and Chrysler and this money won't be paid back. This is I believe the biggest chunk of TARP funds that won't be recovered. Why should big banks pick up that bill?
6. In the larger picture, this ex-post targeting of very narrow groups, whether punitively as in this case, or positively as occurred in the health bill negotiations, is a disturbing trend in the current administration's method of operation.
7. Finally, this is mere window dressing when compared to what needs to be done with our banking sector. Leverage needs to be limited. Some enlightened form of Glass-Steagall needs to be re-instated. Credit default swaps should trade on exchanges. We need real reform in this sector not a populist, window dressing, revenue grab.