The punitive bank tax

By Felix Salmon
April 16, 2010
attempt to push back against the Obama administration's proposed bank fee only goes to prove just how out-of-touch Wall Street really is:


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Jamie Dimon’s attempt to push back against the Obama administration’s proposed bank fee only goes to prove just how out-of-touch Wall Street really is:

Today, however, Dimon appeared to open another line of assault on the would-be reformers. His beef this time was about proposed levies to recoup the cost of bailing out US banks, the part of the reform agenda that is far less controversial. “Let’s all not call it a bank fee and call it what it is – a punitive bank tax,” said Dimon.

OK, Jamie, let’s do that. You honestly think that would make it less popular? It’s a bank tax, and it’s being enacted so that banks, rather than taxpayers, bear the pain of the TARP bailout. That’s entirely right and proper.

Dimon has spent his whole life on Wall Street, and although he’s respected by Wall Street standards, he doesn’t seem to understand how weak that really is. Any popular opposition to the Democrats on this issue is very much that they’re too friendly to the banks, not that they’re too harsh. And the Republicans have worked this out: while they’re doing the banks’ bidding and opposing the Dodd bill, the language they use while opposing it in public makes it sound as though the Democrats don’t go far enough in terms of making the banks pay for their own mistakes.

Taking the bank fee, then, and renaming it the “punitive bank tax” is, I think, a jolly good idea — if only because it helps to remind people just how culpable Wall Street was in the financial meltdown, and how little it seems to have suffered.

8 comments

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Felix,

Don’t call it a punitive *bank* tax, call it a punitive *bankers* tax, and make it a tax on *salaries* for highly-paid bankers.

If it’s a tax on the bank as a whole then the banks can still roll out the old “it will get passed on to consumers as higher fees” argument. If you make it the whole tax about the bank*ers* pay when they screw up it will be harder for them to weasel out of it.

Posted by voodoobunny | Report as abusive

wait, make that a tax on highly-paid bankers’ *total compensation*….

Posted by voodoobunny | Report as abusive

Banks borrow short and lend long, so running a low discount for an “extended period” is a clear gift for the banks.

Nonetheless, there is no such thing as a free lunch. There will be a price to pay for subsidizing Wall Street in this manner, even if it is not immediately evident who is picking up the bill.

That said, I’m not convinced the banks are out of the woods yet. If the economy double-dips, and housing prices fall another 10-15%, we could see another massive wave of writedowns and foreclosures. The banks EMPLOYEES are making huge bonuses right now, but the bank SHAREHOLDERS are still vulnerable.

Posted by TFF | Report as abusive

If they pay back their TARP loan in full with interest, why should they be punished?

Punitive taxes on GM or AIG don’t make sense either, even though they’re the ones that we’re going to lose money on.

Posted by Jonas_Cord | Report as abusive

Why acquiesce on the term “tax”? By any sensible definition of the word, this isn’t a tax. It’s a penalty for performing badly – and a relatively mild penalty at that, considering how badly bankers have behaved, which includes repeatedly trying to get their corporate welfare-mother obligation to legitimate taxpayers completely annulled.

If the major players go on complaining about it as though the rules of good business were incomprehensible to them, they should expect to be sent off.

Posted by HBC | Report as abusive

Jonas_Cord writes “If they pay back their TARP loan in full with interest, why should they be punished?”

They are not being “punished” they are being insured by the U.S. taxpayer so they need to pay their insurance premium, and the insurance premium needs to be based on how much of a risk they are.

Posted by BottyGuy | Report as abusive

Jonas_Cord, the point of a bank tax is not to punish banks but to make them pay for negative externalities that they foist on everyone else. These go well beyond TARP support or even the vast quantities of money that the government has lent to banks at below-market rates (so much for “lend freely at a penalty rate.”) As others have noted, the biggest single cost is the collateral damage done to the economy – approximated by the large divot in GDP associated with the current recession.

Or, in more inflammatory terms, why should tax-fattened hyenas like Dimon continue to feed at the public trough? What’s wrong with introducing some capitalist discipline to banking? If it takes a tax to do that, so be it.

Posted by Greycap | Report as abusive

Well, isn’t this a voluntary tax? Don’t take on leverage, don’t pay tax? It sure is a lot lower rate than the tax I pay on cigarettes, alcohol or gambling–all voluntary taxes. At least my vices add a boost to the economy, and no bailouts are available.

Posted by TaxLawyer | Report as abusive