Obama proposes U.S. bank fee, slams Wall Street
By Caren Bohan and Alister Bull
WASHINGTON, Jan 14 (Reuters) – U.S. President Barack Obama on Thursday proposed Wall Street banks pay up to $117 billion to reimburse taxpayers for the financial bailout, as he slammed bankers for their “massive profits and obscene bonuses.”
Striking a populist tone, Obama called for a fee on the biggest U.S banks to “recover every single dime” the government spent rescuing the financial sector from its worst crisis since the Great Depression.
“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,” Obama said, reflecting increasingly harsh rhetoric toward the financial industry.
The White House hopes a tougher line with Wall Street will resonate with an American public furious at multimillion dollar bonuses being handed out by banks as the middle-class struggles with double-digit unemployment.
The fee, which Obama will formally propose in his fiscal year 2011 budget to be released in February, is also aimed at helping to reduce the ballooning U.S. budget deficit.
Obama, who backed the $700 billion financial rescue program begun in the Bush administration, has suffered a backlash over that support. This worries the White House in a year when the president’s Democrats in Congress are seeking re-election.
The levy will recoup losses from the rescue of U.S. banks called the Troubled Asset Relief Program, or TARP.
Forged after the collapse of U.S. investment bank Lehman Brothers and multibillion dollar rescue of insurance giant American International Group, TARP helped stem the crisis by injecting public capital into the biggest U.S. banks and convincing investors no others would be allowed to fail.
The administration said it was needed to avert a catastrophe in the broader economy, but it did not prevent the country from sliding into a deep recession that has pushed unemployment to a 26-year high of 10 percent.
Wall Street has rebounded, raking in bumper profits. This has helped many of the banks repay their financial bailout funds, freeing them of government rules on compensation and allowing them to now pay out major staff bonuses.
Big financial firms consider the fee unfair because it will apply even to those companies that have already repaid the rescue funds they received as well as to firms that got no bailout money to start with.
But the White House argues that the industry as a whole benefited from the calm the rescue package brought to the markets. Obama also said the financial industry bears responsibility for the crisis because of what he said were its reckless actions that led to the subprime mortgage meltdown.
Financial industry analysts said the fee would act as a drag on the sector, though the fact that the fee will be spread out over 10 years lessens the impact.
“It throws some sand into the gears. It’s one more thing dragging on the sector, but it’s spread over 10 years, so it’s not so consequential. It’s petty theft from bank balance sheets,” said Robert Albertson, chief strategist at Sandler O’Neill in New York.
Full details of the fee proposal will not be laid out until Obama delivers his budget for fiscal 2011 in early February, and will then be subject to shaping by Congress.
The plan, which needs approval by the U.S. Congress, includes a levy of 0.15 of a percentage point, on the balance sheets of big firms with assets of more than $50 billion.
The Obama administration expects to raise $90 billion over the first 10 years, and thinks this will ultimately cover all losses from TARP, although at the moment these losses are being projected at $117 billion.
AIG will be subject to the fee, but mortgage lenders Fannie Mae and Freddie Mac, which are under government conservatorship, will be excluded, as will still-ailing U.S. automakers that got bailout money.
Public rage at bankers, whom Obama chided in December for their “fat cat bonuses,” has taken on a deeper political dimension as Democrats who control Congress weigh sweeping financial regulatory reforms in the face of stiff industry opposition.
Wall Street chiefs were grilled on Wednesday at the opening hearing of a special inquiry into the 2008 financial crisis and the resulting taxpayer bailout to save their industry.
The heads of Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America faced the first public hearing of the Financial Crisis Inquiry Commission. It will convene throughout the year and is expected to issue a report by Dec. 15.
Obama said the goal of the bank fee is “not to punish Wall Street firms but rather to prevent the abuse and excess that nearly caused the collapse of many of these firms and the financial system itself.”
“We cannot go back to business as usual,” he said.
(Editing by Vicki Allen)
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