January 16, 2010
Obama Rewards Losers, Punishes Winners
Real Clear Politics
President Obama's misbegotten bank tax is precisely the wrong policy at precisely the wrong time. It will wind up backfiring across the board. Why? Because bank consumers and borrowers are the ones who will wind up paying this tax, creating an obstacle to economic recovery.
Obama is actually rewarding losers and punishing winners -- exactly the reverse of free-market capitalism.
Who's being rewarded? Obama's bank-tax penalty is being used to finance the failed government takeovers of GM, GMAC, and Fannie and Freddie. And let's not forget the $75 billion failure of the so-called foreclosure loan-modification program. To this day, no one knows where that money went. But the big banks are going to be forced to finance this through a tax that will damage lending, stockholders and consumers.
This is sheer political favoritism. Crony capitalism at its worst, with a sub-theme of bailing out Obama's Big Labor political allies. It's just like his bailout of the unions by exempting them from the so-called Cadillac insurance tax until 2018, all while the rest of us may have to suffer under that tax.
Speaking of political unfairness and favoritism, mortgage giants Fannie and Freddie will not pay a nickel of this tax. These government-sponsored enterprises were at the very center of the financial maelstrom, financing the government's quotas and targets for unaffordable mortgages.
Think about this for a second. President Obama is out there bashing away at excessive bonuses. And yet Fannie and Freddie's CEOs stand to make $6 million in the next year or two. Huh? These are big-government-owned bureaucrats. They ought to be paid like GS-18s.
Of course, the Federal Reserve, which is having its most profitable year ever, was probably the main culprit in all this, with its negative-real-interest-rate easy-money policy, which amounted to throwing red meat to a pack of sharks in the deepest waters. But this tax punishes and penalizes the biggest banks -- institutions that have already met their obligations by paying down TARP, with interest, and by providing taxpayers with a tidy profit on the stock warrants they held.
Now, this is not to condone the major mistakes made by the big banks. They were overleveraged, borrowed way too much and sold highly flawed mortgage bonds and other complex derivatives. And the banks should not be paying big bonuses for 2009 -- not for the period during which they were TARPed. That's their biggest mistake.
With the banks having paid down TARP, however, the U.S. government should not be waging war against them. Somebody ought to tell the White House that al-Qaida is the real enemy, not the banks.
At the same time, taxing the living hell out of the banks will not promote economic recovery and long-term prosperity.
President Obama says he wants to stop risky bets. Well, look, the way to accomplish that is through higher capital requirements, stricter limits on leveraged borrowing and an end to the policy of "too big to fail." Across-the-board FDIC insurance assessments are a much better way of maintaining a bank safety net.
Instead, Team Obama wants to place a 15-basis-point tax on the banks, essentially layering it on non-insured bank funding. It amounts to a tax on future lending, shareholder equity value and the consumers of bank services who will pay the tax costs passed on by the banks. It's just like the corporate tax: Businesses don't pay taxes, people do.
And consider this: One dollar of bank capital generally works out to around 10 dollars of potential bank loans. That means this $90 billion tax proposal could very well cut off a staggering $1 trillion of future bank lending when credit demand picks up.
That's how this works. This tax will slow down profits and capital. And the diminished capital will mean fewer loans when loan demand picks up. It's exactly the reverse of what we need to grow our economy.
And the unfairness continues. Insurer MetLife, a bank holding company, and the regional Hudson City Bank Corp., both of which never took a dime of TARP money, will be penalized by this tax. That just ain't fair.
President Obama's crony politics rewards losers and penalizes winners. He is engaging in sheer, raw, left-wing class-warfare politics. It's yet one more reason why the Democrats are going to get clobbered at the polls come November.
Voters know a smoked turkey when they see one. Remember, you can fool some of the people some of the time, but you can't fool all the people all the time.
Mark my words, all of this left-wing demagoguery, political favoritism and crony capitalism will not end well for the Obama Democrats.
Lawrence Kudlow is host of CNBC's The Kudlow Report and co-host of The Call. He is also a former Reagan economic advisor and a syndicated columnist.
LINK TO STORY:
June 2021 May 2021 April 2021 March 2021 February 2021 January 2021 December 2020 November 2020 October 2020 September 2020 August 2020 July 2020 June 2020 May 2020 April 2020 March 2020 February 2020 January 2020 December 2019 November 2019 October 2019 September 2019 August 2019 July 2019 June 2019 May 2019 April 2019 March 2019 February 2019 January 2019 December 2018 November 2018 October 2018 September 2018 August 2018 July 2018 June 2018 May 2018 April 2018 March 2018 February 2018 January 2018 December 2017 November 2017 October 2017 September 2017 August 2017 July 2017 June 2017 May 2017 April 2017 March 2017 February 2017 January 2017 December 2016 November 2016 October 2016 September 2016 August 2016 July 2016 June 2016 May 2016 April 2016 March 2016 February 2016 January 2016 December 2015 November 2015 October 2015 September 2015 August 2015 July 2015 June 2015 May 2015 April 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 April 2014 March 2014 February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008