President Obama’s proposal to recoup up to $120 billion of the financial bailout costs through a tax on the nation’s largest banks is sensible and should be pursued. That sum would virtually square the remaining unreimbursed costs of the $700 billion Troubled Asset Relief Program, from which large banks have profited most. Paying off that debt would let the Treasury lower the federal deficit by a corresponding amount.
Still, the proposal will have to clear predictable obstacles. Lobbyists for the nation’s biggest banks immediately blasted the idea. Never mind that, having been rescued by taxpayer bailouts, big banks are once again reporting record profits and readying to hand out billions in plump bonuses of 7-to-8 figures to executives and top traders.
Their Republican defenders in Congress, moreover, seem likely to stand by the banks. They already are working in tandem with bankers’ lobbyists to dilute and delay legislative proposals to overhaul the lax regulatory system that let the banks bring the country to the brink of financial collapse in the first place. Now fat again — the largest six banks turned more than $50 billion in profits in the first three quarters of last year — big banks seem ready and willing to throw around their weight in campaign contributions in Washington to defeat new strictures on the way they operate.
At a more superficial level, the nation’s dozen or so largest commercial and investment banks claim they have paid off their TARP loans with interest, and owe no more. That’s disingenuous in the extreme.
True, all but one of the largest banks have repaid their TARP loans over the past few months. They did so early, explicitly to free themselves of oversight on executive pay and bonuses. Yet they have never acknowledged the huge benefit they got from the Federal Reserve Bank’s $180 billion bailout of American International Group. The Fed honored AIG’s worthless credit default swaps dollar-for-dollar, guaranteeing that unregulated form of insurance for the full face-value of the banks’ trades in toxic assets that AIG had insured without adequate cash reserves to meet its liabilities.