Research Briefing

Obama’s Treasury Secretary Makes Claims About So-Called “Financial Crisis Responsibility Fee” That Doesn’t Match The Facts

GEITHNER’S CLAIM THIS MORNING: “The Purpose Of The Financial Crisis Responsibility Fee Is To Make Sure That The Direct Costs Of TARP Are Paid For By Major Financial Institutions, Not By The Taxpayer.” (Treasury Secretary Timothy Geithner, Testimony To Senate Finance Committee, Hearing On “The President’s Proposed Fee On Financial Institutions Regarding TARP,” 5/4/10)

BUT “MAJOR FINANCIAL INSTITUTIONS” HAVE ALREADY PAID BACK “DIRECT COSTS OF TARP,”

WHILE LARGEST TARP LOSSES COMING FROM AUTOMAKERS, FANNIE AND FREDDIE

CBO: “For The Most Part, The Firms Paying The Fee Would Not Be Those That Are Directly Responsible For Losses Realized By The TARP.” (Douglas W. Elmendorf, Director Of Congressional Budget Office, Letter To Senator Charles E. Grassley, 3/4/10)

Large Financial Institutions Have Already Repaid Taxpayers.  “Wells Fargo & Co. and Citigroup Inc. unwrapped their Christmas presents to themselves Wednesday: They both repaid their government aid, escaping heightened regulatory and public scrutiny. …With the actions by Wells Fargo and Citi, the nation’s four largest banks have returned their aid packages, as have several large regional banks. …J. P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, Capital One Financial Corp., and BB&T Corp. were among the first to repay earlier this year.” (Matthias Rieker, “UPDATE: Wells Fargo and Citi Complete TARP Repayments,” The Wall Street Journal, 12/23/09)

• And Repayment Of TARP Funds From Financial Institutions Has Turned Into Profit Of More Than $10 Billion For Government. “The US government has made more than $10bn so far on banks' repayments of bail-out funds, according to new analysis that suggests taxpayers might turn a profit on the unprecedented aid given to the financial sector during the crisis.” (Francesco Guerrera, “Treasury Makes $10BN From TARP,” The Financial Times, 4/6/10)

CBO Says Large Portion Of Losses From TARP Will Come From Automakers. “CBO currently estimates that the cost to the government of the TARP’s transactions—including investments, grants, and loans—completed, outstanding, and anticipated will amount to $109 billion. Much of that estimated cost is associated with the assistance provided to American International Group (AIG)—at a cost of about $36 billion—and the automotive industry—at a cost of about $34 billion.” (“The Troubled Asset Relief Program,” Congressional Budget Office’s “Director’s Blog,” 3/17/10)

• But Automakers Won’t Be Subject To So-Called “Financial Crisis Responsibility Fee.”  “It’s unclear precisely who would be subject to the fee. A person familiar with the matter said it’s unlikely for now to target auto companies or American International Group Inc., all of which are still struggling. Homeowners who benefited from government-funded housing help also wouldn’t pay the fee.” (Deborah Solomon and Damian Paletta, “Banks Brace For Bailout Fee,” The Wall Street Journal, 1/13/10)

And Warren Buffet Points Out Fannie Mae, Freddie Mac Owe Roughly $110 Billion From TARP, And Will Be Exempt From The Tax. “‘Look at the damage Fannie and Freddie caused, and they were run by the Congress,’ said Buffett. ‘Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so …’ Fannie Mae and Freddie Mac owe about $110 billion, according to Bloomberg data.” (Andrew Frye, Betty Liu and Jamie McGee, “Buffett Says He Can’t See Rationale for Bank Levy” Bloomberg 1/25/10)

OBAMA’S SAVINGS TAX WILL HURT CONSUMERS AND JOB CREATORS …

CBO: “The Cost Of The Proposed Fee Would Ultimately Be Borne To Varying Degrees By An Institution’s Customers, Employees, And Investors…”(Douglas W. Elmendorf, Director Of Congressional Budget Office, Letter To Senator Charles E. Grassley, 3/4/10)

• Obama’s Tax On Banks Will Hit Consumers In The Form Of Lower Interest Payments On Savings. SUZE ORMAN: “Here’s what I think. Every time we get involved and we impose fees on the banks and we do certain things, what do you think the banks do? Think they just take it and say, okay? They pass those fees whether you know it or not, in my opinion, down to the bottom line so that every single consumer ends up paying for those fees. … The truth of the matter is we are recovering it on the backs of every single taxpayer, every single consumer, every single person that is struggling today to just get by. … Where do they renew those CDs today in order to get income to live? Not at a bank giving that’s giving them 1%. And why so little? They’re paying zero for that money. Oh the fees and everything else so their bottom line’s can increase…” (MSNBC’s “Morning Joe,” 1/12/10)

Savings Tax Will “Crimp Bank Lending,” Hurting Bank Customers. “Of course banks (along with everyone else) benefited from government action to combat the crisis and someone must pay. Ultimately, it is likely to be banks’ customers. … Such penalties can crimp bank lending. If the tax is calculated on a rolling basis, the incentive to shrink balance sheets, and compete more vigorously for US deposits, increases. Meanwhile, international deposit-taking becomes more costly, while the appeal of off-balance sheet vehicles is perhaps enhanced.” (Editorial, “Obama’s Levy,” The Financial Times, 1/14/10)

• CBO: “The Fee Would Probably Lower The Total Supply Of Credit In The Financial System To A Slight Degree. It Would Also Probably Slightly Decrease The Availability Of Credit For Small Businesses.” (Douglas W. Elmendorf, Director Of Congressional Budget Office, Letter To Senator Charles E. Grassley, 3/4/10)
• JCT: Tax Could Hurt Banks’ Ability To Offer Loans To Small Businesses. “[A] Joint Taxation Committee report this month said that ‘because commercial loans are assigned the highest risk-weight of 100 percent, a tax on risk-based assets could prove a disincentive for an institution to make such loans … to small businesses.’” (David Rogers, “Baucus: A Bank Tax Is Coming,” Politico, 4/26/10) 

ALL TO FINANCE OBAMA’S BINGE SPENDING AGENDA

Rep. Barney Frank (D-MA) Admits Revenue From Savings Tax Will Be Used For More Government Spending, Won’t Be Directly Returned To Taxpayers. “I think getting revenue from these banks is a good way to get some revenue for necessary things ...” (CNBC’s “Street Signs,” 1/14/10)

Sen. Max Baucus (D-MT) Said Savings Tax Could Be Used To Offset Costs Of Upcoming Legislation.  “Finance Chairman Max Baucus, D-Mont., said last week that such a tax is also a possible offset for legislation (HR 4213) that would extend tax breaks that expired in 2009 and extend expanded unemployment insurance and health insurance subsidies for the unemployed through the end of the year. That package currently has a $27.1 billion hole following lawmakers’ decision to remove some of its offset to help pay for the health care package enacted last month.” (Joseph J. Schatz, “House Chairman Lays Out Spring Tax Agenda, Bank Levy Still In Planning Stages,” Congressional Quarterly, 4/19/10)