New Bank Fee To Cover TARP Losses
The Obama Administration must come up with a plan to cover bail out losses in 2013. This is separate from the Financial Reform Bill although it may not be separate when the Financial Reform Bill becomes law. Geithner introduced the plan to a committee chaired by Baucus.
Here are the highlights of the plan as I understand them. There is no way to attain the money to cover TARP losses without imposing a fee on investment firms. But with the economy recovering from a deep recession and the unemployment level still near 10%, the question is: Is it a good idea for Congress to pass a bill that imposes an additional fee on our financial firms?
The size of the fee would be proportional to the FDIC fee. The exact fee would be determined by the risks and leverage a financial firm acquires and the capital that firm has to cover those risks.
First, lets place the TARP losses in perspective. The truth is we don’t know the total TARP losses and we won’t know the total losses until 2013. We know that the TARP losses were at 500 billion dollars. Today the TARP losses are 117 billion dollars.
I collected a few details from listening to the first part of the meeting with Geithner. The fee would only apply to those banks that were eligible for the bail out. GM would not have to pay a fee because GM did not contribute to the crisis. Also Fannie May would not have to pay a fee because paying a fee would effectively be the government paying itself.
With regard to TARP, the government received 200 billion dollars from the banks and 100 billion dollars from AIG. The risk of TARP losses due to AIG is significant although that risk is significantly lower than it was.
And GM is re-emerging stronger than anticipated. That also may result in less TARP losses.
Geithner pointed out that the IMF supports this proposal to recover TARP losses and that the IMF is imposing a tax on profits to cover any future financial crisis.
Here is one point that was made although I am not sure whether this item is in the financial reform bill or the TARP loss bill: The bill(s) will require that all risks and capital be included in every quarterly report to investors. I don’t know the details of this nor do I know how it will look when the two bills become public law.
So the major question is: If the Obama administration isn’t mandated to deliver a plan for recouping TARP losses to Congress until 2013, why is the Obama Administration and Geithner introducing one now?
The Republicans will claim that this is a political gimmick designed to appease an angry public demanding retribution from Wall Street. And to be honest: I cannot completely discredit that claim. The Republicans are walking the tight rope. If they try to stall this TARP loss legislation, the Democrats will claim that the Republicans are siding with Wall Street. The Republicans will claim that any additional fee on the financial institutions will cause tight credit and will hurt small business.
Much as I would love recouping TARP losses and thereby lowering the national debt, I wonder if small business and the taxpayer will not still have to pay the price in some indirect manner.