Sunday, January 17, 2010

When in Doubt, Blame a Banker

Below is an interview with Treasury Secretary Timothy Geithner regarding the proposed Bank Tax. Among other things, it exposes the fact that the federal government obviously made no provisions to recoup TARP funds. However, when the Troubled Asset Relief Program was passed, I remember them saying it was an "investment" and that taxpayers would "benefit" in the long-run. Well, now the government is turning to their old friend (taxes) to vilify and punish the banking industry.

The first question that came to my mind was, what about the banks that were forced to take TARP funds? For example, according to former BB&T CEO John Allison, BB&T did not request nor did they want TARP funds. However, they, among several other healthy and responsible banks, were summoned into a closed-door meeting with the Treasury Department and essentially forced to receive funds. This was in an effort to hide which banks were stable and which were on the brink of failure. Naturally, BB&T was among the first to repay their TARP funds. Therefore, it doesn't seem "fair" (to use the parlance of our times) that they should now be taxed for receiving the TARP funds?

The more obvious question may be, what about the other industries which received bailouts? Shouldn't we tax the automobile or the insurance industries? Or should we continue rewarding GM for continuing to fail?

At one point, all the TARP recipients were "too important to fail." Obviously they are not too important to vilify and throw under the bus. Or was that the point? Maybe the plan all along was to bail out the important industries in order to rob them of their sovereignty and enable the federal government to use them as political punching bags, fiscal scapegoats, and enact targeted policy in the name of taxpayer fairness. Okay, maybe that wasn't the plan, but it sure is becoming a very convenient strategy for the current administration.

Well, enough from me - see a sample of the interview below, and click on the link to read the entire transcript.


In an exclusive interview, Treasury Secretary Timothy Geithner, discusses the reason behind this move. He also talks about the risk of a double-dip recession and the unemployment rate.

Q: Jamie Dimon said you should not have tax policy that punishes individual firms.

A: This policy is not designed to punish. It is designed to meet the simple, practical, legal obligation, and we are doing it in a way, I think, it makes economic sense because we are doing it in a way that is, in effect, a tax on leverage, it is a tax on risk in some ways, and it is borne by the people that benefited most from the crisis. That seems fair.

Q: Do you have any concern that this tax will have any damaging effect on the economy, on lending? And if not, why not make it higher, since we have got a rather large budget deficit right now?

A: Let me start with the second. The ultimate costs of solving this financial crisis are going to be dramatically lower than anybody thought was possible. But a financial crisis like this caused a lot of damage, there is still going to be some cost. But the legal obligation is to make sure we cover that cost. So, conservative estimates, the cost of the crisis may be in the range of USD 100 million, slightly higher. So this is designed to make sure we cover those costs. That is why we did the size this way.

Click here for the entire interview.

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