By Markos Kaminis
Last week, the President proposed his Financial Crisis Responsibility Fee, a tax on our nation’s 50 largest financial companies. The proposed fee has been engineered to recover funds provided to the banks to ensure their survival through the financial crisis, and to save the country’s financial system.
There are various possibilities why the Administration seeks to impose this fee. The President may simply intend what he states, to ensure that those who benefited from the TARP payouts meet their obligations. The benefit to him and his party is clear from such intent, as he will demonstrate to the American people that greedy executives will not pay themselves big bonuses at the cost of the American taxpayer.
As with any political question, we cannot ignore other possibilities. As the Treasury Budget deficit expands due to stimulus and other government spending that is matched against slimmer government receipts, the President is under intensifying pressure to find money. Tapping into popular sentiment that stands against Wall Street offers an easy way toward those funds. Finally, there is the possibility that the Administration only seeks to better position itself for political jockeying.
While I understand the President’s ire toward irresponsible and selfish executives at work on Wall Street, I disagree with his response. The American President pushed the tenets of capitalism aside, by proposing a new special levy on what appears an unscientifically identified group of financial organizations. The action seems to me a naive and sloppy hacking for the sake of a misguided sense of righteousness, or perhaps yet another politically motivated perversion of the American way.
Still, I am almost apologetic for my words, because I am far from favoring the excesses and selfish activity I see at the TARP and other government saved firms. The bonus jockeying that occurred on Wall Street last fall disgusts me. Several bank corporate executives determined their firms should sell new shares of stock in order to raise capital, so that they might repay TARP loans early.
Before you pat them on the back for their great sense of responsibility to the government, let’s examine their incentive and who bore the real cost. The reason existing shareholders’ stakes were diluted by these hurried equity offerings could be attributed to corporate executives’ intent to once again collect the bonuses they had grown accustomed to over the years. You see, just before these slick maneuvers occurred, the government decided no TARP baby could pay bonuses to their executives. So, the entire nursery made a break for it.
Even so, free market capitalism works best when the game is played fairly, and two wrongs do not make a right. We should not impose surprise taxes on the shareholders of these firms. What we should have done is taken equity stakes in the firms, enough to ensure bonuses would not be paid out. Casting a broad net is unfairly catching goldfish along with the sharks now.
Maybe though, it takes some naiveté’ to get great things done, and perhaps this is just the cost we bear for it. It is possible that shareholders might punish their corporate leadership and improve corporate governance as a result of this bill, should it become law.
The destructive effect of this Presidential proposal is to raise uncertainty around this government. Investors and corporate America will worry now that the government makes rules up as it goes along, and therefore cannot be trusted. The idealist in me doubts a bill like this could pass through Congress, but the realist, who knows what short length political will extends, worries it might.