Banks Must Repay Taxpayers $90 Billion for Bailout: Obama

Declaring “We want our money back,” President Barack Obama wants to slap a tax on banks to recoup the money that the American public spent on bailing out large financial institutions on the brink of collapse.
The president said Thursday his goal is not to punish banks, but rather to prevent them from a behavior of excess, including new employee bonuses he called “obscene.” In brief comments at the White House, Obama took a deeply populist tone.

He said: “My commitment is to the taxpayer.” The president said big banks had shown irresponsibility, engaged in reckless risk for short-term profits, and had gotten themselves into a crisis of their own making.

Some firms would have to pay the fee even though many did not accept any taxpayer assistance.

Obama proposed that major financial firms pay the fee—expected to total $90 billion over 10 years—to protect taxpayers from up to $117 billion in losses on a bank bailout that has spurred fury at Wall Street excess.

Obama’s action comes amid mounting public anger over multi-million dollar bank bonuses while ordinary Americans struggle in the face of 10 percent unemployment.

“The fee that is put forward here is in many ways a minimum — a minimum of what is owed back for the rather significant costs that are borne in many aspects by the taxpayers,” an administration official told reporters.

The levy will recoup losses from a $700 billion taxpayer rescue of U.S. banks called the Troubled Asset Relief Program, or TARP, conceived in 2008 by Obama’s predecessor, George W. Bush, at the height of the global financial panic.

Forged after the collapse of U.S. investment bank Lehman Brothers and multi-billion dollar rescue of insurance giant American International Group

ARP helped stem the crisis by injecting public capital into the biggest U.S. banks and convincing investors no others would be allowed to fail.

The action, together with massive monetary and fiscal policy stimulus from the government and Federal Reserve, was unable to deflect the country’s worst recession since the Great Depression, which has pushed unemployment to a 26-year high.

However, that did not obstruct bumper profits on Wall Street as stock markets rebounded sharply in 2009 from crisis-lows.

This has helped many of the banks repay their TARP injections, freeing them of government rules on compensation and allowing them to now pay out major staff bonuses.

Banks that have already repaid TARP capital will not be spared the fee, and nor will firms that got no TARP money to start with, but nevertheless benefited from the stability it brought to the U.S. economy, the official said.

Full details of the fee proposal will not be laid out until Obama delivers his budget for fiscal 2011 in early February, and will then be subject to shaping by Congress. The plan will include a levy of 15 basis points, or 0.15 percentage point, on the balance sheets of big firms with assets of more than $50 billion.

The Obama administration expects to raise $90 billion over the first 10 years, and thinks this will ultimately cover all losses from TARP, although at the moment these losses are being projected at $117 billion.

“The banks that are in question were significantly responsible for an enormous degree of the reckless risk-taking that was borne throughout the entire economy,” the official said.

AIG will be subject to the fee. But mortgage lenders Fannie Mae and Freddie Mac, which are under government conservatorship, will be excluded, as will U.S. automakers who got bailout money.

Public rage at bankers, whom Obama chided in December for their “fat cat bonuses,” has taken on a deeper political dimension as Democrats who control Congress weigh sweeping financial regulatory reforms in the face of stiff industry opposition.

Wall Street chiefs were grilled Wednesday at the opening hearing of a special inquiry into the 2008 financial crisis and the resulting taxpayer bailout to save their industry.

The White House said Wednesday that an apology was the least the country expects to hear from the banks.

The heads of Goldman Sach, Morgan Stanley, JPMorgan Chase and Bank of America aced the first public hearing of the Financial Crisis Inquiry Commission.

It will convene throughout the year and is expected to issue a report by Dec. 15.