What the banks owe America

Just a couple of thoughts on President Obama???s speech in Pittsburgh, which test-drove his party???s theme for the fall election: ???We want to go forward, they want to go back.??? I was struck by how little applause the president received -- until he renewed his call for a $90 billion tax on large financial institutions. Obama first unveiled the idea last January, declaring, ???We want our money back.??? It brought the house down again today. While it may be a crowd-pleaser, this particular proposal has never struck me as entirely fair. The tax is supposed to recoup losses in the $700 billion Troubled Assets Relief Program authorized by Congress in 2008. But banks and financial institutions (with one exception I???ll get to in a minute) are not to blame for TARP???s losses. In fact, the major banks -- some of which didn't want or need the money in the first place -- have all paid back the capital injections they got from TARP, with interest. The taxpayer made money on that deal. TARP???s total projected losses are down to $105 billion -- a modest price for avoiding a second Great Depression, I might add. According to the latest Treasury numbers, this reflects three major items: $49 billion for a mortgage relief program, which the banks are already supporting; $28 billion for the auto industry bailout; and $45 billion for AIG. Of the three, the only one that can remotely be pinned on the financial institutions is AIG, whose bailout did, indeed, benefit counterparties such as Goldman Sachs and some banks -- including a lot of European ones. But AIG, like the auto companies, is on the mend and shows signs of paying back more of its aid than was once expected, notwithstanding the aborted sale of its Asian subsidiary to Britain???s Prudential. If you accept the rationale for the AIG bailout -- that it was necessary to rescue the entire financial system, and, by extension, all the other big banks -- then I suppose there???s a case for taxing them, and only them, to pay for it. Why they should have to pay double the expected loss still escapes me, however. There might be a separate argument for a bank tax to tamp down the sector???s risk-taking. This one, though, looks like an exercise in punitive populism.