14 Jan Grasping at Fees: A Sure-Fire Way to Keep the Economy Bad and Unemployment High
After twelve consecutive months of telling the Wall Street firms that (a) They need to lend more, and (b) They need to lend more, and (c) The only way to fix the economy is for Wall Street to lend more, President Obama has proposed a plan to punish firms that participated in the “too big to fail” monstrosity of 2008 with a “fee”. And by “fee”, I mean $120 billion worth of fees. In fact, the largest of the financial institutions are being asked to pay upwards of $1-2 billion per year in these “fees”. So let’s see how this will play out.
(1) The bulk of the firms are going to fight it, and fight it with a vengeance. After all, the bulk of them were forced to take TARP funds against their will. And now, these companies have paid back the TARP moneys at a gigantic profit to treasury (people with developed vocabularies might call these dividend and warrant expenses: “fees”). Overall, I have no doubt that TARP will prove to be a loser, but the companies being asked to pay this fee were additive to TARP profits – not detractors. The companies that are actually going to cost TARP money are in no position to pay this fee, are not being asked to, and could not do so if they were. This is a rank double payment on top of the agreement previously agreed to by the firms who took (and have since re-paid) funds.
(2) I thought we wanted to get away from “too big to fail”? I thought we wanted to tell the world that “no financial firm is too big to fail”? Do you think that creditors, shareholders, bondholders, and trading counter-parties will see any of the firms that pay a “too big to fail fee” as “too big to fail”? I know this – if I was asked to pay a fee for my right to be so big, I would demand that the person I paid the fee to maintain my size, no matter what. I mean after all, I am paying for it. The point is that this sends a convuluted message to the marketplace, and must be rejected for once again acomplishing the exact opposite of what these collectivist politicians say they intend.
(3) I appreciate the fact that Obama’s pollsters have told him this fee is politically acceptable. To wake up one day and arbitrarily assess a tryrranically oppressive charge against an industry because you do not like what they do for a living is an acceptable thing to do in Mao’s Red China or Stalin’s Soviet Union. In America, it is the kind of thing that ought to start a revolution. “But these financial firms deserve it”, you cry. No doubt, the firms have no one to blame but themselves for how they positioned their balance sheets in 2008. Does Obama intend to charge a “too politically expedient fee to fail” charge on the midwest farmers they have been bailing out (with billions of dollars) for over twenty years? What about a “too poorly run to know what to do with fee” on the airlines who have received incalculable dollars from the taxpayers even as their normal operating conditions still could not be restored to profitablity? And I assume we will see a “too inferior to the Japanese fee” for the automakers, the bulk of which are now owned by the taxpayers, even as the White House fouled the rule of law in prioritizing their political friends over the rightful bondholder creditors last year? Of course not. These fees do not accompany adequate political populist rage, which is to say, envy. Politicians can not do things like this without first stroking the feathers of envy that permeate the masses.
(4) It once again punts away the responsibility of addressing the “too big to fail” mess that Congress created to begin with (along with their co-creator ally, the Federal Reserve). This is political tokenism, and does absolutely nothing to deal with structural challenges and regulatory framework. It is a sham; it just happens to be a sham that polls well.
(5) And finally, it will not cost the big firms anything. Corporations do not pax taxes, and they will not pay this fee, either. “We do not believe the fee will run directly to the bottom line”, said Oppenheimer’s Chris Kotowski. “We view it effectively as an increase in the wholesale cost of funds that will passed through to the customer.”
And that, my friends, sounds like a brilliant way to “get Wall Street lending more”. The one thing we all ought to know by now, even if we haven’t yet learned how dangerous and unwise targeted punitive malicious fees are: The only thing worse than bad ideology, is bad ideology combined with bad ideas. This idiotic propsoal is the lethal combination of both.