Obama's Latest Ruse: The Bank Tax

When president Obama was awarded Advertising Age's 2009 Marketer of the Year award, we were alerted to expect carefully crafted public relations posturing in defense of the reputation of Brand Obama. We have not been disappointed. The president has regularly taken verbal pot shots at the financial oligarchy in an effort to convey the impression that he shares the public's outrage at the behavior of the plutocrats. But he has thrown no sticks and stones at the banksters, who know as well as you and I that mere words can never hurt them.

None of Obama's faux outrage has been as disingenuous as his Wednesday announcement that he will finally respond sympathetically to the public's deep resentment of the administration's tolerance -and therefore encouragement- of the bad guys' looting of the public treasury.

Obama assured his constituents that he would "recoup every last penny for American taxpayers" by taking back, in the form of taxes on the banks, the wealth that households have been forced to transfer to the coffers of the instigators of the financial crisis.

The announcement was timed to offset what will surely be another surge of public anger at the expected announcement this week of the banks' year-end bonus payments.

The proposed taxes would apply to financial institutions with more than $50 billion in assets and would extract about $90 billion from them over ten years. Obama's central claim is that this would cover all losses incurred by the government under the Troubled Asset Relief Program (TARP). We are supposed to be relieved that households will in the end be repaid all that has been transferred from them by TARP. "We want our money back, and we're going to get it," said Obama.

Obama is perpetrating a ruse. The tax-the-banks proposal rests on conspicuously false empirical assumptions and very bad math.

A key premise of the tax proposal is that TARP is the government's sole gift to the financial elite. This is of course false: TARP is in fact a relatively small fraction of the State's total rescue effort. Financial institutions have also been treated to no-cost and virtually unlimited access to credit, broad guarantees against losses and lax regulation, to mention only the most conspicuous gifts. Even if TARP did represent the administration's total commitment to financial institutions, Obama's claim would still be nonsense. TARP handed $700 billion to the banks. How does $90 billion "recoup every last penny" of $700 billion? The president thinks, with good reason so far, that he can get away with anything. Anything. Hence the counterfactual premise and the slapstick math.

That's not the worst of it. Neil Barofsky, the Special Inspector General charged with overseeing the bailout plan, reports that the bailout could end up costing $23.7 trillion. Critics of Barofsky accuse him of exaggeration. Let's suppose they are right. Say Barofsky doubled the true cost of the government's commitment. So what? Bloomberg reports, with no challengers, that the cumulative commitment to financial rescue initiatives amount so far to more than $8.5 trillion. $90 billion is a small drop in a big bucket.

How do these figures compare to what working people have lost? Households have so far lost $12 trillion in wealth in the wake of the crisis. By the end of the third quarter of 2008, shortly after the announcement of an impending collapse of the entire financial system, households had already lost $647 billion in real estate, $922 billion in stocks, $523 billion in mutual funds and $653 billion in life insurance and pension funds reserves. Total destruction of household wealth in Q3 2008 came to $2.8 trillion, the worst decline on record. That comes to four times TARP's $700 billion. If "[w]e want our money back," we're dead out of luck. Obama knows this, but the man is an instrument of his financial masters, and the ad campaign functioning to obscure this reality requires deception. The president appears willing to oblige.