President Barack Obama on Thursday proposed Wall Street banks pay up to $117 billion to reimburse taxpayers for the financial bailout, as he slammed bankers for their massive profits and obscene bonuses.
Striking a populist tone, Obama called for a fee on the biggest U.S. banks to recover every single dime the government spent rescuing the financial sector from its worst crisis since the Great Depression.
My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people, Obama told reporters at a White House event.
Obama and his Democratic allies in Congress are seizing on the chance to cast Wall Street as its political foil in a congressional election year when their party is worried Republicans might weaken its majority status.
Obama, who has labeled financial executives fat cats for the huge bonuses they have received, is taking an increasingly tougher line against the industry.
Democrats hope that will resonate with an American public furious at multimillion-dollar bonuses being handed out by banks as the middle-class struggles with double-digit unemployment.
The fee is also aimed at helping to reduce the ballooning U.S. budget deficit.
Democrats in Congress signaled they would quickly take up the legislation.
Senate Finance Committee Chairman Max Baucus praised Obama for working to ensure taxpayers see a return on their investment.
I remain committed to working with the president, and my colleagues across the aisle, to make sure this proposal is right, he said.
REPUBLICANS CRITICIZE FEE
But Republicans may try to block it. Some of them have criticized the bank fee as a tax that would be passed on to small businesses and Americans with savings accounts.
Republican Representative Scott Garrett said the bank tax would further cripple the economy through its impact on consumers and small firms.
The aim of Obama's proposal is to recoup losses from the $700 billion rescue program of U.S. banks called the Troubled Asset Relief Program, or TARP.
It calls for a levy of 0.15 of a percentage point on the balance sheets of companies with assets exceeding $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.
Bank analysts at Credit Suisse said the impact would be felt heavily by Wall Street powerhouses Goldman Sachs Group and Morgan Stanley.
They saw it denting Goldman's earnings per share by 10 percent in 2011 and Morgan Stanley's by 19 percent. U.S. bank shares ended Thursday higher, recovering from earlier slippage in the week when investors had anticipated the levy.
Obama has suffered a backlash for supporting the rescue program, which was begun in the Bush administration.
Forged after the collapse of U.S. investment bank Lehman Brothers and multibillion-dollar rescue of insurance giant American International Group, TARP 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 administration said it was needed to avert a catastrophe in the broader economy, but it did not prevent the country from sliding into a deep recession that has pushed unemployment to a 26-year high of 10 percent.
Wall Street has rebounded, raking in bumper profits. This has helped many of the banks repay their financial bailout funds, freeing them of government rules on compensation and allowing them to pay out major staff bonuses.
Big financial firms consider the fee unfair because it will apply even to those companies that have already repaid the rescue funds they received as well as to firms that got no bailout money to start with.
But the White House argues that the industry as a whole benefited from the calm the rescue package brought to the markets. Obama also said the financial industry bears responsibility for the crisis because of what he said were its reckless actions that led to the subprime mortgage meltdown.
Financial industry analysts said the fee would act as a drag on the sector, though the fact that the fee will be spread out over 10 years lessens the impact.
It throws some sand into the gears. It's one more thing dragging on the sector, but it's spread over 10 years, so it's not so consequential. It's petty theft from bank balance sheets, said Robert Albertson, chief strategist at Sandler O'Neill in New York.
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.
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 still-ailing U.S. automakers that got bailout money.
The bank fee proposal come as Congress is weighing sweeping financial regulatory reforms in the face of stiff industry opposition.
Obama is pushing such an overhaul, but some liberal supporters of Obama have accused him of coddling Wall Street by not seek a more robust package of Wall Street reforms.
Wall Street chiefs were grilled on Wednesday at the opening hearing of a special inquiry into the 2008 financial crisis and the resulting taxpayer bailout to save their industry.
The heads of Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America faced the first public hearing of the Financial Crisis Inquiry Commission. It will convene throughout the year and is expected to issue a report by December 15.
Obama said the goal of the bank fee is not to punish Wall Street firms but rather to prevent the abuse and excess that nearly caused the collapse of many of these firms and the financial system itself.
We cannot go back to business as usual, he said.
(Editing by Vicki Allen and Mohammad Zargham)