ARE THE BANKS BEING "PUNISHED?"

There iS more than enough wisdom going around political circles in he U.S. today about the Obama "tax" on banks: it is using the I.R.A.to "punish" the banks, or -it is purely political because the people are angry at the banks and taxing them is good politics for the Democrats, or - (and this is my favourite) the banks are not to blame, it is the failure of regulatory bodies to step in, or - it the government's responsibility because they let the banks (some even go so far as to say "encouraged") go their own merry way with some of the dodgiest investments ever seen.

I got into it last night with someone who asked me: "What is your take on the Obama move to tax the banks?" I said that I have a sense that some of it is political. From there on in the conversation went toward argument that it as unfair to tax banks when they had already paid back their TARP money all the way to arguments that the move was "socialistic."

I do realize that some of the banks have paid back the money, but the banking industry as a whole is still responsible for the chaos that hit the country back in the Fall of 2008. So bad that the Bush government held their noses and intervened. Hank Paulson set up TARP (Troubled Asset Recovery Program) to save the banking industry and to save the world from a depression that might have dwarfed 1929.
But that's all history.

I find it quite astonishing that the bankers should be offended by the Obama move. Meeting before the committee examining the causes of the 2008 meltdown, the bankers seemed oblivious to reality. There were statements that the meltdown was a once-in-100-years event, sort of like a hurricane or an earthquake.(See Paul Krugman in today's NY Times.) In other words: it just "happened." Are we to bellieve that the bankers do not understand that it was their out-of-control "investment" policies that caused it? That it was the wanton purchase of rubbish like Credit Default Swaps and Mortgage Backed Securities and totally covert derivatives? (covert because no one is really sure how much money is in there or what the derivatives were held against or for.)

Just as galling is the bleat that it was not only the banks fault. It was the regulators. It was the SEC failing to monitor things. (The SEC tried, without success to have banks and brokers selling derivatives and hedge fund companies dealing in wild gambles - to disclose where their nvestments were.) But to haggle over responsibility was nonsense. Does it require a law to stand between good sense and insanity? Does a bank not know that it is risking its depositors' money on shaky securities or betting that the real estate market cannot possibly be a bubble?

Obama's move may have political overtones, and it may be abusing the system to use the IRS to "punish," but someone has to wake up.

One of the great ironies of the "recovery" by many banks was that not only did they receive TARP funds, but they got repaid for those worthless Credit Default Swaps. AIG was the company selling them.Their worthlessness contributed to the near collapse of AIG which got billions to stay afloat. Much of those billions were paid by I.A.G. to banks to honour those Credit Default Swaps. Nice work if You can do it. And they did!

p.s. (posted Feb 15) I am not claiming any kind of prescience. The news of the TARP money being used to pay off AIG's credit default swaps is not news. But just last week, as one of a two part series on PBS news, the issue of Goldman Sachs making profits from repayments by AIG was highlighted, almost as a revelation.