President Obama just released his budget for fiscal year 2013.In it, he calls for a “financial crisis responsibility fee” to in part help repay the cost of TARP. The move comes as Wall Street campaign donations continue to flow away from the President and towards his rivals.
The estimate for the total cost of TARP currently stands at $68 billion, which the President says is only one fifth its initially projected size.
But the goals of the fee are not aimed at simply recovering the full cost of the bailout program for taxpayers. The President says that the fee is meant to “discourage excessive risk-taking” and argues that financial firms’ debt to the government does not end with repayment of individual TARP investments.
Instead, the President says that the benefits of TARP went far beyond the actual assistance received:
“Furthermore, although many of the largest financial firms have repaid the Treasury for the direct Troubled Asset Relief Program (TARP) assistance they received, the entire financial system benefitted enormously from the support that TARP provided during a period of great economic upheaval.”
Also among the goals of the fee is to compensate taxpayers for the costs of the newly announced mortgage settlement.
The fee will apply to firms with assets over $50 billion and would be apply until at least 2022 and potentially longer. The President’s budget says the fee will help to reduce the deficit by $61 billion over 10 years.
The fee is not the only section of the budget where the President singles out Wall Street.
The introductory section called “Building A Strong Economy” contains this paragraph that succinctly distills the continued divide between how the President and Wall Street:
“The recent recession was not just the result of a turn in the business cycle. Rather, it was the result of a perfect storm of excessive risk-taking, inadequate disclosure, non-existent or myopic oversight, individuals and firms who chose to leverage themselves beyond their means, and in some cases outright deceptive lending practices that led too many Americans to take on debt they could not afford. In sum, it was an abdication of responsibility from across many actors in the financial system.” [emphasis added]
This rhetoric stands in stark contrast to what leading figures in the industry see as the cause of the crisis.
Indeed, many of Wall Street’s leading executives continue, publicly and privately, to disagree with most of those bolded sections. Publicly, senior leaders of banks continue to insist that the crisis and resulting downturn were simply cyclical episodes. Goldman’s CFO David Viniar was sectoral episodes that latest to make that case only four days ago.
With this budget, the President is drawing a line beneath these differences. And it being an election year, he will likely continue to make similar arguments right through November.