FRIDAY JANUARY 15, 2010

Politics at its worst.

President Obama has announced a proposed "Financial Crisis Responsibility Fee", a $80-120 tax on large banks.  The name of the proposal doesn't leave much to the imagination.  The name of the tax tells us, without a doubt, that the banks are "responsible" for the financial crisis.  Individuals who took out loans they could't afford...not responsible.  Ratings agencies that gave away AAA ratings like candy...not responsible.  Government subsidies of homeownership...just a well intentioned gesture.  Fannie Mae and Freddie Mac...well, I think I have beaten that horse.  Failure to regulate under the current laws...just an oversight.  There is plenty of blame to go around.  But make no mistake, the banks were major players in the crisis and bear much responsibility for the crisis.

But this tax is really a political punishment for the banks.  The notion that the banks must pay back the taxpayer for the TARP money it received is silly.  The government has largely been paid back with plenty of fees and interest.  Uncle Sam was well compensated for its TARP money.    Yet, the President claims the taxpayer needs to be reimbursed for $120 billion in TARP "losses".  But then, why tax the banks?  The bulk of the TARP "losses" are a result of TARP money at General Motors and Chrysler.  I guess the President is telling us to short the auto industry since he is clearly declaring the $120 billion as "lost."  He must not think GM will recover and pay back the TARP.  Dozen't bode well for GM, does it?

Perhaps the most obvious question is how this will help the economy?  Washington continues to pummel banks for their failure to lend to small business while at the same time reducing the capital available to make these loans.  Keep in mind, a typical commercial bank will lend out $10 in loans for every $1 of capital.  It is estimated that JP Morgan Chase will pay $2.2 billion per year in "Responsibility" tax.  That's a lot of loans that won't be made!  Remind me again how this is good for the economy?  Well, it is not.  It is simply politics at its worst.

POSTED AT 1899-12-30 13:44:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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