Fed Profits, Let's Tax Again

Hank Paulson, the former Secretary of the Treasury, and Ben Bernake, the Chairman of the Federal Reserve, have come under tremendous reputational pressure in the last month for their handling of the economic crisis.

Recall WAY back in 2008, when the world was on fire. Lehman Bros. had failed, Morgan Stanley and Goldman were on the brink. AIG needed saving. I argued here that the TARP (and other alphabet soup on Fed actions) was good both for the economy and the taxpayer. It was money well spent (unlike the crap that was the Federal Stimulus bill).

Fast forward to now. Today, it was reported that the Federal Reserve made record profits from their extreme market crisis actions. They reported a $45 billion profit in 2009. That profit will be distributed to the Treasury. To quote the Washington Post, "The numbers are good news for the federal budget and a sign that the Fed has been successful...in protecting taxpayers as it intervenes in the economy." The Fed's aggressive action of buying mortgage-backed securities and other collateral from the banking system and issuing emergency loans to banks was quite effective.

Although the Fed recorded a $3.8 billion decline in the value of the loans it made in bailing out Bear Stearns and AIG, but that loss was offset by $4.7 billion in interest payments from those loans.

That's just the Fed, you say? True. But it was also reported in December that $165 billion of bank TARP funds have been returned - almost three quarters of the money distributed to banks. As per MarketWatch.com, "Bank investments of $245 billion in Treasury's 2009 fiscal year were initially projected to cost $76 billion, but are now forecast to generate a profit. 'Taxpayers have already received over $16 billion in profits from all TARP programs and that profit could be considerably higher as the Treasury sells additional warrants in the weeks ahead,' the Treasury said in a statement. "

TARP hasn't been all roses. The mistake using TARP money for other worthless items not on the original agenda like bailing out the auto industry and giving more money to AIG. Nevertheless, the White House has asked to use the returned TARP money for other hairbrained items. But clearly the banks will get some vindication, right?? ah... No.

WHY WASTE GOOD POPULIST RHETORIC EVEN IF THE FACTS DON'T SUPPORT IT?

NY Times - Obama Considers Bank Fee to Help Cut Deficit January 11, 2010, 11:39 am —

President Obama is likely to propose a fee on financial institutions to help reduce the federal deficit when he releases his budget plans in February... The bank fee would recover some of the money that taxpayers put up to bail out the financial system after its near-collapse in the fall of 2008, a rescue effort that has contributed to the largest annual budget deficits since World War II, The New York Times’s Jackie Calmes reports from Washington...With popular anger building as big banks show profits and pay sizable bonuses while unemployment remains high, the Obama administration has come under pressure at home and abroad to support a financial transactions tax on institutions and to heavily tax their executive compensation.

This is WRONG is so many ways! Here's two: 1. ummm, the BANKS aren't the one's the are going to blow up the deficit. Meanwhile, the $80 billion TARP investment in GM and Chrysler is likely ... GONE. AIG... who knows. 2. Anyone who understand economics knows that fees charged to a business institution are a hidden tax on the consumer of that institution. Fortunately (read: sarcasm), the tax won't apply to community banks. So, if you bank at Citibank, you'll help fund the deficit, but if you bank at Lakeshore Community Bank, you won't. Absurd.