Business Times - 19 Jan 2010
Channelling populist anger to Wall Street
Obama's US$90b bank tax aimed at pacifying angry Americans, undermining Republicans
By LEON HADAR
THE opening session of the Financial Crisis Inquiry Commission (FCIC) hearings on Capitol Hill - during which bankers from America's top financial institutions faced tough questions about the role that the banks had played in the financial collapse - looks like the first scene in a populist drama being staged by the Obama administration and its allies in Congress.
The main villains in this political production are all those infamous Wall Street companies that, after being bailed out by the American taxpayer, are now getting ready to reward their employees with record pay - around US$145 billion, according to the Wall Street Journal. Moreover, this is happening at a time when many Americans are losing their jobs and most of them are continuing to experience economic pain.
There is no doubt that Americans are angry, very angry, at those who brought about this mess. The White House and the Democrats are hoping to channel that populist anger in the direction of Wall Street, and if possible, to implicate the pro-business Republicans in the process.
Thus, President Barack Obama and his political partners are trying to counter the spin promoted by the noisy Tea Party members. The Tea Party movement is defined by what its adherents are against: They are against the power of the educated class; They believe government, big business, big media and the rich professionals are a self-serving oligarchy; they are against bloated government, deficits, taxes and intrusive regulation.
They blame the current economic mess and the misery experienced by America's middle class on the 'socialist' policies of the occupant of the White House.
The new strategy being pursued by Mr Obama and the Democrats is aimed at demonstrating to the Tea Party faithful as well as the general American public that the real culprits in Washington are the Republicans and to depict them as the political puppets of Wall Street while marketing the Democrats as the real representatives of Main Street.
So a day after the FCIC had begun its hearings, during which commission chairman Phil Angelides seemed to associate the CEOs of four Wall Street banks - Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley - with crooked car salesmen, and against the backdrop of the bonus season on Wall Street and the media frenzy about bailed-out banks' record profits, Mr Obama announced that he was going to tax the largest 50 banks and other firms in what sounded like punishment for their role in the economic crisis.
Mr Obama, who for months had been slammed by critics on the political left for failing to take a tougher approach regarding Wall Street, seemed to have emerged as a populist fighter a la Michael Moore when he unveiled his proposed US$90 billion bank tax.
'We want our money back, and we're going to get it,' he stated, displaying an uncharacteristic sense of anger and employing some of his harshest rhetoric vis-ÃƒÂ -vis America's bankers. 'My commitment is to the taxpayer. My commitment is to recover every single dime the American people are owed. And 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 - folks who have not been made whole, and who continue to face real hardship in this recession. We want our money back, and we're going to get it.'
Wow! And now on to the barricades, comrades . . .
There was certainly a strong element of histrionics in the Wall Street bashing that has been taking place in Washington in the last few days. 'I'm just gonna be blunt with you,' FCIC chairman Mr Angelides lectured the somewhat humbled investment bankers. 'It sounds to me a little bit like selling a car with faulty brakes. And then buying an insurance policy on the buyer of those cars. It doesn't seem to me that that's a practice that inspires confidence . . .'
Goldman CEO Lloyd Blankfein responded that his company's customers were 'professionals investors'. But Goldman sold bad securities to 'pension funds who have the life savings of police officers', retorted Mr Angelides.
These and other angry exchanges between members of the commission, serving as a proxy for the American people, and the Wall Street executives, helped create the kind of political momentum that Mr Obama needed when he proposed the new tax on banks as a way of reimbursing America's taxpayers for the costs of the Wall Street bailout.
In fact, much of the money provided by Washington has been repaid by the banks.
But facts are not likely to stand in the way of the populist push. The anti-Wall Street mood in Washington could also boost proposed legislation aimed at restricting the ability of banks to pay gigantic bonuses to their employees. Again, it is unlikely that the so-called 'financial crisis responsibility fee' that will only hit banks with more than US$50 billion in assets could prevent another financial crisis.
Washington remains committed to averting the collapse of those financial institutions that are considered 'too big to fail'. And that reality will probably continue to provide the big banks with incentives to take new and dangerous risks in the future.
But as noted, the main rationale behind the new tax is political - to try to assuage the anger of the American people while forcing the Republicans to make a clear choice: Will they agree to take a step that runs so much contrary to their free-market ideology and agree to impose punishing taxes on big business? According to the White House, about 60 per cent of the tax will be paid by the 10 largest financial firms.
Or will the Republicans dismiss the tax on Wall Street as another example of the 'socialist' agenda of the Obama administration and its Democratic pals - and risk a potential political backlash from many American voters who could end up punishing the Republicans for promoting the interests of the detested bankers.
The Republican Party has already denounced the proposed tax as 'just another Obama scheme'. This has led White House Press Secretary Robert Gibbs to respond by saying that 'if you want to be on the side of big banks, this is a good country, you are free to do so'.
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