The big banks live in a parallel universe.
In their universe, the financial meltdown was beyond their power to stop. The recession that left more than 1/10th of the American workforce unemployed is a shame they had little to do with. The massive government bailout of the financial system was an opportunity to make a tidy profit so that you could give your executive hefty bonuses. And the budget deficit that was catapulted to its current highs because of the recession proves that the government has gotten too big.
Executives of Bank of America crawled deeper into their walled-off mansions today. In response to attorney generals and community groups calling for more relief to foreclosed Americans they invoked the principle of “moral hazard”.
“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?”
Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”
The big banks personify moral hazard.
Once again, they’re busily amassing hefty profits on Wall Street trading even as hundreds of billions of dollars remain in their cash reserves at the Federal Reserve. In the mean time the unemployment rate in America hovers at 9 percent, and the federal budget deficit stands at $1.5 trillion.
And the banks and their lobbyists are working hard to keep the focus of the debate on how to close the revenue shortfall with spending cuts to programs that support America’s most vulnerable. They’re allies in this fight are Republican Members of Congress whose lust for cuts can’t be satisfied. And they are being abetted by Democrats in Congress and a President unwilling to take them on.
America has a choice. Budgets, after all, are about expenses and revenue.
When banks and Wall Street profit without pitching in, America suffers. Banks must shoulder more of the burden for shrinking the deficit.
Here are four ideas to get us started.
The Financial Speculation Tax: Also referred to as the Financial Transaction Tax or the Robin Hood Tax, this proposal would place a modest tax on Wall Street trading. A tax rate of ¼ of 1 percent on a stock purchase or sale and a tax rate of 1/50th of 1 percent on the sale or purchase of a future, option or credit default could raise revenue in the amount of $1 trillion over ten years. Such a tax would not only raise significant revenue, it would also increase the costs associated with the kinds of reckless speculation that harmed the financial system in the first place.
The Banking Responsibility Fee: Last year the White House proposed a small fee on the biggest banks and financial institutions to recover bail-out funds and reduce the deficit. Called the Financial Crisis Responsibility Fee, it would have raised $117 billion in revenue over twelve years and another $90 billion in the following 10 years. As envisioned, this fee would apply only to large institutions with consolidated assets of $50 billion or more. The fee would be assessed at approximately 15 basis points (0.15) of covered liabilities and allow for some exemptions as appropriate.
The Big Bank Bonus Tax: Last year, Senators Webb (VA) and Boxer (CA) introduced the “Tax Payer Fairness Act” that would tax Wall Street bonuses of $400,000 or more at 50%. There is not currently an estimate of how much revenue this could create, however the top 6 banks were on track to give $143 billion in compensation and bonuses as of December, 2010. Such a tax could have the added value of encouraging responsible leadership among financial institutions.
Close Corporate Tax Breaks. There are numerous tax breaks and loopholes in America’s tax code that help corporations avoid paying taxes. A recent study from Citizens for Tax Justice describe five separate tax breaks, that if eliminated could raise a total of $450 billion over five years. These loop holes include tax breaks or deferrals on US-controlled corporations abroad (note that Bank of America alone had 143 off-shore subsidiaries in tax havens in 2008).
What happens if we don’t pursue these common sense proposals?
Today, the U.S. Congress is debating up to $60 billion in cuts to the remainder of the FY2011 budget.
These cuts would have real human costs. According to analyses by the Coalition on Human Needs, 218,000 young children would lose Head Start services, 11 million patients would lose health care access to Community Health Centers, 20 million Americans would have access to anti-poverty services disrupted, 9.4 million college students would lose some or all of their Pell grants, 8 million adults and youth would lose access to job training and other employment services.
Altogether, the cuts being considered in Congress now have the added harm of slowing economic recovery.
In the universe the rest of us live in, we don’t have a Federal Reserve Bank to push new cash into our bank accounts or to extend us nearly zero interest credit regardless of our choices.
It’s time for the banks to pay their fair share. Anything short of the proposals above is hypocrisy at its worst.