Posts tagged Financial Melt-Down

Back to the grind after a much needed vacation from Political idiocy.  There is just so much moronic activity you can deal with before it starts turning your own brain to mush.  Back to covering political stupidity, and the first subject is a doozey:  Barack Obama has announced intentions to levy a new tax an financial institutions, something laughingly called a “financial crisis responsibility fee.”

Why laughingly?  Well, it doesn’t tax those responsible for the financial crisis.

The financial crisis was caused by mortgage loans being handed out to people who were high credit risks.  These loans were given due to pressure from the Government, charging that the banks were engaging in racial discrimination in their decision not to give loans to these credit risks (i.e. “Red Lining”).

Also involved in giving out these loans were organizations known as Freddie Mac, Fannie Mae, and the F.H.A. (Federal Housing Administration), otherwise known as the Government.

These loans were bundled in an attempt to lower the risk involved and sold to the banks.   The banks that bought these bundled mortgages underestimated the risks involved.  They didn’t cause the financial problem, they were the victims of the ones that did (the Government).

That’s just the first problem with this so-called “Responsibility Fee.”

Another problem is the fact that the vast majority of the banks that took TARP funds  have already paid back the TARP funds, with interest.   (The only bank that hasn’t paid back TARP funds is Citigroup).  The Government has already gotten the TARP funds back from these banks.  Asking for more on top of what has already been paid is just double-dipping on the part of the Government.

Couple that with the fact that many of the banks that took TARP funds did so because the Government forced them to after deciding that the bank was in “financial trouble”.  The people running the bank didn’t think they need the money, and paid it back as soon as the Government allowed them to do so.  The fact that these banks are now showing a profit means the people running them were right, and the loan was not needed, and the Federal Government was wrong.

Think about that, the Government forced the banks to take loans they didn’t want, gets the loans paid-back with interest, and now wants to punish the banks for taking the money they didn’t want or need in the first place.

Then there is the fact that the “Responsibility Fee” will hit banks that never took TARP funds.  How can banks that didn’t hold these bundled mortgages, were never in financial trouble and never took TARP funds, possibly be responsible for the financial crisis?

Never mind, Obama will tax them anyway.

Then there is the effect that this “fee” will have.

To start with, the fee will not simply be absorbed by the banks.  They will pass the additional cost imposed by this fee onto the people that use these banks.  That means higher ATM fees, higher mortgage rates, higher fees on checking/savings, etc.

In other words,the fee will take  more money out of the pockets of the American Consumer.

It’s the consumer that drives the American economy, and taking more money out of their pockets will hurt economic growth.  This during a Recession with a double-digit unemployment rate.

Secondly, the fee has the potential to lower the Capitol available to these banks to give out in the form of loans.  (Assuming that attempts to pass the cost along aren’t completely successful)

This comes on the heels of President Obama lambasting banks for their failure to give out loans.

Excuse me, you say you want the banks to give out more loans and then turn around and propose a fee that will limit their ability to do so?   Given President Obama’s previous rhetoric and the fact that the banks have already paid back the TARP funds, the proposed fee makes absolutely no sense as long as you accept the supposed reason for it.

It gets even worse when you examine all the entities that also received TARP funds or that also played a part in the mortgage crises.  Chrysler and GM both took TARP funds, but are exempt from the new tax.  It probably doesn’t hurt that the Government is now basically running both these companies.  Do you really think the overnment would ever tax itself?

Then there is the matter of Fannie Mae and Freddie Mac.  These companies probably bear the majority of the responsibility for the financial crisis.  After all, they were the entities most responsible for the mortgages that were re-bundled and sold to the banks.  But they won’t be hit by the tax.

In fact, Freddie and Fannie will benefit from the tax.  The Government, in its infinite wisdom, decided to give the American People a Christmas present, and eliminated the $400 Billion cap on tax payer liability for loses incurred by these companies.

The Government basically told these two irresponsible companies that they could lose however much money they wanted, and then decided to tax the profitable banks (also known as the responsible banks) in order to pay for the losses.

It’s not a “Responsibility fee” it’s a fee to pay for irresponsibility.

The stink surrounding this idiotic proposal gets even worse.

President Obama announced this proposal on Thursday.  The very next day, the Democrats started using it in an attempt to keep the Massachusetts Senate seat vacated due to the death of Ted Kennedy.

Martha Coakley is ina very tight race against Scott Brown, in large part due to her support for the Democrat’s plans in regards to Health Care.

She immediately glommed on to the proposed fee in an attempt to change the subject away from Health Care.  Apparently, she can’t get elected unless she has an enemy to run against.

The problem is what happens when people in Government decide that profitable banks are the enemy.  A country where banks are not allowed to make a profit, is a country without the means to spur economic growth.