“The user fee is a partial payment for the implicit guarantee it receives from Uncle Sam. The rationale behind such a fee is that since taxpayers are bearing an implicit risk on [the institution's] activities, it is reasonable that the federal government recoup fees to pay for that assumption of risk. The main advantage of such a fee is that it would help level the playing field between [the institution] and its fully private competitors.”
What is “[the institution]“? It’s Fannie Mae, and that’s Stephen Moore of the Cato Institute testifying before Congress in 2000 in support of “a ‘user fee’ of 10 to 20 basis points on [Fannie's and Freddie's] debt to level the playing field between Fannie and competitors.”
That’s from Representative Brad Miller’s op-ed pointing out that a small tax on debt issued by financial institutions that enjoy an implicit government guarantee is something that Republicans (and even the libertarians at Cato) used to be in favor of. The best reason for President Obama’s proposed bank tax is not to punish banks or to recover the money that the government is likely to lose via TARP; it’s to level the competitive playing field (although it doesn’t do enough).
As Miller points out, the battle over Fannie and Freddie was a battle for profits between them and their competitors, in which both sides mobilized whatever Congressional support they could. As it turns out, the competitors were right: Fannie and Freddie did enjoy a government guarantee. Now those competitors are the ones with the government guarantee.
But does reminding Republicans that they used to support something help when you try to get them to support it now? Apparently not, judging from the Medicare cost growth-reduction provisions in the health care reform bill.
By James Kwak