Let’s hope this gets laughed out of consideration. According to the New York Times, the Securities Industry and Financial Markets Association is considering a lawsuit on the grounds that “a tax so narrowly focused would penalize a specific group.” The Times articles doesn’t use the words, but I’m guessing they are thinking of claiming that it is a “bill of attainder”–an act of Congress that punishes specific people for alleged wrongdoing, without a judicial process–which is specifically prohibited by the Constitution.
But even leaving aside the fact that the Supreme Court has rarely overturned anything as a bill of attainder, there are not one, but two barriers in the way. The first is that the original TARP legislation mandated that the government had to recover the costs of TARP from the industry. The second is that the bank tax is really a (too small) tax on large banks that enjoy a too-big-to-fail subsidy from the government. And since the banks enjoy an implicit government guarantee, they should pay a fee for it (in this case, a mere fifteen basis points on uninsured liabilities), both to defray the costs of future bailouts and to (very partially) level the playing field relative to smaller banks without government guarantees. For political reasons, the administration is trying to dress the tax up as punishment for Wall Street, which begins to sound like a bill of attainder. But under the covers, it’s simply sound regulatory policy (though, again, too small).
Update: Greg Mankiw thinks that “on the economic merits, there may be a case for the bank tax” as a means of offsetting the implicit government subsidy for TBTF banks. “It certainly won’t be perfect. But it is possible that it will be better than doing nothing at all, watching the finance industry expand excessively, and waiting for the next financial crisis and taxpayer bailout.”
By James Kwak
The Baseline Scenario 
Them boys just gotta have their money!
Wonder if they think we should abolish the FDA and let the “free market” have at the food and drug supply without any oversight at all.
And, while we’re at it – no more speed limits! To hell with safety!
“But it is possible that it will be better than doing nothing at all”
Is this all America can get these days? My lifetime started with the end of the great USA?
So pathetic.
“Wonder if they think we should abolish the FDA and let the “free market” have at the food and drug supply without any oversight at all.”
They might well think so.
A guy named Milton Friedman wanted to abolish the FDA , as well as most other gov’t agencies :
http://www.hoover.org/multimedia/uk/3411401.html
I really, really hope they try this. Ratchet up the popular rage a bit more.
Let’s hope this gets laughed out of consideration.
The Securities Industry and Financial Markets Association (Sifma) was too dense to understand and appreciate the nice political maneuver designed by the Obama Administration and its bank-protectors. It will get slapped for not following the Big Strategy.
http://www.ft.com/cms/s/0/a1f87fae-047a-11df-8603-00144feabdc0.html
“The industry is in some disarray and I suspect Sifma got out ahead of its key members,” said one attorney familiar with the matter.
Chief executives at US banks were cautious, asking whether a legal victory that found the tax to be unconstitutional would be worth the possible public backlash that would result, the attorney said.
“Some people are being very thoughtful about this. I know JPMorgan is urging caution before running into this,” the attorney said.
If President Obama is smart (and Rahm Emmanuel was 1/millionth as smart as he THINKS he is) they’ll just wait and call the bankers’ bluff on that one—they’ll have a field day on that one if Rahm doesn’t hide President Obama in the closet. If I was Obama I would call up Dimon personally and dare him, “Go ahead, file that lawsuit, we’ll play this one out and see where it goes”.
They basically tried that in China. And still practice that now. Just Chinese government bureaucrats who put a red stamp on the highest company bidders. They have a big banquet dinner, get drunk, and then go to the “bath house” and then whatever product they’re selling gets the prized government stamp of quality (which even Chinese well know, the stamp or certification is a joke, but the main thing is they can put the product on the shelves).
They poisoned a large portion of the country’s babies milk and killed some babies and caused permanent kidney damage in others. They regularly poison a large portion of the citizens’ food supply in China.
If you’ve ever seen Chinese consumer doing their own 20 minute inspection of a bag of rice at the local supermarket it’s quite humorous (if I was mean/honest I would say hilarious). If I had a digital camera I would have got some footage and brought it back. It’s better than your average Saturday Night Live skit.
Don’t worry. The banksters will never have to sue because Obama will roll over and offer his throat to the alpha males on Wall Street (again) long before that happens. We’re going to see a compromise to this opening bid compromise that will satisfy nobody but will make some of believe that at least we tried, so good on us.
And I have no trouble envisioning Scalia announcing a 5-4 decision in favor of the banksters if this case were ever to make it to the Supremes. I’ve followed the man’s decisions closely enough over the last twenty years that I could probably write the opinion for him.
Obama’s best option is to use antitrust laws to break up TBTF institutions. Any TBTF institution has too much market power and inherently stifles competition. Think about it: what is the state of competition in a market if the fact that a single player fails kills the market? The answer is that there is no competition.
What we’re seeing right now is a kabuki dance, a charade. Obama has all the tools he needs right now to deal with TBTF without passing new laws or taxes, but he chooses to engage in a charade that panders to populist anger at Wall Street while underscoring his powerlessness as the leader of the free world to effect any type of change, let alone change we can believe in.
That’s the same thought I was having a few minutes ago about this health racket bill.
Even those who are willing to overlook how it would further entrench corporate tyranny, and who can delude themselves into thinking the feeble snivelling little “regulations” in it (vs. rescission and so forth) will actually be enforced, I would still ask, aren’t you infinitely ashamed to have to accept such a wretched, picayune, niggardly thing and call it “reform”, let alone some great progressive achievement the way the truly idiotic shills call it?
That for all of America’s wealth and rhetoric and (former) promise and (still) pretension, this is the best those who call themselves “progressives” could do, and even this miserable microscopic accomplishment was like pulling teeth?
And meanwhile the fact remains that most Americans have to think of their very health in terms of, “Can I even afford to go to the doctor for this?” as the first question they ask?
How vile.
In the end, have they no shame at all?
And of course, it’s the same with the bank rackets. The “reforms” which are possible within this system are an insult.
The argument is over a pathetically inadequate little “tax”, when it should be over what to do with all the vacant Wall Street buildings now that we had cleansed them of these criminals once and for all.
Well, I hope they do challenge this in their corrupted courts. The potential upside for public political education is higher than the downside of their maybe getting the tax struck down. (The tax itself is wretchedly insufficient and meaningless.)
(I think it’s funny that everyone’s actually debating the constitutional merits of such a suit. The courts are corrupted and corporatist, and are always likely to make pro-corporate rulings regardless of the Constitution. Sometimes they rule differently, but that’s just accidental. There’s certainly no systematic public interest jurisprudence out there.)
I wrote a post on this topic yesterday.
http://attempter.wordpress.com/2010/01/18/bring-em-on/
“The first is that the original TARP legislation mandated that the government had to recover the costs of TARP from the industry.”
No, it didn’t. The TARP legislation just required the President to submit a legislative proposal that would recoup the shortfall. Congress is under no obligation to pass, or even vote on, the President’s proposal (as you hopefully know by now, one Congress can’t bind a future Congress).
Come on James, this is Legislation Parsing 101. I guess Yale Law ain’t what it used to be…
say what you will about TBTF banks, but I don’t really see your point about competition. If you have 5 players in a market (TBTF or not) and there’s no monopolistic practices (at lease that’s not what you seem to be alleging), why is there no competition? furthermore, there are plenty of hedge funds and smaller banks participating in the markets (and being successful).
The real question is why aren’t more people (shareholders, workers, mortgage holders, etc) suing Wall Street?
Law suits are something at which the US still excels, but the number of cases relating to malpractices, fraud etc at the large banks in the last few years are surprisingly few, no?
Let’s remove all federal guarantee programs and charge them more to visit the trough (stop giving them nearly free money to play casino with), and be done with it.
Alex has pointed out exactly what’s wrong with this proposed “responsibility fee”: it’s a law suit, not a tax. The Prez says “We want our money back,” and follows his claim for damages with “and we don’t need no stinkin’ jury.” This bill takes from enemies of the state without due process. All together now: “When they came for the bankers…”
http://en.wikipedia.org/wiki/Cartel
I like the idea of selling CDS’s on a bundle of clearly bad mortgages, using that money raised selling the CDS to pay off the same bad mortgages and laugh all the way to a long tropical vacation…
To have the government participate additionally in the profits of the banks without changing the regulations that brought along those immense profits just makes the banks and the government partners.