For Immediate Release
Alan Barber, (202) 293-5380 x115
Statement on President Obama's Financial Crisis Responsibility Fee
WASHINGTON - Center for Economic and Policy Research Co- Director Dean Baker
released the following statement on the Obama administration's proposal
to impose a fee on the financial institutions that received TARP funds.
Today, the White House announced a proposal to impose a Financial Crisis Responsibility Fee (FCRF)
on the Wall Street firms that have benefited most from the TARP
program. Now that executives of the too big to fail banks are again
enjoying huge bonuses while the rest of the nation suffers through
double-digit unemployment, the Obama administration is taking action
against the banks whose reckless actions wreaked havoc on the U.S.
economy. It is encouraging that the President is working to recoup
taxpayer money far earlier than the 2013 deadline mandated in the TARP
proposal represents a step forward in getting the big banks to repay
the American taxpayers, stronger action will be required to protect the
economy from future abuses and recoup more of the public funds used to
rescue a bloated financial sector.
In its proposed form, the FCRF would only be in place long enough to
recoup the money lost through TARP. This means that the FCRF will not
recoup money lost by Fannie Mae and Freddie Mac. Many of the losses
incurred by these government sponsored enterprises (GSE)s (which could
exceed $400 billion) likely came on mortgages purchased from banks
after they were taken into conservatorship in September of 2008.
This means that Fannie and Freddie were losing money effectively doing
exactly what the TARP program was originally intended for, buying up
bad mortgages from banks. It would be reasonable to insist that the
banks cover these losses as well.
The FCRF will also do little, if anything, to shrink the bloat in the
financial sector. The financial sector has quadruped as a share of
private sector GDP in the last three decades. In contrast to the FCRF,
a financial transactions tax (FTT),
along the lines recently introduced by representative Peter DeFazio in
the House and Tom Harkin in the Senate, would go far towards reducing
the volume of transactions that serve little or no productive purpose.
Such a tax could also raise more than $100 billion annually, which
would go far towards repairing the damage caused by this downturn.
The Obama administration's proposal is a positive step toward holding
the banks accountable for the damage that they have caused. However, it
should not prevent the stronger actions needed to fully cover the cost
of the damage and to restore efficiency to the financial sector.
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