WASHINGTON — President Obama plans to propose today a new tax on about 50 of the nation's largest financial institutions to recoup about $100 billion in expected losses on infusions of federal bailout money.
The expected proposal comes a day after the heads of four giant banks admitted making mistakes and expressed regret for the financial crisis before a special panel investigating the causes of the massive meltdown.
The new "financial crisis responsibility fee," which must be approved by Congress, would generate about $9 billion a year for at least 10 years, said a senior administration official who spoke on condition of anonymity because the plan had not been formally unveiled. The annual tax -- equal to 0.15% of a company's liabilities excluding insured deposits -- would be assessed on banks, insurance companies and other financial firms with at least $50 billion in assets.
The levy, which would take effect June 30, would hit many banks that have repaid all of their infusions from the $700-billion bailout fund -- and some that never received any of that money. Notably, the fee would not be assessed on automakers General Motors Co. and Chrysler Group, which have received about $64 billion in bailout money and are projected to account for a large share of the losses. Such a fee would be logistically difficult to impose on a manufacturing company, the administration official said.
Large banks, anticipating the proposal, have complained that a new tax on them to cover losses from the Troubled Asset Relief Program would be unfair not only because most of them have repaid their TARP money but also because the Treasury Department projects a profit on its bailout investments in banks after counting dividends they paid to the government as well as increases in the value of stock warrants the government received when making the infusions.
"I think it would be very hard to have the industry pay for the auto companies," Jamie Dimon, chief executive of JPMorgan Chase & Co., said Wednesday. "At some point, you've got to be fair."
But the Obama administration contends it's only fair to ask that firms that helped cause the crisis and have benefited from the bailouts cover any losses from the fund -- especially now that many of the largest banks are again making large profits and plan to award millions of dollars in bonuses.
"It is our belief that major financial institutions were both significant causes of the historic financial crisis that has inflicted widespread harm on the economy and have been beneficiaries of extraordinary efforts to stabilize the economy," the senior administration official said. "It is in many ways offensive . . . to suggest that they can today afford excessive, often outlandish bonuses for their top executives but cannot afford to make whole the taxpayers who put forward public policies that they have benefited from."
The administration's move, which Obama is expected to announce this morning, reflects continued anger over the behavior of large Wall Street firms in helping trigger the crisis and the return of normalcy to the financial industry while many average Americans are still struggling.
That outrage also has prompted Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to set hearings this month on executive compensation and on possibly increasing taxes on large bonuses.
"The question of compensation for people in the financial industry is a legitimate cause of concern in the country as a whole, and we are going to address it," Frank told reporters Wednesday.
"There may be, in some of these financial institutions, people capable of playing Major League Baseball. I'm not aware of any," he said. "But absent that, I don't know where they would go to get comparable forms of compensation."
Dimon and executives from Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. largely defended their compensation practices Wednesday at the first hearing of the Financial Crisis Inquiry Commission, but said they understood the public's anger at their industry.
The executives didn't accept direct blame for causing the financial crisis. They said their firms were among the many players, from financial giants to average consumers, who took on too much risk in the boom of the last decade, believing the good times would not end.
"We did eat our own cooking, and we choked on it," John Mack, chairman of Morgan Stanley, said about large bets the industry placed on a continued rise in the housing market.
"Somehow we just missed that home prices don't go up forever," Dimon told the panel in admitting that his company never tested its exposure to a 40% drop in home prices even though it tested almost every other market scenario.
Goldman Sachs CEO Lloyd Blankfein and Brian Moynihan, the new CEO of Bank of America, were the other initial witnesses as the congressionally appointed commission began the public portion of its yearlong investigation.
