Editorial: A debt banks owe to the US taxpayer

Opinion

A year ago, United States banks and bankers were universally vilified.

So loosely had they played with money entrusted to them that many Americans were opposed to the notion of bailing them out.

The White House could not entertain resentment, the financial system was on the point of meltdown. But if President Barack Obama expected gratitude from the banking industry, he was to be disappointed.

Twelve months on, banks are opposing his proposed tax to recover the cost of bailing them out during the financial crisis.

So, too, is the Republican Party, which has been giving the levy a high profile during the close contest for the Massachusetts seat held for decades by Edward Kennedy, the late Democrat Senator.

Bankers, despite the chaos created by their excursion into debt instruments, derivatives and other exotic instruments, have proved remarkably reluctant to renounce a culture of lavish pay and bumper bonuses.

And now that their profits are beginning to bulge again, they seem all too willing to revert to type.

Banks' only concessions to popular resentment are caps on cash bonuses and cuts in the proportion of revenue paid to employees. These token steps will be emphasised for all they are worth as they begin reporting their annual results and compensation.

The banks' aim is to aid the Republican effort to stop the President's tax proposal passing through Congress.

Yet that plan seeks simply to enforce the guidelines of the Troubled Asset Relief Programme, which called for the bailout's costs to be recouped. "We want the taxpayers' money back, and we're going to collect every dime," President Obama says.

Under his proposal, a 0.15 per cent tax would last at least 10 years, generating about US$90 billion. It would apply to about 50 of America's biggest banks, those with more than US$50 billion in assets, and include many institutions that accepted no money from the bailout.

The opposition to the proposal, flimsy as it is, rests on several contentions. One is that banks will simply pass the costs of the tax on to their customers.

More likely the sums, relatively small by sector standards, will come from their profits. Banking, while a slow learner, is aware that most of its customers were less than happy to provide it with handouts. As its reining in of extravagant bonuses illustrates, it knows some damage control is essential.

Secondly, it is claimed the tax will curb the ability of banks to extend credit, thereby hampering economic growth. Yet banks' present problem is more one of lack of demand than lack of supply. At the moment, people are using surplus money to pay off mortgages or clear credit. Likewise, companies' investment intentions remain subdued.

Finally, bankers say most big banks have already repaid their Troubled Asset Relief Programme funds, with interest. The bulk of the losses will come from American International Group and carmakers.

The carmakers are not even covered by the tax. The proposal, bankers say, is, therefore, fundamentally unfair. If there is an element of truth to this, banks are simply being treated the same as American taxpayers - who know what it is like to cover someone else's losses, even someone whose risk-taking created a calamity for themselves and the national economy. Banks should lose something, also.

In opposing the tax, the Republicans may be playing politics. The bankers' posturing, however, shows all the signs of a sector still fully unaware of its awkward position. The helping handouts received from the taxpayer should be paid back.

With their profits burgeoning anew, the bankers can afford to pay them back. Americans who paid a heavy price for banks' speculative behaviour have reason to look askance at their reluctance.