Banker fury as Obama unveils new risk tax

President Barack Obama will flesh out plans today for a new levy system on US banks based on their exposure to risk. The idea is for banks that lean heavily on funding sources other than customer deposits to pay proportionally higher taxes.
 
Though individual bank liabilities have not been calculated and the proposals must be approved by Congress, the new tax is designed to force the 25 largest banks to collectively pay roughly $100 billion over 10 years. The aim is to help recoup the expected $120bn deficit arising from the $700bn TARP funds (Troubled Asset Relief Programme) paid out last year to rescue banks, the motor industry and AIG.

Since the top five Wall Street banks earned profits of $30 billion for the first nine months of last year, and are expected to announce spectacular bonuses over the next week, politicians sense the proposals will be broadly welcomed.

But bankers have already voiced their opposition. "Using tax policy to punish people is a bad idea," JP Morgan Chase CEO Jamie Dimon told reporters in Washington yesterday after facing the heat from a congressional panel. Asked if the tax would be felt by consumers, Dimon said: "All businesses tend to pass their costs on to their customers."

Others said it recalled Jimmy Carter's windfall profits tax on oil companies in 1980. "Just call it what it is: 'We are pissed off that they are paying themselves lots of money, so let's tax it'," RBC Capital Markets analyst Gerard Cassidy told the Wall Street Journal. "It makes no sense whatsoever."
 
Not that Washington is in the mood to be troubled by the opinion of the bankers. Yesterday, Philip Angelides, chairman of the Financial Crisis Inquiry Commission, accused Lloyd Blankfein of Goldman Sachs of failing to own up to his firm's role in selling mortgage securities that induced the 2008 crisis.
 
"Mr Blankfein himself never admitted that there was any responsibility of Goldman Sachs to make sure the products themselves were good products," Angelides told reporters in Washington. "That's very troublesome."

Blankfein responded that while his firm had a duty to disclose risks to investors, it could not predict how the securities would perform and was therefore entitled to insure against their failure. He told the panel Goldmans sold securities to the "most sophisticated investors who sought that exposure".
 
Still, Blankein conceded there had been lapses in judgment. "Whatever we did, it didn't work out well," he said. "We were going to bed every night with more risk than any responsible manager would want to have."

John Mack, chairman of Morgan Stanley, put it more simply:  "We did eat our own cooking and we choked on it." ·