The Redhunter

I think that Peter Wallsten, writing in the Wall Street Journal, is on to something:

Central to the strategy is the new White House plan to tax big banks as punishment for their role in the financial crisis. President Barack Obama announced the proposal Thursday amid reports that financial institutions bailed out by the government are enjoying healthy profits and paying generous bonuses, and as a bipartisan commission began hearing testimony on banks' role in the economic crisis.

But events Friday in Massachusetts showed how the White House and top Democrats aim to use the bank tax as a political weapon:Senate candidate Martha Coakley, Vice President Joe Biden and others used the issue to portray Ms. Coakley, who is vying to succeed the late Edward Kennedy, as tough on bank executives and portray Republican Scott Brown as coddling them.

Wallsten goes on to point out that all polls show the Democrat's healthcare plans are unpopular with the American people, and so a new message is needed. Scott Brown is now running ahead of Martha Coakley to replace Ted Kennedy in Massachusetts, and much of his message is centered around opposing the Democrat's healthcare plans. Seeing a disaster in the making, Obama has decided that a new approach was needed.

Playing her part, Ms Coakley is using Obama's proposed tax to attack Brown. The WSJ article quotes Democrat strategists as realizing that the Tea Party movement is hurting them, and that with the bank tax "we can take populism back to our side."

Politics aside, it turns out that the tax doesn't even make sense. Charles Krauthammer explains:

This is being sold with incredible demagoguery as a payment. The president says I want my money back. In fact, the majority of banks have repaid. Some of the banks never received any of the TARP money, and some of them were forced into receiving it at the point of a gun in the Bush administration.

And, as you pointed out, the real delinquents here, GM and Chrysler, are not being asked to pay anything because of Democratic ties with Michigan and the UAW.

Now, there is merit here if it were portrayed in a different way. The banks, the larger banks, have, as a result of what happened in '09 and '08, an implicit understanding around the world that the U.S. government will step in.

So there is an implicit guarantee of their loans, which means they have preferential advantage in receiving loans because everybody understands in the end the U.S. government will step in. That might be worth taxing. It would be returning the favor.

But, only if you walled off the money and you kept it as a way to bail out the banks if they failed, the way that the FDIC imposes a fee on the regular banks that is set aside and held in case of a bankruptcy.

But this is not how it's portrayed. The way Obama is selling it, it is a punishment for old behavior rather than a fee that you would collect in return for a certain advantage as a result of what happened in '08 and '09.

In the end, the tax will be imposed, and it'll be passed onto consumers in seen and unseen ways.

Don't think that I'm defending the banks. As I said in A Pox On All Their Houses, "conservatives should not defend AIG or the bonuses," because when your company takes bailout money from the government "you do not pay anyone a bonus for anything."

Taxing banks is about the least of what Obama and his radical Democrats want to do. Barney Frank wants to wants to set pay caps on executives at all corporations, whether they took bailout money or not. Seeing where this was going, in
If You take the King's Shilling, You do the King's Bidding I pointed out that "this is exactly why bailouts are so bad. Once you take aid from the government, you are beholden to them."

Indeed we never should have started down this path. We should have let Bear Stearns, AIG, and the others fail the old-fashioned way. It would certainly have been painful in the short term, but the long term consequences of bailouts are obvious to everyone now, and they're not good at all.