President Obama will announce today that the administration plans to enact fees on the nation’s largest financial firms in order to recoup the losses expected from TARP.
As has been reported , this proposal has been under discussion since August.
A senior administration official said on a conference call with reporters Wednesday night that President Obama feels strongly that he “must honor both his personal commitment and the legal commitment of the TARP to ensure that all of the costs are borne by the financial industry and not by the American taxpayer.”
“The president has made clear from the very beginning that taxpayers would not bear a penny of the costs of the TARP program,” this official said.
When asked how the administration will make sure that fees are not passed on to customers, the senior administration official said that these financial institutions have a “competitive incentive” to not do that because it is not a fee on the entire financial industry.
“If those people chose to pass on those costs, they would face a competitive disadvantage from the far far larger number of financial firms who are excluded from this fee.”
“It will just seem beyond the pale to the typical American to hear of the bonus pool in the 10 to 15 to 20 billion level in the coming weeks and then suggest that the only way thtat they could pay this financial crisis responsibility fee back to the American taxpayer is to pass on the cost to lenders,” this official said. “I just don’t think it’s going to happen for competitive reasons and I don’t think it would fly well to customers and borrowers.”
The senior administration official stressed that TARP was designed to help out the economy as a whole and not bailout specific institutions or their executives and said the fee is a “minimum” of what is owed back for the significant costs that taxpayers put out.
The administration official put the cost of TARP at $117billion on the high end, but said that the administration is using the “most conservative accounting possible.”
The fees, which are intended to last at least 10 year, will raise about $90 billion. If the overall cost of TARP is more than that, the fees will be extended “as long as necessary” to ensure that the taxpayer money is paid back completely.
The auto industry will be exempt from these fees because the administration does not feel that the structure can work for auto companies.
Some key points about the fees:
“Those who suggest they should not bear this burden while doing they are doing well significantly due to the extraordinary actions funded by taxpayers well enough to be offering rather exceptional bonuses, are in essence suggesting that it is better for the American taxpayer to deal with high deficits, better for our children and grandchildren to deal with higher debt, than for them to pay this financial crisis responsibility fee, that’s just not an argument that we buy.”