Some of the nation's top political commentators, legislators and intellectuals offer some insight into the biggest question burning up the blogosphere today.

Today's question:

Will a new fee on banks help Democrats lower the debt and win public approval?


Mark Calabria, director of Financial Regulation Studies at the Cato Institute, said:

Perhaps I am a little confused, but didn’t the Obama Administration tell the American public only months ago that TARP was turning a profit?  But now the same administration is proposing to assess a fee on banks to cover losses from the TARP.  Maybe President Obama is coming around to the realization that the TARP has indeed been a loser for the taxpayer.  He appears, however, to be missing the critical reason why:  the bailouts of the auto companies and AIG, all non-banks. This is to say nothing of the bailout of Fannie Mae and Freddie Mac, whose losses will far exceed those from the TARP. Where is the plan to re-coup losses from Fannie and Freddie? Or a plan to re-coup our rescue of the autos?

If the effort is really about deficit reduction, then it completely misses the mark. Any serious deficit reduction plan has to start with Medicare and Social Security. Assessing bank fees is nothing more than a rounding error in terms of the deficit. Let’s put aside the politics and get serious about both fixing our financial system and bringing our fiscal house into order. The problem driving our deficits is not a lack of revenues. Aside from effects of the recession, revenues have remained stable as a percent of GDP. The problem is runaway spending.


A.B. Stoddard, associate editor of The Hill, said:

The desire to lower the deficit and curb burgeoning anger over Wall Street and all that the Obama administration has done to help the banks is a good idea in theory. The risks banks took followed by the post-TARP profits they have managed to make, and the bonuses they are set to pay out have drawn the ire of both parties. That outrage is also a core element of the tea parties, which are now more popular than the Democratic Party or the Republican Party.
 
While it sounds good, we don't know if bank fees will become consumer fees. The tax on transactions -- on derivatives, etc -- was ruled out because it was feared that the costs would be passed on to consumers. How do we know the administration has found a way to make banks feel pain without endangering lending and without producing other unintended consequences like more hidden fees for the customers of the targeted banks?


Hal Lewis, professor of Physics at UC Santa Barbara, said:

I am no defender of the big banks, but it is easier to believe in the tooth fairy than to believe that the purpose of this proposal is to lower the debt.


Robert Weissman, president of Public Citizen, said:

Wall Street firms exist only because they have benefited from trillions of dollars in public supports. These supports extend far beyond the $700 billion for the Troubled Assets Relief Program (TARP), commonly referred to as the bank bailout, and are ongoing. The Special Inspector General for TARP estimates that existing and potential public supports to the financial industry total $23 trillion.
 
The billions that Wall Street is now preparing to pay itself in unconscionable bonuses -- and the billions in profit they are reporting -- come, in a very real sense, out of the pockets of We, The People.
 
In this context, it should be a no brainer to impose a windfall tax on the bonuses and bank profits, or a more general bank "fee." The windfall came in the form of government intervention to save Wall Street from itself. It is our money that Wall Street is now trying to siphon from the system; our government needs to take it back.
 
Would this help with public approval? To ask the question is to answer it. The public is appropriately outraged by: the condition-free bailout; the failure of the banks to adjust principle on underwater mortgages facing foreclosure; the modest regulatory reforms being debated in Congress that unless strengthened will fail to prevent a recurrence of the crisis; the return to business-as-usual for Wall Street on Capitol Hill; and the latest news on exorbitant bonus payments. Taxing the banks is the least that Congress can do.


Peter Navarro, professor of Economics and Public Policy at U.C. Irvine, said:

The public wants tar and feathers, not some slap on the wrist fee.  And when did we decide that fees and taxes should be used as punishment tools rather than simply as ways to raise funds to pay for public services.  With Bush, we had dumb people doing dumb things.  With Obama, we’ve got smart people doing very dumb things.


Bernie Quigley, Pundits Blog contributor, said:

No, because President Obama’s conceptualization of the economic slump was faulty and misguided from the first, guided by nostalgico economists who look back to the 1930s. Today we are a nation of diverse and dispersed small businesses and manufacturers spread over 3,000 miles with very little focus on specific economic centers like New York and Massachusetts as it was in the Roosevelt era. What is remedy for one will kill the other. Economy must be seen in the fuller context of the period’s specific historic culture and business cycle and the contours we are in now and have been in since the 1970s actually more closely suggest cultural patterns in the 1830s. I think the only one to make this point publically was an English professor at Yale. Keynes once said that economists are soldiers for dead ideas. Obama’s economists have certainly sounded this out.  As Governor Arnold Schwarzenegger said in his State of the State address this month, the administration is trying to address the economies of the 21 century with 20th century ideas.


Bill Press, host of the Bill Press Show, said:

After bailing them out and saving their butts, the American public has every right to expect big banks to return the favor. A tax on bank profits and a special tax on executive bonuses above a certain dollar amount should both be part of the President's next budget. Surely, bankers know there is no free lunch.


Glenn Reynolds, blogger at Instapundit, said:

If our political class were subject to the sort of oversight it wants to impose on banks, every elected official would be in jail, along with a good portion of the bureaucracy.


Justin Raimondo, editorial director of Antiwar.com, said:

How would a "bank fee" neutralize the moral hazard created by the cozy relationship between government and the financial sector? Since Washington has already declared that some banks are "too big to fail," it doesn't matter what "fees" they pay out: that's just window-dressing put up to disguise the fact that these "private" institutions have their hands in the taxpayers' pockets, permanently, as a matter of government policy. Talk about "regulatory capture"!

The Obama administration represents corporate "liberalism" as its most vulgar, and the Republicans have no cause to complain because they too supported the bailout.

Dean Baker, co-director of the Center for Economic and Policy Research, said:

A well designed financial transactions tax can raise more than $150 billion a year, while making the financial sector more efficient. The financial sector has become enormously bloated over the last three decades. It has nearly quadrupled as a share of the private sector, yet it provides no obvious benefit that was not available 30 years ago.

This is important, because finance is an intermediate good, like trucking, it provides no direct benefit in itself. Rather, its benefit is in its support for the productive economy. If we had four times as many employed in trucking (relative to the size of the economy) as we did 30 years ago, people would be very concerned about our grossly inefficient trucking sector.

A financial transaction tax, like those proposed by Representative Peter DeFazio in the House and Tom HarkinThomas (Tom) Richard HarkinWisconsin lawmaker gets buzz-cut after vowing not to cut hair until sign language bill passed Democratic debates kick off Iowa summer sprint Key endorsements: A who's who in early states MORE in the Senate, can do much to rein in the bloat in the sector, while at the same time raising an enormous amount of money. This money can be used to address some of the damage caused by the industry as well as to reduce deficits in future years. It really would be a win-win. It's hard to see what there is not to like in this story, unless of course you work for Goldman Sachs.