Calculated Risk's Yves Smith has been one of the smartest critics of the Obama administration's kid-gloves handling of the banks, and today she writes to criticize the administration's plans to ... impose new taxes on the banks. Why? Apparently, because newspaper writers focused on the politics, not the policy, behind this decision. Typically, the MSM, led by the always-crass Politico, make these proposed taxes about populist politics and not their actual goals, leading Smith to conclude:
This “we need to appease the peasants” logic tells all. It says the Administration is so profoundly captured by the banksters that it sees nothing wrong with what is happening, save the political fallout. It’s perfectly OK for banks to go right back to status quo ante, looting their firms by paying themselves too much in bonuses and not retaining enough in the way of risk buffers.
Except that, while going after the bankers is politically convenient for any politician -- and something Smith et al. have encouraged them to do -- the Treasury Department isn't doing this as an empty populist gesture. Staffers have been working on this tax for months now because the TARP statute requires the government to recoup any losses from the banks themselves. This began long before everyone started gearing up for the next cycle of bonus madness as an obviously needed response to the bank bailouts. It's not getting reported that way because it doesn't fit an easy narrative.
Even if the primary reason for this tax plan was responding to an angry public, well, that's sort of the point of democratic government, isn't it? Indeed, citing public anger at the banks doesn't even imply that it is unjustified -- it certainly isn't! -- Smith just assumes officials believe that. I don't understand why Smith isn't taking yes for an answer -- she wants more taxes on the banks, and the most likely result of the administration's plan will be a tax on bank profits. Smith and the White House even share the same reasoning: Bank profits are huge due to the policies the last two administrations adopted to bail out the financial industry, so these taxes are justified. Even though the administration shares Smith's position, it "hearts bankers, big time." Similar to George W. Bush and Vladmir Putin, Smith proposes that she can look into the Obama team's heart and know their true feelings. Whatever the emotional state of these officials, I'd just like to see higher taxes on bank profits.
As a side note, it's worth correcting a misunderstanding of Smith's about health-care politics. She complains that Obama did a poor job moving public opinion on health-care reform by not seizing on the oft-discussed hypocrisy of reform opponents criticizing "socialized medicine" while embracing Medicare. Um, what about this? Or this, from the president's big health-care speech:
Critics point to a provision in our plan that allows the uninsured and small businesses to choose a publicly-sponsored insurance option, administered by the government just like Medicaid or Medicare. ... An additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. Let me be clear – it would only be an option for those who don't have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance.
In any case, public opinion was always generally in favor of the public option, and public opinion still favors the president over any other group on health policy. Public opinion wasn't the problem. The real obstacle Obama couldn't surmount to get his exact vision was conservative Democrats in the Senate, and they are much harder to move because they have very little incentive to change their mind; it only takes one (Joe Lieberman) to kill the whole deal. Smith would be right to criticize Obama for not putting more pressure on individual senators regarding the public option, but I'm not sure what the connection Smith is trying to draw between health-care reform and financial reform.
We can expect the same dynamic when it comes time to pass regulatory reform in the Senate (public opinion will support it, while a few senators will act to obstruct it), so it's good for people who want regulatory reform to understand that Obama can't make policy by fiat and instead figure out how to target obstructionist senators and demand the president do the same.
-- Tim Fernholz