Steven Pearlstein takes on the importance of the Wall Street bonuses and the construction of the Treasury's proposal to tax the banks. Though his take on the rhetoric around TARP and the bonuses is right, his criticism of the tax as a populist gesture is a bit off.
Pearlstein accuses Obama of being disingenuous about the tax's justification after many banks have repaid their government bailouts, but he doesn't connect the banks' largesse to the continuing existence of other subsidies like the program Daniel Gross reported on yesterday. So long as the financial sector takes advantage of them and puts taxpayers at risk, it stands to reason that this tax recoups the costs -- and those huge bonuses are a good measure of how much the banks are taking advantage. It also raises the questions of how much longer some of these subsidies will be required. Some would be easy to close, but others -- like the guarantee of Fannie Mae and Freddie Mac -- stand to be a thornier problem.
Then there's the other point of the operation: shrinking the banks' assets to mitigate -- but likely not solve -- the Too Big To Fail problem. I agree with James Kwak's argument that the tax needs to be larger, but weak as it is political realities seem to demand passing the proposal quickly and hopefully improving it in the looming regulatory overhaul.
-- Tim Fernholz
