That's the nightmare scenario raised by the big banks in response to President Obama's proposal to impose a tax on the largest banks equal to 9.0 billion a year. The banks argued that this would be really bad news for the economy since they would pass on the fee to their customers. It would have been helpful to point out to readers the modest impact that this possibility would actually have on the economy. It is also worth noting the implication of this claim for the nature of competition in the banking industry. The proposed fee would only apply to banks with assets of more than $50 billion, a relatively small number of banks. If these banks really can pass on higher costs to consumers, then it implies an extraordinary level of monopoly power in the industry, with the large number of small and mid-size banks not providing effective competition to the largest banks. btw, in reporting on the cost to the public of the TARP it is probably worth adding in the losses of Fannie Mae and Freddie Mac and possibly the FHA. It seems likely that many of thee losses were incurred on mortgages purchased after they went into conservatorship in September of 2008. Insofar as this is the case, they have been acting as de facto TARPs, buying bad mortgages from banks at above market prices. Just before Christmas the Treasury Department raised the limit on the losses of these GSAs above the previous $400 billion, suggesting that they may incur very substantial losses on the mortgages they are buying from banks.
--Dean Baker
