Since the near collapse of the global financial markets in September 2008, the government has done much to rescue the financial industry from near ruin. Taxpayers immediately plugged gaping holes, shoveling billions of dollars of capital into the system when no one else could. To date, taxpayers have committed or spent trillions of dollars on maligned assets, shady loans, and troubling guarantees.
In addition to the often discussed $700 billion Trouble Asset Relief Program, we put even more money on the line by guaranteeing the debts of Fannie Mae, Freddie Mac, Bear Sterns and Citigroup, among others. We took on gambling losses incurred by Wall Street's largest bookie, American International Group, to protect counter-parties (fellow gamblers) from ruin. At the same time, we lent billions of dollars against sloppy investments that no one would touch.
The need to prevent a total system collapse, and to encourage banks to lend, created cheap money for Wall Street banks to do what they do best. Gamble. And gamble they did, reaping record revenues. According to a recently conducted analysis by the Wall Street Journal, Wall Street firms are on pace to report a 25% increase in revenue from 2007.
The president is right to ask now healthy banks to pay a fee in order for the Treasury to recoup TARP losses. The fee would have the added benefit of discouraging consolidation, insuring that no Wall Street bookie or gambler is too big to fail. But that's not all that should be done.
By tying up so much needed capital (much more than just the $700 billion invested in TARP would suggest) to ward off systematic collapse because of misguided Wall Street bets, taxpayers do not have the resources needed to invest in heath care and education for Main Street.
New York State should correct this imbalance by implementing a onetime 50 percent payroll tax on bankers' cash bonuses over $50,000, with the proceeds invested in protecting our heath care delivery system and children's education. In addition to shoring up New York's hospitals and schools, the Banker Bonus Tax would discourage Wall Street's penchant for rewarding short term risk taking, and encourage firms to maintain adequate capital reserves by tying employees' fates to those of shareholders.
With near record bonuses expected, a 50% Banker Bonus Tax on cash bonuses over $50,000 could generate anywhere from $6 to $10 billion for the state to make much needed investments in financially struggling hospitals, nursing homes and schools.
Fair payback, if you ask us.
George Gresham is the President of 1199 SEIU United Healthcare Workers East.