Crisis Fee is A Small Concession

On January 14, 2010, in The Public, by Tiffiniy Cheng

If you were wondering about Obama’s crisis fee, here’s a good analysis from Dean Baker and Center for Economic Policy Research. Summary: it’s not great, but it’s a concession to people who are angry about at the administration for doing very little for the real economy. What would be better is a real recoupment tax, something like a financial transactions tax. Capping the size of the biggest banks from too-big-to-fail size will also create opportunities for medium to small banks, create more money flow in the system for more people, and more jobs everywhere.

From a mailing from CEPR:

…This means that Fannie and Freddie were losing money effectively doing exactly what the TARP program was originally intended for, buying up bad mortgages from banks. It would be reasonable to insist that the banks cover these losses as well.

The FCRF will also do little, if anything, to shrink the bloat in the financial sector. The financial sector has quadruped as a share of private sector GDP in the last three decades. In contrast to the FCRF, a financial transactions tax (FTT), along the lines recently introduced by representative Peter DeFazio in the House and Tom Harkin in the Senate, would go far towards reducing the volume of transactions that serve little or no productive purpose. Such a tax could also raise more than $100 billion annually, which would go far towards repairing the damage caused by this downturn.

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