When the top lobbying arm of the banking industry hired one of the leading Supreme Court lawyers to go over the proposal by Obama to tax the largest banks in the country, they are obviously sending a message to the administration, the question is what is the message meant to convey and will it be heard.
The more the government and the banks continue doing business based on the bailout, the more it’s looking like the Keystone Cops and the goofball ‘criminals’ they were chasing. They were both dysfunctional, and a laughing-stalk to those watching them. That’s what’s starting to happen with this strange relationship between the Obama administration and the banking industry; at least the part of the banking industry which includes the largest banks.
The Securities Industry and Financial Markets Association hired Carter Phillips, 57, of Sidley Austin LLP to look at the language of the proposal before deciding which direction, if any, may be taken.
Before we get further into this, think in terms of why there should never have been a bailout in the first place. Now we have all of this attempt by the government to make decisions which on the market can make, while banks, who accepted the bailout money, now are trying to fight back against the government intrusion as if they’re surprised and shocked it’s happening. Talk about a couple of dysfunctional ‘families’ battling it out.
Even the bailout is controversial in that a number of banks said they didn’t want to receive the money but were forced to take it. Two that have made that assertion are Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS). There may have been more.
Now we also have banks like Citigroup (NYSE:C) still surviving and struggling along, when in fact they should have been allowed to fail and see what came of that. Now this strange (by American standards) entity partially nationalized through the government owing over a third of the company has to deal with circumstances a company in the free market shouldn’t and wouldn’t have to if they followed the tenets of what a free market is.
Anyway, this is such a large rabbit hole now that each week that passes by adds more residue which is difficult, if not impossible, to keep up with.
For example, a number of people are asking why the banks are now concerned over whether this is a constitutional issue now, when they didn’t seem to be too concerned about the constitutionality of being offered taxpayer money to keep them afloat from bad management and operational decisions.
What the potential lawsuit could be based upon, if that’s even the goal of hiring Philips, is whether the banks were unfairly singled out to pay the tax without due process, or otherwise called – bill of attainder.
At this stage it’s a cat-and-mouse game, and more than likely the first stage will be to get a document in front of the lawyers to look at, and right behind that to see how the government lawyers respond to the potential challenge at that stage.
It could result in compromises which could lower the proposed tax, or if the banking industry feels like they really do have a case, they could actually go forward with it, although it wouldn’t be exactly the best public relations move at this time, as the so-called economic recovery isn’t, and as long as people continue to hurt, they’ll pay attention to what’s happening in the banking industry as the focal point of their anger, although the government is probably taking just as much flak as the bankers are, and that seems to be growing.
I think the bankers know this and don’t mind pushing back at this point, as the government has no desire to continue to have people reminded about their part in the fiasco either. In that sense the banks have pretty solid footing; at least equal to the government in my estimation. Although like I mentioned, neither one really wants to keep in the limelight in the midst of consumer anger.
One other element that will be part of the conversation and public discourse is that this tax, if implemented, will simply be passed on to the American people, and if the banking industry can make that point without doing damage to themselves, the government could be perceived as indirectly taxing the American people, which in fact, they really are doing.
As always, I conclude with saying and reminding us that this is why you don’t have the government interfere with the market. The results are so outrageous, and the unintended consequences are piling up like wood being stored for the winter fire.
Add to this the fact that the large banks aren’t anywhere near as healthy as their numbers are showing (think of potential foreclosures), and the tax makes no sense at this time, but, again, if the banks would have been allowed to fail, this would have been a mute point and the market would have cleaned out the debris and left a much healthier financial system in the U.S.
Now we have to continue to sift through the hidden numbers of these weak banks in attempts to find out what the real conditions of the financial institutions in America are.
This is all about the government saving face from its outrageous bailouts using tax dollars, which in spite of the weakened banks, is resulting in huge bonuses and pay for jobs, that for the most part, brought poor results. The government bears at minimum, the same responsibility for this happening as the banks because of their refusal to allow the market to take care of its own dead weight and let the well-run companies emerge even stronger.
In the end, I don’t feel sorry for either one of these dysfunctional players in the game, but the American people are bearing the brunt of their folly as they continue to engage in a relationship that should have never started in the first place.
