Today the news of the day on Wall Street is the shouting about President Obama’s intention to assess major financial institutions additional fees to help compensate the government for its TARP losses in bailing them out. According to analysts quoted by Marketwatch.com, the eight largest banks, including GE Capital, would have to fork over nearly $10 billion a year if the fee proposal becomes law.
I have to wonder at the reported intention to exclude some of the largest recipients from the fee obligation, such as AIG and GM, and without knwoing all the facts I'd agree that the get-out-of-jail card doesn't seem fair. But beyond that I’m not sure what the screaming is all about.
How will they pay such huge fees without hurting the bank’s earnings or their shareholders’ holdings? Let’s see, I seem to recall a report a few days ago that the major banks were estimated to be paying out about $150 billion in bonuses, benefits and compensation last year or “19% MORE than the peak of the financial boom in 2007.” Some estimate the payouts in 2010 will be even larger. And a little arithmetic ($10B/$150B) tells me that a 6.7% reduction in that expense would just about cover it with no reduction in reported earnings.
Problem solved. Next?
As always, I welcome your comments.