Barack Obama channelled popular anger against Wall Street bonuses yesterday as he announced a $117bn (£72bn) tax on the finance industry.
The levy will hit about 50 institutions and be spread out over at least the next 10 years, with bigger and riskier institutions forced to pay the most, something that the President said would help to change behaviour and prevent a repeat of the credit crisis.
"My commitment is to recover every single dime the American people are owed," Mr Obama declared. "And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people."
Ratcheting up the rhetoric against Wall Street, the President said that executives opposed to the tax were using "twisted logic" and he demanded that banks dip into their bonus pools for employees to pay the levy instead of "sticking it" to shareholders and customers.
Analysts immediately raised questions about whether the proposed tax would make it through Congress, while lobbyists for the finance industry argued that it was unfair to make them pay for taxpayer losses from the bailouts of the car companies General Motors and Chrysler.
"It's petty theft from bank balance sheets," said Robert Albertson, chief strategist at Sandler O'Neill in New York. "It throws some sand into the gears. It's one more thing dragging on the sector, but it's spread over 10 years, so it's not so consequential."
The tax – to be called the "financial crisis responsibility fee" – is aimed at plugging any losses incurred by the $700bn Troubled Asset Relief Program (Tarp), the bailout fund agreed by Congress at the height of the financial panic in 2008. Money from the Tarp has been used to refinance hundreds of US banks, prop up the nationalised insurer AIG, buy shares in two major car companies, and help struggling homeowners to refinance mortgages.
The US Treasury currently forecasts a $117bn loss on Tarp investments, though that is better than once feared. Mr Obama says the responsibility fee will be levied each year for the next 10 years, and possibly more if it still has not raised enough to make the taxpayer whole. "We want our money back," he declared bluntly.
Only large financial firms will be charged the new fee, however. Those with assets over $50bn will pay a levy of 0.15 per cent of their liabilities, which the administration projects would raise $90bn in the first decade. The more highly leveraged the firm, the greater the fee it will have to pay, in what the administration hopes will be a disincentive to firms that might take on large risks, knowing they are "too big to fail".
Jamie Dimon, the chief executive of JPMorgan Chase, which owns powerful investment and retail banks, made a pre-emptive condemnation of the fee on Wednesday, saying it was inappropriate to use tax policy to "punish" bankers, and he warned that businesses tend to pass taxes on to their customers.
But the President tackled Wall Street critics head on in fiery language yesterday, saying the levy was not a punishment but an incentive to better behaviour. "We are already hearing a hue and cry from Wall Street," Mr Obama said, "suggesting that this proposed fee is not only unwelcome but unfair, that by some twisted logic, it is more appropriate for the American people to bear the cost of the bailout rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses". He renewed his call for a regulatory overhaul of the industry and scolded bankers for opposing the tighter oversight in legislation moving through Congress.
"What I'd say to these executives is this: Instead of setting a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee, I'd suggest you might want to consider simply meeting your responsibility."