Michael Hiltzik: Yes, soak the banks...

...after all, they've soaked us.

As my Thursday column observes, the banking industry's pushback on President Obama's proposal for a bank tax is predictable, and predictably fatuous. It's so low as to be almost laughable, and even if one views it as a political sop to populist anger, an intelligent business lobby would view it as a cheap alternative to something even more draconian.

The most interesting aspect of the bank tax is that it's won the plaudits of even conservative economists. On his blog, Greg Mankiw, once the chief economic advisor to George W. Bush, acknowledged last week that "on the economic merits, there may be a case for the bank tax." He argues that it may be the only way to keep big banks from over-expanding -- that is, taking the government's implicit guarantee against failure and going to the casino with it.

One problem with the bank tax, on the other hand, is that it may be too low to achieve that end. Dean Baker of the Center for Economic and Policy Research estimated that the government's implicit Too Big To Fail guarantee is worth about 78 basis points in capital cost savings to the big banks (that is, 0.78% in interest rate). The proposed bank tax is only 15 basis points, suggesting that it should be five times as big to really level the playing field.

The column begins below:

In almost every criminal case -- at least the ones that get ripped from the headlines and end up on ?Law & Order? -- there?s a point when the D.A. offers a plea bargain.

Everyone knows how this works: The prosecutor tries to impose the harshest deal possible, given the holes in his case; the defendant, knowing he?s getting off easy, faces the music and shuts up about the extenuating circumstances.

So why are President Obama and the banking industry misplaying their roles so badly in the debate over the administration?s new bank tax?

To hear the bankers squeal, you?d think they were being sent to Guantanamo for failing to get the taillights fixed on their limos; they?re even thinking about challenging the tax on Constitutional grounds.

To hear the President brag, you?d think he?s making the taxpayers whole after an elemental breakdown of the financial system.

He says that over 12 years the tax would generate about $9 billion a year for at least 10 years, which might still be shy of the projected $117-billion hit the taxpayers will take from the $700-billion Troubled Asset Relief Program, or TARP (i.e., the bank bailout). It will apply only to financial institutions with more than $50 billion in assets, or about 50 big financial companies.

Both sides are deceiving the public.

Read the whole column.

-- Michael Hiltzik