WEDNESDAY,MAY 5, 2010

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In Senate, bank tax still a question

GEITHNER

PRESSES PANEL

For some Democrats, levy could endanger bill

by David Cho and Brady Dennis

Lawmakers seeking to over-

haul financial industry regula- tions grappled Tuesday with the question of how to cover the cost of federal bailouts. To pay for the emergency assis- tance provided to firms during the recent crisis, Treasury Secre- tary Timothy F. Geithner pressed senators to pass a tax on Wall Street and other big financial companies, arguing that the levy would discourage risky activities and help the government recoup its money.

Despite the push from the Obama administration, the pros- pects for the “bank tax” remain uncertain. During a congression- al hearing Tuesday, Geithner said the tax provision was “an impor- tant complement” to a bill now before the Senate to overhaul fi- nancial regulations. But some Democrats said they are reluctant to include the tax because it could complicate pros- pects for the hotly contested overhaul bill. They added that Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, is instead consider- ing whether to include a new bank tax in a bill he plans to in- troduce extending some existing tax cuts. Meanwhile, the banking com-

mittee’s chairman, Christopher J. Dodd (D-Conn.), and its ranking Republican, Richard C. Shelby of Alabama, were finalizing an agreement to delete from the Senate bill a proposed $50 billion fund, financed by members of the industry, that would cover the cost of winding down large, troubled financial companies whose collapse could threaten the economy.

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added that “a lot of banks out there that didn’t cause the prob- lem . . . would be stung by this fee.” Geithner responded that since

PABLO MARTINEZ MONSIVAIS/ASSOCIATED PRESS

Treasury Secretary Timothy F. Geithner called the bank tax an “important complement” to the regulatory bill before the Senate.

Republicans have criticized the provision as a “bailout fund,” arguing that it would encourage financial firms to engage in over- ly risky behavior because they would know the money was there in the event of trouble. Under the deal reached by Dodd and Shel- by, the government would re- cover the liquidation costs of a failing firm by selling off its as- sets, with the financial industry picking up any remaining costs. Although Republican leaders had made the $50 billion fund a target of their criticism, Demo- crats and the administration were eager to drop it in exchange for some bipartisan support for the bill. They noted that the orig- inal idea for the fund came from Republicans, not Democrats. The administration’s bank tax proposal, however, remains in dispute.

Levy aimed at big firms

Calling it the “financial re- sponsibility fee,” Geithner said the tax would raise $90 billion over at least 10 years and could continue if the final cost of the original bailout, the Troubled As- sets Relief Program, is higher than that amount. Geithner said the administration is committed to using the tax revenue to re- duce the deficit.

Banks, big insurers and other kinds of financial firms with more than $50 billion in assets would face the tax, though Geith- ner told the Senate Finance Com- mittee that he was open to tweak- ing the proposal to ensure that the fee would be applied only to the largest companies. The tax would be calculated based on the amount of liabilities a firm holds, he added. That way, a company with a riskier profile would have to pay more than conservatively managed firms. “We designed the fee so that it would fall most heavily on firms that fund riskier activities with less stable forms of funding,” Geithner told the committee. “We did look at a profits tax, and a financial transaction tax, but we thought this was a better de- sign.” The plan faced skepticism

from lawmakers, particularly Re- publicans. Several questioned whether the tax would unduly punish banks and crimp lending to small businesses and con- sumers.

Sen. Orrin G. Hatch (R-Utah) questioned why the tax would not apply to automakers General Motors and Chrysler, which each received massive bailouts, as well as mortgage financiers Fannie Mae and Freddie Mac. Hatch

Fannie and Freddie have been taken over by the government al- ready, it would simply be “one hand of government paying an- other.” The automakers, he said, were excluded because they did not cause the crisis, but were vic- tims of its effects. Even if lawmakers warm to the proposal, the administration has to coordinate with other mem- bers of the Group of 20, an asso- ciation of the world’s largest economies. Some governments, such as Canada, have strongly opposed the idea of a global bank tax, which could punish financial firms that did not contribute to the credit crisis.

Democrats pledge speed

Also Tuesday, lawmakers failed

to get to a vote on the very first — and presumably uncontroversial —amendment to the bill, a meas- ure by Sen. Barbara Boxer (D- Calif.) stating that no taxpayer money will go toward aiding fail- ing companies.

Despite the lack of momentum on the massive legislation, Dem- ocratic leaders continued their push to move it quickly through the Senate. “We’re going to finish this leg-

islation next week, or sooner,” said Majority Leader Harry M. Reid (Nev.). Dodd even suggested on the

Senate floor Tuesday that law- makers start early, stay late and work over the weekend if needed to make progress on the bill. Senate Minority Leader Mitch

McConnell (R-Ky.) scoffed at the idea of moving hastily. “I don’t think this is a couple- of-weeks bill,” he said. “It’s not that we don’t want to pass it, but we do want to cover the subject. And there are a number of im- portant amendments to be of- fered dealing with the consumer protection, with the government- sponsored enterprises, with de- rivatives and the rest.”

chod@washpost.com dennisb@washpost.com

Effort to expand audits of Fed gains support

Amendment picks up momentum, as well as critics, in the Senate

by Brady Dennis and Perry Bacon, Jr.

A contentious effort to expand audits of the Federal Reserve that sailed through the House despite heavy criticism appears to be picking up steam as the Senate considers broad new financial regulations.

Sen. Bernard Sanders (I-Vt.) is pushing an amendment to the fi- nancial overhaul bill before the Senate that would broaden the Government Accountability Of- fice’s power to audit the Fed and compel the central bank to dis- close details about the firms that received emergency federal aid during the financial crisis. “The American people have a right to know who has received $2 trillion of their money, and they have a right to have the GAO do an audit about potential conflicts of interest,” Sanders said Tuesday. The Fed has “operated in secrecy forever, and they are now playing a role significantly different than they have in the past. I think the American people want to know what is going on,” he added. Sanders’s measure reflects leg- islation introduced by Rep. Ron

BRENDAN HOFFMAN/ASSOCIATED PRESS

Sen. Bernard Sanders defended his amendment, saying it would not interfere with the Fed’s role.

Paul (R-Tex.) — who has harshly criticized the Fed for decades — and approved overwhelmingly by the House last year. The movement against the Fed has collected a diverse collection of supporters. Sanders’s amend- ment has drawn more than a doz- en co-sponsors from both parties. A petition encouraging the bill has the support of groups as dis- parate as FreedomWorks, a con- servative activist group that has helped organize Tea Parties, and liberal organizations such as the Campaign for America’s Future

and prominent progressive blogs. But plenty of opposition re-

mains. In information provided re- cently to Senate staffers and ob- tained by The Washington Post, Fed officials asserted to lawmak- ers that the Sanders provision would “directly interfere with monetary policy” and “would per- mit the GAO to audit monetary policy decisions and the decision- making process itself.” Federal Re- serve Chairman Ben S. Bernanke and numerous economists have argued strenuously against such a measure, saying it could subject such vital decisions to short-term political pressures.

Sanders and his aides said

Tuesday that the amendment would do no such thing. They pointed to a line that reads, “Nothing in this [amendment] shall be construed as interference in or dictation of monetary policy to the Federal Reserve System by the Congress or the Government Accountability Office.” Administration officials are searching for ways to address complaints about transparency at the Fed while balancing fears about overreaching. They are backing an amendment similar to one proposed in the House by Rep. Melvin Watt (D-N.C.) that would allow additional scrutiny of the Fed, but not auditing of monetary policy. Watt’s amend- ment failed to pass.

Despite bipartisan backing, Sanders’s effort also has drawn criticism from lawmakers on both sides. “I’m looking at it,” Sen. Claire

McCaskill (D-Mo.) told reporters Tuesday. “But I think it may have more potential to politicize the Fed than it does opportunity to really change anything that aver- age Americans are looking for.” Sen. Bob Corker (R-Tenn.),while not condemning Sanders’s Fed provision outright, said some of the proposed amendments to the financial regulatory bill had turned into a process of “who can out-populist the next person.” Assuming the Sanders amend- ment makes it into the final ver- sion of the Senate’s bill, the un- usual coalition supporting it could complicate any effort to strip the Fed provision when the bill goes to conference, as is often done to controversial amend- ments with populist appeals. The House already has passed it, and many of those who supported the push in the Senate are in heated reelection contests.

Sanders sounded confident

Tuesday that the proposal would at least get a fair hearing on the Senate floor, in spite of the oppo- sition from various government officials. “We’ve got a lot of support,” he

said. “We’re going to get a vote.”

dennisb@washpost.com baconp@washpost.com

AMY SANCETTA/ASSOCIATED PRESS

Gains and a setback: CVS Caremark said that its first-quarter profit rose 4.5 percent, to $771 million, but that a mild flu season hurt sales. It also reported that its business practices are under investigation by 24 states. CVS said it is cooperating with the investigations.

ALSO IN BUSINESS

 Citi plans program to help small

businesses: Citigroup is teaming up with two organizations to start a $200 million lending pro- gram for small businesses in low- to-moderate-income communi- ties across the country. Citigroup is putting up

$199 million, with the Calvert Foundation, a Bethesda-based nonprofit community investment organization, and Opportunity Finance Network, an umbrella group for community develop- ment lenders, providing the rest. The Communities at Work

Fund, to be announced Wednes- day, will make loans through community development loan funds at a rate of 4.3 percent, which will then lend to small businesses at a rate of about 6 to 8 percent, said Mark Pinsky, chief executive of the Opportunity Fi- nance Network. Citigroup executives said the fund, to be managed by Calvert, would allow the bank to make loans in areas the bank does not currently serve. “Even our footprint doesn’t

take us everywhere,” chief exec- utive Vikram Pandit said in an in- terview. He added that he expects the $200 million to be loaned out over the course of about a year. “We really hope this becomes a

significant part of what we do,” he said.

— Tomoeh Murakami Tse

 Senate committee wants up- grade to auto safety laws: A Sen-

ate committee proposed a major overhaul to the nation’s auto safe- ty requirements following Toyo- ta’s prominent recalls. The changes would force car companies to meet new safety standards and face stiff penalties for failing to report defects. The Senate Commerce Com- mittee plan would push auto

manufacturers to meet new stan- dards related to brake override systems, vehicle black boxes and auto electronics following Toyo- ta’s recall of more than 8 million vehicles around the globe. It follows a similar bill released last week by the House Energy and Commerce Committee, un- derscoring Congress’s intent to bring the first significant reforms to auto safety since the Bridge- stone/Firestone tire recalls of a decade ago. It requires car companies to in-

stall event data recorders, com- monly known as “black boxes,” to record information about the ve- hicle before and after a crash. The committee wants the systems to record at least 60 seconds prior to the crash and 15 seconds after the accident, a much broader set of data compared to those typically found in cars today.

— Associated Press

 Nissan to recall Infiniti cars over air bags: Nissan announced

a recall of nearly 135,000 Infiniti G35 vehicles to address a prob- lem that could keep air bags from deploying in a crash. Nissan said the recall involves G35 coupes from 2005 to 2007 model years and G35 sedans from 2005 to 2006 model years.

 Google may sell digital books as early as June: Google, owner of

the world’s largest Internet search engine, plans to sell digital books as early as next month in a challenge to Amazon.com and Apple in the market for electron- ic publications. The service wouldn’t be tied to

any one device, Google spokes- man Gabriel Stricker said. The company has been working on the idea of selling digital books since 2006, according to its site.

— From news services

Goldman Sachs settles short-sales allegations

Goldman Sachs has agreed to

pay $450,000 to settle regulators’ allegations that it violated a rule related to short-selling of stocks in 2008 and 2009. The banking company did not admit or deny wrongdoing in paying the civil penalties in agreements with the Securities and Exchange Commission and the New York Stock Exchange’s regulatory arm. The case involving Goldman’s

stock-trading business is unrelat- ed to the SEC’s civil fraud charges filed against the firm last month over mortgage securities trans- actions it arranged. Goldman has denied the allegations in that case and said it will contest the charges in court. The rule in the short-selling

case involves naked short-selling and was installed by the SEC at

AHICCUP FOR SALES

the height of the market distress in the fall of 2008. Short sellers often borrow a company’s shares in a short sale, hoping to make a profit when the shares decline. Naked short-sell- ing occurs when sellers don’t own or borrow the shares before sell- ing them. The SEC also censured the bro-

kerage subsidiary based in Jersey City, Goldman Sachs Execution & Clearing, in its administrative proceeding in the case. Censure generally brings the possibility that the firm could face a stiffer sanction if the al- leged infraction is repeated. Although Goldman did not ad- mit or deny the allegations, it agreed to refrain from future vio- lations of the short-selling rule.

— Associated Press

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