Last week, the president announced a new "Financial CrisisResponsibility Fee" (he didn't dare call it a tax!) tobe paid by the largest banks in order to recover expectedlosses from the Troubled Asset Relief Program. Welcome to yetanother chapter in the year-long crusade by legislators to reviveprivate sector business by vilifying, assailing and soaking it.Thebanking industry is a critical element of our commercial realestate market and we have been negatively affected by thedisappearance of many of the large commercial and money centerbanks from our lending market for nearly two years now. For thisreason we must look carefully at how Washington deals with thesecompanies.The president is asking for large banks, thrifts andinsurance companies, those with assets in excess of $50billion, to foot the bill for all TARP losses. This would bedone through the implementation of a 15 basis point tax on theliabilities of the banks, less Tier 1 capital, or highquality capital such as common stock, disclosed and retainedearnings and capital which carries FDIC guarantees. It isexpected that about $100 billion will be raised over 10 yearsfrom the new tax.This proposed tax will surely pass in the House.Whether it passes in the Senate, or is even constitutional, is another story.One of the problems with this tax is that itdoes not take into consideration that banks were not theonly recipients of TARP money. The auto industry, Fannie Maeand Freddie Mac (and a program to help homeowners avertforeclosure), and AIG also received funds from TARP. In fact, mostof the banks have repaid their TARP money, including almost $20billion in interest, and most of the losses are expected from theauto industry and AIG.Some of the banks reluctantly took this moneyin the first place. Had they known, at the time, that theircompensation would retroactively be scrutinized and capped andthat their obligations would amount to joint and several liability,I doubt they would have signed up if they did not absolutely haveto.There are a couple of aspects of the TARP that we must consider.First, the capital doled out was in the form of "investments", notcorporate welfare or entitlement payments which the taxpayer neverintended to get back. As it has turned out, some of theseinvestments were sound, and some not so much.Why should those inwhom sound investments were made be forced to pay for those thatthe government was ill-advised to invest in?Second, taxpayers wereacting in their own interests in bailing out the system. Theyweren't doing anybody a favor. Money wasn't "spent" to bailoutthe banks. Taxpayers merely traded one claim for another, tradingdollars for claims on real assets such as housing, commercialproperty, industrial equipment and corporate equity. The value ofthese assets had been depressed further than economics woulddictate out of the fear that the taxpayer wouldn't intervene.Taxpayers acquired these assets on a bet that asset value wouldincrease simply based upon their intervention. In most cases theywere correct.In fact, the Fed now has a balance sheet aboutthe size of Citigroup's and, last week, reported gigantic profitsof $52 billion for 2009. This is only slightly less than WallStreet reported as a whole. This throws interesting light on thepresident's comments that the new tax must be imposed to "recoup"bailout costs.But why single out the banks, which are showing theTreasury a handsome profit on its TARP investments? Are politiciansnow the judge and jury when it comes to attributing liability forthe financial crisis? How many times have you heardofficials say, "Wall Street caused this mess?"It is dangerousfor the U.S. to have politicians determine culpability and then usetax policy to penalize those who they indict without even goingthrough a formal process.There are many industries which had a handin the crisis. It would be easy to point to the policies of manyadministrations which sought to increase thehomeownership rate in the U.S. This exerted pressure on theGSEs to relax requirements which inflated housing bubbles (Many believe this was the underpinning of most of thecrisis. Most of the CDOs and derivatives which became toxicwere based upon housing policies). In the early 2000's, therewere concerns that Fannie and Freddie were spiraling out ofcontrol. Barney Frank was outspoken about how they should be leftto do what they were doing. How would Mr. Frank feel if the nextadministration raised his personal tax rate to 75% due to hiscontribution to the crisis?Last week and again this week, we willhear about strong earnings from Wall Street firms and thecustomarily large bonuses which move in tandem with these earnings.These have caused resentment from Washington, which can't connectthe dots to see that the elimination of two giant competitors(Lehman and Bear) and, more importantly, their highly accommodativemonetary policy is the main reason for the earnings. And yes, it isthe administration's monetary policy, not the Fed's. Presumably,the White House approves of the Fed's monetary stance or they wouldnot have proposed Chairman Bernanke for another term.This tax isall about politics, not about TARP repayment. Why are theautomakers exempt? Why not consider a tax on General Motors,Chrysler and their unions? The automakers were the worst"investment" the government made and will likely be the largestsource of TARP's projected $68 billion in losses. These losses willstem from the political decision to restructure rather thanliquidate GM and Chrysler which filed for bankruptcy protectionlast year.The largest beneficiary of the car companies' bailout wasarguably the United Auto Workers Union which emerged with afar better deal than did bondholders and other senior securedcreditors. The losses on TARP investments are compounded bythe unaltered pension plans for union members. In a typicalbankruptcy, a 10-year, $40 billion pension obligation would bereduced to about $10 billion or eliminated altogether. Add $30 to$40 billion to the taxpayer's tab for this benefit and you reallyhave to question the advisability of saving these companies,particularly when looking at their financial forecasts movingforward. They did, however, support the president in his electionrun, so there you have it. Throw in a juicy exemption fromthe additional taxing of their "Cadillac" healthcareplans for good measure!So the administration goes after the banksbecause it is politically favorable. Do they really think thistactic will work economically? What is likely to happen if this taxis passed by Congress?:1) It will exert even more disincentive forbanks to lend. They will have less capital available to lend andthe loans they do make would be subject to this tax. This fliescompletely in the face of the administration calling for banks tolend more to businesses. It would also be a setback forour real estate capital markets.2) It would create a disincentivefor banks to merge for fear of going over the proposed or amendedasset threshold. Mergers are effective strategies, particularly indifficult times. This would also reduce the number of bidders theFDIC would see at their sales of banks they take over.3) It couldthreaten U.S. bank's ability to compete with overseas rivals whichare not subject to the tax.4) Some of the banks may try to avoidpart of any tax by selling more brokered deposits in the wholesalemarket. If that happens, traditional commercial banks and the FDICwill not be pleased.5) It is likely that the new tax would simplybe passed along to consumers in the form of higher ATM fees or thelike.Jumping on the "Banker bonuses are too high" and "Make the bigbankers pay" bandwagon is simply an attempt to gain politicalfavor. The president suffers from the worst approval ratings andhighest disapproval ratings a U.S. president has seen after 1 yeargoing back to Jimmy Carter.What Mr. Obama and others apparentlyfail to understand is that banks' own shareholders benefit fromthese huge performance bonuses. The bonuses are typically tiedto those who make large profits for their employers. Burst ofoutrage from politicians or even grilling bank CEOs in front of acongressional hearing will do little to impact this system.Bonuses may consist of more stock than cash today but the amountsare still high. The public has been giving the banks credibleand convincing votes of confidence all year by bidding up the valueof their shares. It cannot seriously be argued that investors areignorant of bonus arrangements.If Congress really wants to changethe behavior of banks, they must convey that no bank istoo-big-to-fail. This implicit guarantee keeps risk takinghigh and will cause a focus on the short-term as opposed to thelong-term. The $50 billion litmus test is not the right answereither. CIT, an entity with over $50 billion in assets, justwent through bankruptcy and, by any objective reckoning, there wereno systemic consequences. The new $50 billion tax level has loweredthe bar and increased the scope of future bailouts by drawing awider circle around firms that can gamble with implicitfederal backing. Do politicians really think about theramifications of their positions before they publically announcetheir ideas?Coming up with a plan that allows failure is, no doubt,hard work. Perhaps reintroducing Glass Steagall or a similarplatform which separates traditional banking from hedge-fundtrading. Perhaps the answer is what a bipartisan Senate effort isconsidering; the creation of a special bankruptcy court to decidewhether an institution should go through bankruptcy or be subjectedto an FDIC resolution process.Another idea to reduce the moralhazard of too-big-to-fail would be to restore long-ago limits onleverage. For instance, eliminate the corporate income tax forfinancial companies and replace it with a tax on assets thatrises with the bank's leverage ratio. There could be a tax-freezone at leverage levels below present regulatory standards. Marginrequirement reforms could also be a component of thisplatform.If a bank is truly too-big-to-fail, it shouldbe dismantled into smaller pieces that the economy candigest. Simultaneously, the government should make it clearthat it will allow these institutions to fail. Thiswould do more to enhance the integrity of the risks that aretaken, and the compensation that is given, much more than anypunitive tax policy would.Mr. Knakal is the Chairman andFounding Partner of Massey Knakal Realty Services in New York andhas brokered the sale of over 1,050 properties in hiscareer.