The Levy

“Drove my Chevy to the levy but the levy was dry

And them good 'ole boys were drinking whiskey and rye singin . . . ”

-Don McLean, American Pie

Our Financials Sector Head Josh Steiner had some insightful comments this morning on President Obama’s proposed bail-out levy on banks.  The idea of a levy made me think of Don McLean’s well known song, American Pie.  In contrast to the levy in that song, the Investment Banking Levy, is far from dry.

In fact, President Obama believes that he can raise ~$90BN from the Investment Banking Levy. The proposal is a 15 basis point, or 0.15 percent, charge on the excess liabilities of large institutions and would apply only to the those institutions with assets of more than $50BN. 

The levy is not a very egalitarian sharing of the monies still owed under TARP.  Obviously some banks borrowed less, paid back all they borrowed and so forth.  Also, other sectors, like the auto sector borrowed money and will not be subject to the Levy.  Regardless of whether it is fair, this could actually help President Obama on a number of levels.  First, it is $90BN that can be used against the deficit, which is a positive for the fiscal health of the United States. Second, the inordinate executive compensation of the large banks is a populist rally cry.  So to the extent that the masses are against gross and indulgent pay for bankers, this will improve President Obama’s approval rating on the margin, which obviously needs some help.

According to the most recent Real Clear Poll aggregate, President Obama’s approval rating is 47.7 percent, which is the lowest of his Presidency.  This is consistent with the Rasmussen Daily Tracking poll in which only 25% Strongly Approve and 46% Totally Approve of President Obama.  On the Ramussen Poll, these numbers are effectively the lowest of his Presidency.

While the Investment Banking Levy may help on the margin, clearly President Obama and the Democrats are looking at a potential world of electoral hurt heading into the midterms.  We are in the middle of creating our internal projections on the upcoming midterms, but President Obama’s approval is a sufficient leading indicator to suggest the direction of political power will shift in the United States Congress.

Currently, the most closely watched race is for Senator Ted Kennedy’s former seat in the Commonwealth of Massachusetts.  Recent polls are all over the map, with Democrat Coakley ahead by anywhere from 15 points to Republican Scott Brown ahead by one point.  A win for Brown would not only shift the power in the Senate, it would also be a dark omen for the Democrats’ chances of holding ground in the midterms.  In fact, even a close race in this liberal bastion is likely a bad sign.

Ultimately, the Democrats will likely retain the seat, but on some level it is hard to argue with Scott Brown when he responded to a question on CNN yesterday about sitting in the late Ted Kennedy’s seat:

“Well, with all due respect, it’s not Ted Kennedy's seat, and it’s not the Democrats’ seat, it’s the people’s seat.”

Indeed.

Daryl G. Jones
Managing Director