They can't say they weren't warned.
For months, policy makers, ranging from U.S. President Barack Obama to Bank of Canada Governor Mark Carney, have been telling bankers that politics have changed.
Populist outrage over the role lenders played in the global recession is palpable, leaving governments and regulators little choice but to readjust their approach to the financial industry, lest they lose public confidence in their efforts to restart the economy.
Nevertheless, Wall Street's biggest banks were disdainful Tuesday as they digested the news that Mr. Obama is considering a fee on financial institutions that would raise as much as $120-billion (U.S.) to help pay the bills from fighting the recession.
The proposition was circulated in Washington by unnamed administration officials, so it remains far from White House policy. There were no details on what the government might tax, other than assurances that financial transactions and bonuses would be untouched.
Yet even the suggestion of a levy aimed specifically at banks approaches heresy in a country where Republican and Democratic administrations alike have for decades treated Wall Street with a light hand, recognizing the competitive and strategic advantage of being home to the world's most dominant lenders.
The proposal, dismissed by one former Bush administration official as a "revenge tax," was criticized by independent experts as poor economic policy and an administrative nightmare. Those factors will bolster the banking lobbyists' case against the proposal, but they don't guarantee success in killing it.
The Obama administration is floating the idea of a financial tax just as institutions such as Goldman Sachs Group Inc. are set to pay out record bonuses, even as the Group of 20 countries debates new compensation rules to correct the way pay schemes encourage risk.
For whatever reason, banks such as Goldman Sachs, which earned big profits off their trading businesses as markets rebounded last year, chose to guarantee their traders and sales staff hefty rewards even as the recession drove the U.S. unemployment rate up to 10 per cent.
"Given the depth of the recession, to announce or approve these bonuses in the current climate is an act of strategic and political stupidity," said Ian Lee, the director of MBA program at Carleton University's Sprott School of Business and a former banker. "They put a target on their heads and said 'Shoot me.'"
Mr. Obama's rationale for a levy is to help recoup losses from the Troubled Asset Relief Program, the $700-billion fund the government used to plow capital into the country's big banks, along with automobile makers General Motors Corp. and Chrysler Group LLC.
The rescue effort contributed heavily to a record $1.4-trillion deficit, which White House officials also used as justification for seeking additional revenue.
Phillip Swagel, a professor at Georgetown University in Washington and a former chief economist at the Treasury Department, said the deficit argument had merit, although not enough to outweigh the economic risks of putting further constraints on banks' profits.
A tax works against the G20's goals of spurring the banks to hold more cash in reserve, while at the same time boosting lending.
The $120-billion, which is what the Obama administration says it will lose on TARP, represents money that banks could otherwise be encouraged to circulate to consumers and businesses. Banks would almost certainly try to pass the cost onto their customers.
The justification for the levy is also hurt by the fact that the government has profited on its investments in banks; the TARP losses instead come from the investments in GM, Chrysler and other companies.
"This is borrowing populist rhetoric and trying to cloak a tax in outrage against the financial sector," said Mr. Swagel. "I get it. But the administration should put it on the table and tell us what it really is."
Mr. Obama's consideration of a levy on the financial industry follows the British government's 50 per cent tax on bank employee bonuses of more than 25,000 pounds. Prime Minister Gordon Brown is struggling to make that policy work, as banks move to avoid the charge. London Mayor Boris Johnson says higher taxes may drive 9,000 bankers out of the country.
The International Monetary Fund also is studying ways to recoup from the financial industry the cost of last year's bailouts. Prof. Lee said the U.S.'s flirtation with the idea will provide momentum to that effort, although Finance Minister Jim Flaherty said Tuesday that he has no intention of heading down that path.
"We have not had financial institutions fail in Canada and cost taxpayers billions of dollars, which is what happened in the United States and the United Kingdom and some other places," Mr. Flaherty said in an interview with Bloomberg News in Swift Current, Saskatchewan.
That's of little consolation for Wall Street executives such as Goldman Sach's Lloyd Blankfein and JP Morgan Chase's Jamie Dimon.
The two Wall Street titans, along with several others, are set for a refresher on just how much politics have shifted against them.
Starting Wednesday and continuing Thursday, the executives are set to appear at a commission designed to determine the causes of the financial crisis. The process is based on Congress's attempt to get to the bottom of the Sept. 11, 2001 terrorist attacks.
"We came close to the worst thing in the world," Bill Thomas, the vice-chairman of the commission and a former Republican congressman, told the Associated Press. "So whenever you hear from these people, 'Well, this will make us not to do this and not to do that,' I immediately flip it from negative to positive and say, 'Yeah, and so?'"Report Typo/Error