As this is written, voters in Massachusetts are going to the polls in what could be a momentous election, especially if Republican Scott Brown pulls off an upset victory in the heavily Democratic Bay State. But this story is currently developing and will be fodder for next week’s column.

Today’s topic is the Obama Administration’s proposal for a $90 billion tax (the White House labels it a “financial crisis responsibility fee”) on large banks. The levy would be equal to 0.15% of an institution’s assets less deposits, high quality assets such as common stock and retained earnings. The tax applies to any financial institution with assets of over $50 billion who received assistance under the TARP bailout legislation, the Federal Deposit Insurance Corporation temporary loan program or other crisis measures. (There are apparently about 50 affected institutions.) Notably exempted are some major recipients of TARP money such as automobile companies, plus troubled real estate lenders Fannie Mae and Freddie Mac. The tax applies irrespective of whether a financial institution receiving TARP money has repaid the amount, as most have done, or whether a TARP recipient wanted the money in the first place. (Many did not.)

In advocating the tax in his Saturday radio address, President Obama made it clear that the tax had a populist rationale as a reaction to large bonuses paid recently at financial institutions. “If banks can afford massive bonuses, they can afford to pay back the American people”, the President declared.

But while the plan might be political red meat for certain voters, is it good policy?

No one can deny that many financial institutions deserve the opprobrium heaped upon them in the wake of the 2008 financial crisis. As detailed in The Sellout by Charles Gasparino (reviewed in this space recently), financial executives secured huge profits for their firms, and huge bonuses for themselves, by investing heavily in highly leveraged mortgage backed securities, which included numerous subprime loans, only to fall into crisis (and in a number of cases, require rescue) when housing prices declined. It is clearly inappropriate to reward such reckless behavior.

The legislation does have some merits. As John Carney of the Business Insider website points out, the proposed tax penalizes thinly capitalized banks and rewards building up capital reserves. Moreover, since the tax is not directly on profits it does not indirectly encourage institutions to deflate profits by offering even larger bonuses.

Still, the proposal has numerous shortcomings. As a matter of equity, there seems to be no reason why banks and financial institutions should be asked to repay amounts paid under TARP to automobile companies, no reason that banks who did not want to be in TARP should be included and no particular rationale for the $50 billion asset threshold. Also, much of the bill for the taxes will ultimately be paid by consumers.

But most fundamentally, the tax does not squarely or sufficiently address the fundamental problem that caused the 2008 crisis, the lack of a strong motive for financial institutions to avoid short-term risky behavior that produces bad long-term results. To some extent the problem can be addressed administratively by stronger scrutiny by regulators and greater reserve requirements. But beyond that, we need to abandon the “too big to fail” mentality that permits executives of large institutions to believe that no matter what they do, they will ultimately be rescued. The real possibility of going under will concentrate the mind of Wall Street and the bankers far more than will any new tax.