As the government chisels together a Wall Street bailout certain follow-ups are probably coming. We are talking about forfeiting pay to executives, investigation on defrauding investors, and seizing assets. But no one yet is proposing the obvious solution which would both provide the funding from Wall Street itself and dampen the speculative investing which triggered it.
Britain has a stock transfer tax (fee) of either .25% or .50%. New York, Florida and even Bush and Gramm's home state of Texas, also have stock transfer taxes. It's been estimated that even a .25% stock transfer tax in the U.S. would raise about $150 billion per year.
Some argue that a stock transfer tax would penalize those whose living comes from short-term investing and hurt dealers' commissions. But the whole reason this house of cards came tumbling down was in part because C-level managers and above were rewarded for short-term risk taking.
Is any value created by squeezing investment timelines on companies down to months simply because investors now have the technology to do it. Would you invest in a company that looks to build a business and cash out all within 6 months? If not, why is it justified to reward precisely that sort of behavior in your investment?
Such a tax would trim the worst excesses of professional investors, who have proven themselves unable to determine long-term risk when blinded by short-term gains. If they don't have the discipline to do it, then the rest of us would have to force it on them - just so that we are not left holding the bag for their avarice.
Dean Baker in a column in March suggests bankers are demanding the sort of government help they would deny to working mothers trying to provide their kids with health care, child care, and decent housing and education. Of course the situation is very different. The working mothers are looking for chump change, the Wall Street boys want real money.
While the bankers are claiming to have hostages – they say the financial system and the whole economy will be brought to its knees if we don’t meet their demands – they are not telling the truth. We absolutely have an interest in keeping the banks operating in an orderly manner. This can be done without bailouts:
In fact, we should look to borrow another policy from the United Kingdom that can help set our financial markets in order. The U.K. imposes a modest stock transfer tax of 0.25 percent on every purchase or sale of a share of stock. This sort of tax would make almost no difference to a typical middle class shareholder. However, a tax of this size, with comparable taxes on various other financial instruments, like options and futures, would put a serious crimp in the money shuffling business that has wrecked so much havoc on the U.S. economy.
Furthermore, such a tax could raise a great deal of money, easily in the neighborhood of 1.0 percent of GDP or $150 billion a year. Imagine that we could finance national health care insurance with a financial transactions tax, or provide quality child care and pres-school education, or build up a green 21st century infrastructure, or maybe just have a nice middle class tax cut of $1,000 per family.
There is no shortage of good uses for the money that could be raised through a financial transactions tax. This is the conversation that the country should be having. Instead of funneling tens or hundreds of billions of taxpayer dollars to the failed wizards of Wall Street, we should be talking about what they can do for us.
Very good full column and comments:
http://tpmcafe.talkingpointsmemo.com...
Jesse Eisinger in the new Portfolio has a column titled "Reigning in the Speculators" which advocates a stock tranfer tax both to raise enormous revenue and to slow down wild speculation:
Stiglitz championed the transaction-tax idea in 1989. He was only slightly less apologetic, lest the profession fear for his sanity. "As an economist, I begin with a general suspicion against narrowly based taxes," he began. But he overcame that reservation, arguing that such a tax would make the stock market more efficient and reduce price volatility. It’s a tax that’s meant to correct behavior, as described by the English economist Arthur Pigou. Why should we tax casino gambling but not options trading?
Such a tax could make the markets better. Financial markets raise capital for new enterprises. They help people exchange assets and information. But just because there is higher volume doesn’t mean these trades are expressing more views. Instead, all that is happening is that the bandwagon is speeding up. The faster it goes, the more people want to get on. Noise traders drive out the fundamental investors.
If such a levy did get any traction in Washington, the usual suspects would rise with a passel of objections. They would say the tax would stifle innovation and efficiency. But to let those words stand as descriptions of what has been happening in markets lately is to concede the debate. Experimentation would be a better word than innovation to describe what the Wall Street firms have been doing.
Full column and comments:
http://www.portfolio.com/...
It has become clear that markets tend toward excess and run amok if unchecked. A tax that nudges markets toward becoming more rational and less frenzied would be a good start.
And raising revenue for a deficit-ridden government from people who can afford it would be a nice little bonus.