Peter DeFazio (Or) is proposing to raise billions by taxing oil futures and options, a move that potentially could discourage dangerous, speculative trading. It would also be a stand up to Wall Street, and this is sorely needed. After all, they "own the place".
Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Here's how DeFazio's proposal could work:
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
Talk is cheap. Talk is easy. You can say you stand for the working class, but in policies, where talk meets action, that's where the truth emerges. So far, Wall Street has felt little pain since before and after Obama took office. Madoff's 150 year sentence, in my view, is to distract from those who brought the economy down. Let's take his sentence and divvy it out among a few players. That might assist working class folks in beating back the Wall Street lobbyists that have descended, en masse, since Obama's election, despite tough talk during his campaign to the contrary.
The president has already seen what the lobbyists can do. In May, he signed the Helping Families Save Their Homes Act, and celebrated it as an example of doing "what we were actually sent here to do -- and that is to stand up to the special interests, and stand up for the American people."
But, in fact, those special interests had stood up to him and helped eliminate the most important legislative initiative affecting homeowners -- the cramdown provision in the bankruptcy bill.
It shows just how powerful the lobbyists are: even those representing the banks that helped bring about the financial meltdown still hold sway over our elected officials.
The same goes for the lobbyists representing the credit rating agencies which, despite having played a key role in causing the economic crisis, escaped with barely a wrist slap in the Treasury's big new reform plan. Here's how the Wall Street Journal put it:
If world-class lobbying could win a Stanley Cup, the credit-ratings caucus would be skating a victory lap this week. The Obama plan for financial re-regulation leaves unscathed this favored class of businesses whose fingerprints are all over the credit meltdown.
If the Wall Street Journal is calling it, basically, a pig with lipstick, then you know it must be a damn, good looking pig with lipstick, this "re-regulation" of the financial industry. More from the Wall Street Journal:
The Obama plan also calls for regulators to "minimize" the ability of banks to use highly-rated securities to reduce their capital requirements when they have not actually reduced their risks. Minimize, not eliminate? Does the Treasury believe that some baseline level of fakery is acceptable in bank financial statements? To review, a critical ingredient in the meltdown was the Basel banking standards pushed by the Federal Reserve. Among other problems, Basel allowed Wall Street firms to claim that highly-rated mortgage-backed securities on their books were almost as good as cash as a capital standard.
The Obama plan does make plenty of vague suggestions, similar to those proposed by the rating agencies themselves, to improve oversight of the ratings process and better manage conflicts of interest. The Obama Treasury has even adopted the favorite public relations strategy of the ratings agency lobby: Blame the victim. "Market discipline broke down as investors relied excessively on credit rating agencies," says this week's Treasury reform white paper. After regulators spent decades explicitly demanding that banks and mutual funds hold securities rated by the big rating agencies, regulators now have the nerve to blame investors for paying attention to the ratings.
Strong language from the paper that serves the upper echelon: "baseline level of fakery", "favorite public relations strategy...blame the victim."
Hey, but no problem. Americans are resilient. They can always pitch a tent somewhere. Why, New Orleanians since Katrina have had much practice there, with the highest homeless rate in the nation. Here's how its done in Sacremento:
Volunteers and workers at Loaves and Fishes, a local faith-based charity, have also noticed an increase in the number of newly homeless as well. Social worker Jim Peth explains that "you can tell because they’re much better dressed. They’re disoriented; they don’t know where to go. So they’re easy to spot."
Former members of the middle class who come to tent city all have similar stories. The majority arrive after a lifetime of work in the construction industry and lost their job and home as a result of the crisis. They would lose their car, begin selling possessions, then soon were unable to pay their mortgage or rent and were either foreclosed on or evicted.
If you really want to look at a government's priorities, notice who get's the bailouts.
General Electric, the world's largest industrial company, has quietly become the biggest beneficiary of one of the government's key rescue programs for banks.
At the same time, GE has avoided many of the restrictions facing other financial giants getting help from the government.
The company did not initially qualify for the program, under which the government sought to unfreeze credit markets by guaranteeing debt sold by banking firms. But regulators soon loosened the eligibility requirements, in part because of behind-the-scenes appeals from GE.