We have a massive short-term problem in our country - lack of confidence in our financial institutions. This is accompanied by a massive long-term problem - the current financing streams for our government institutions is resulting in a wealth redistribution from the poor to the rich. Both of these problems can be addressed by the implementation of a national asset management charge. A discussion of the why and how follows after the break.
Our financial institutions have been beset by unprecedented scandals, mismanagement, and investor panics. As evidenced by the intermittent spikes in the LIBOR (representing bank-to-bank lending rates), not even the financial institutions themselves are consistently trusting their counterparties in the current environment. The Madoff and Stanford allegations, coupled with widespread publicity around such stories as 90-year-olds forced to take jobs after being scammed out of their life savings and charities forced to close their doors after discovering that their stated account balances were fantasies rather than asset-backed reality, have promoted a meme that financial investments can not be trusted. We need an aggressive intervention by the Federal Government to re-establish a basis of trust in our financial institutions.
At the same time, our society's needs are being financed by a set of upside-down taxation mechanisms in which our poor are taxed at higher marginal rates than our richest citizens (when you take sales taxes and usage fees into account). The last eight years have seen this situation get far worse under Dubya with the reductions in estate tax revenue and tax rates on the wealthiest Americans, contributing in large part to the increased rate of wealth redistribution from the poor and to the rich.
Most Americans are very used to the idea of asset management fees. Anyone who has a mutual fund accout or a 401(k) knows that some percentage of their account value is retained by the asset management firm overseeing their account(s). This fee is withheld in such a way that it is not particularly clear what amount is being taken away daily/weekly/annually; the account-holder only sees her/his change in account value net of the charges.
The above method can be used by the Federal Government as well. Something like an 'SEC Oversight Charge' can be applied. To avoid reactionary backlash it can be matched up to some new regulatory powers and some new FDIC/SIPC-type guarantees against fraudulent abuses (e.g. the 'stress testing' that Geithner talked about, or extra governmental review to assure that the management isn't looting the firm through excessive bonuses). A charge on the order of 1/2 % would probably be seen by most folks as acceptable if it restored confidence in the system.
The fact is, though, that a 1/2% fee would have a very substantial effect on the funding streams of the US government. If we take as a ballpark number for the value of all financial assets held by American citizens to be $30 trillion (reducing the mid-2008 estimate of total assets by 1/3), then an annual charge of one-half of 1% would result in an increase in government revenues of $150 billion every year. This would be more than enough to pay for the costs of truly adequate government regulation of the securities industry (as well as some nice extras like universal health care, retooling the auto industry for electrics, and more).
This kind of fee would probably be met with substantially less resistance from taxpayers than a tax would. First of all, there would be a quid pro quo - some new government guarantees of the fairness of investments would be attached, so people wouldn't necessarily think of it as a tax. Second of all, no one who didn't have investments would be affected. Third, the actual costs could be buried within the other management fees so that few would even notice.
I welcome comments, criticisms, and suggested refinements to this idea.