Democrats Finally Found a Smart Way to Stop Wall Street's Reckless Behavior

[applegrove]

Democrats Finally Found a Smart Way to Stop Wall Street's Reckless Behavior

By Sean McElwee and Lenore Palladino at the New Republic

http://www.newrepublic.com/article/120755/chris-van-hollen-financial-transaction-tax-would-curb-risky-trading

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For too long, it appeared that many Democrats were trying to fight economic inequality with policies like the minimum wage while ignoring the 800-pound gorilla, Wall Street. But Rep. Chris Van Hollen on Monday unveiled legislation to cut taxes for those earning less than $200,000, while partially paying for the proposal with a financial transaction tax (FTT), projected to raise $1.2 trillion over the next decade. With this proposal, Van Hollen is recognizing that without reducing financial speculation, it’s impossible to address inequality or to leave Wall Street’s risky practices in the past.

The small FTT in this bill—which also includes provisions to boost stagnant wages and close lucrative tax loopholes—wouldn't burden longer-term investors. The tax is applied to every transaction—the sale and purchase of a stock, bond, or other financial instrument—so as long as the investor holds the investment for a decent period of time, the tax is a tiny percentage of their overall portfolio and won’t drastically alter their trading behavior. It’s the high-frequency traders who have fought this tax tooth and nail, and who will gear up to fight it now, because if you trade multiple times a millisecond then your tax burden will be higher.

High-frequency trading creates systemic risk. Taxing it would reduce the incentive for the financial sector to chase new bubbles, driving out "noise traders" who make markets more volatile without improving capital intermediation (the purpose of the financial system). This is the argument of economists including John Maynard Keynes, Lawrence Summers, Victoria P. Summers, and Joseph Stiglitz: that reducing the “whirlpools of speculation” is one of the best method for risk reduction. We’ve seen the results of volatility among such traders in the flash crashes, where huge amounts of speculative trading can crash very, very quickly.

Given the recent experience of Dodd-Frank (not to mention the mounting attacks on it), and the failure of regulators in the lead-up to the crisis to accurately understand what was occurring and put the brakes on it, market-based approaches like a FTT are crucial to making sure Wall Street speculation doesn’t bring down the economy again. There’s also lots of evidence that all of this increased trading hasn’t actually made the financial sector more efficient, and that it has been a main driver of economic inequality. Because stock ownership is concentrated at the top (the bottom 90 percent own only 9 percent of stocks and mutual funds), the benefits of finance have accrued to the one percent. A 2011 study finds that “financialization accounts for more than half of the decline in labor’s share of income, 10 percent of the growth in officers’ share of compensation, and 15 percent of the growth in earnings dispersion between 1970 and 2008.” Thomas Philipon estimates that inefficiencies in the financial sector cost the U.S. economy $280 billion every year. Other studies support the conclusion that much of the sector subsists on rent-seeking.



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[elleng]

1. Sounds like a decent idea.

[bvar22]

15. It was a Great Idea also back when the Democrats held majorities in both houses.

I wonder why it wasn't brought up then, except by the looney fringe Leftists.


The establishment Dems (3rd Way) are more than happy to support any progressive legislation..... as long as it has no chance to pass.
It makes great video bytes for campaign season.

[Scuba]

2. Sounds like a decent idea. Too bad it has zero chance of passing, or even coming to a vote.

[applegrove]

3. Still. Ideas will be talked about. And sit in folks

brains. And when Democrats run again it will be already a win/win in people's minds.

[Skittles]

12. THANK YOU

[Scuba]

13. In July of 2009 they could have fixed this, not just talked about it.

Instead we got the Heritage Foundation's health care plan.

Now we get deregulated derivatives and more dark money in elections, yet some seem to think liberal rhetoric is all we need.

[benz380]

4. And 85% Dems want a corporatist in the White House. Talk about shooting yourself in the foot. nt

[Man from Pickens]

6. Make it even more specific

Make it apply exclusively to any "investment" held for 24 hours or less - and jack the rate up to the roof.

[lastlib]

7. And also to DERIVATIVES activity!

Options, swaps, futures--all the other bizarre Wall Street creatures that were at the root of the financial crisis.

[Revanchist]

8. Include exemptions to the tax

for deposits and withdrawals (if you're above a certain age) in privately held retirement accounts such as IRA's or health savings accounts (doubt it would be subject to this tax but you never know) and I'd be fine with it.

[Spitfire of ATJ]

9. These businesses have turned being anti-tax into a religion....

Offer them a .01% tax cut to double payroll for AMERICAN labor and some of them would go for it.

[TrollBuster9090]

10. An article in the New Republic talking about Democrats standing up to Wall Street?

Please tell me it wasn't written by STEVE GLASS.

http://en.wikipedia.org/wiki/Stephen_Glass

[rickford66]

11. The fee is a great idea but won't pass.

A simple regulation that doesn't add a fee is the answer. Make it mandatory that a stock, bond or security must be held for at least 1 second. I guarantee this wouldn't pass either.

[Omaha Steve]

14. K&R!