Everyone knows that the financial sector has grown too large for the good of our nation. Everyone knows that its size allows it to play fast and lose with our implicit guarantee of its bets. The financial speculation tax is the perfect way to put that money back to work for the common good.
Furthermore, it’s the very best way to make the financial sector pay us back for all the damage it has done to the economy. Before we succumb to financial amnesia we should recall that Wall Street, and it alone, went on a massive gambling spree that crashed the economy and killed 8 million jobs. To save the system from falling into another Great Depression we bailed them out and now they are again making record profits. Meanwhile, long-term unemployment remains at record highs and states are in enormous fiscal distress.
Every American not tied to Wall Street knows that the high-stakes financial gamblers should be paying us back. The speculation tax is the very best way to do it — grab the money before they stash it in their offshore accounts.
We live in a very, very rich country. Yet we seem to be utterly consumed by a collective hysteria that we’re about to go broke. Historians are certain to look back at this period and wonder why the richest country in history consumed itself in a struggle over how many teachers to fire.
How rich are we?
Just take a look at the reports on what the top hedge fund managers haul in. In 2010 John Paulson led the list with a record $4.9 billion in personal earnings. That’s a whopping $2.4 million an HOUR. Here’s a factoid to make you wretch: It would take the median US household over 47 years to earn as much as Paulson pocketed in just 60 minutes. And, every hedge fund manager pays a lower tax rate than the average family.
The top 25 hedge fund earners took in $22.07 billion in 2010. Thanks to a generous tax loophole these billionaires will pay a top tax rate of 15 percent instead of 35 percent. Closing that loophole on just those 25 individuals – just 25 guys who wouldn’t miss a penny of it — would raise $4.4 billion, which is enough to rehire 126,000 laid-off teachers.
Wait a sec. This is America, not Russia. Don’t we want our entrepreneurs to go out there and earn as much as possible? We don’t want to punish the successful who are building up our economy, do we?
Maybe that’s a strong argument when you’re talking about the CEO billionaires of Apple and Google and other successful companies that make products we use. But when it comes to financial billionaires, we don’t even know what they do for a living.
Each and every day I ask people and I get a blank stare or something like: “They invest. They make money.” Sure enough, but how do they make so much money? Where does it come from? How can hedge fund firms with fewer than 100 employees make as much profit as companies like Apple with tens of thousands of employees?
This much we know. They speculate. They place bets. They jump in and out of markets at lightening speeds. They have secret betting formulas just like card counters in Vegas. And as any state attorney general can tell you, a good number of them cheat by betting with illegal insider tips, front-running trades, sneaking in trades after markets close and so on. The entire industry is barely regulated as it plays with a bankroll of $2.2 trillion that comes mostly from enormously rich investors. You can bet the next crisis will bubble out of this vast and murky casino.
I have yet to hear a convincing argument that financial billionaires produce economic value commensurate to what they earn. And if they don’t, that means they are siphoning off the wealth from the rest of our nation. Either we do something about it or we’ll watch our standard of living crumble.
Blah, blah blah. We’ve heard it all before. We know that super-rich financiers are gaming the system. We know they pay low taxes or none at all. We know they’re stashing their cash in offshore accounts. But now that the economy isn’t crashing anymore, it seems there’s nothing we can do about it. We just have to learn to live with a new kind of aristocracy. Get used to it.
The joke is that when the big boys were on their knees begging for money, this tax easily could have been a condition for bailing them out.
Each time I write about these issues, my editors worry that you, the readers, have given up — that nobody believes it’s possible to fight Wall Street and win.
Well, I’m not giving up on you.
There’s a movement underway for what economist Dean Baker aptly named a “financial speculation tax.” The idea, first put forth by the late James Tobin to raise money to help eradicate global poverty, is to place a very small tax on all financial transactions. Here’s how Baker’s Center for Economic and Policy Research describes it:
- The FST (also known as a financial transactions tax or the Robin Hood tax) is a modest set of taxes on Wall Street trading – e.g. 0.25% (1/4 of a percent) on a stock purchase or sale and 0.02% (1/50 of a percent) on the sale or purchase of a future, option, or credit default swap. These rates are proportional to the actual transaction costs in the industry.
- An FST would raise over $100 billion per year in badly needed revenue or $1 trillion over the course of a decade.This is a substantial sum of revenue, which skims the fat off of a sector of the economy that can afford to pay it.
The beauty of this kind of tax is that it grabs the financial booty before it lands in the financiers’ pockets.
By taxing financial speculation in real time, we reclaim some of the ungodly accumulation of speculative wealth in the financial sector.
Financial transaction taxes are high on the agenda of European nations that seem much less intimidated by their financial barons. The United Kingdom already has such a tax on stock and bond transactions, and there are no adverse effects on its financial center.
On March 8, a coalition of progressives succeeded in getting the European Parliament to endorse this Robin Hood tax by a vote of 529 to 127. This non-binding proposal if enacted would raise approximately $286 billion a year for the European Union. The G20 group of the leading industrial nations is considering such a tax, but the US and its billionaire bankers are fighting hard to keep it off the agenda.
Needless to say, winning won’t come easy because Wall Street is determined to kill any and all efforts to siphon money away from its casinos.
Clearly, we need our own Robin Hood movement.
Wall Street Wins Again as Trump Picks Bankers, Billionaires
By Max Abelson Bloomberg
Hedge fund manager Whitney Tilson was feeling happy Wednesday morning.
After Donald Trump ridiculed Wall Street on the campaign trail, the President-elect tapped former Goldman Sachs Group Inc. executive Steven Mnuchin to be his Treasury secretary and billionaire investor Wilbur Ross to lead the Commerce Department. Trump even met with Goldman Sachs President Gary Cohn inside Trump Tower.
It would suit Tilson just fine if voters who backed Trump because he promised to rein in Wall Street are furious now that he’s surrounding himself with bankers and billionaires.
“I can take glee in that — I think Donald Trump conned them,” said Tilson, who runs Kase Capital Management. “I worried that he was going to do crazy things that would blow the system up. So the fact that he’s appointing people from within the system is a good thing.”
If Mnuchin becomes Treasury secretary, he’ll be the third Goldman Sachs alum in three decades to get the job. As Trump switches from using Wall Street as a punching bag to a farm team, bank stocks are roaring and executives and investors are sighing with relief. They’re not too worried about fury from Trump’s voters.
“Some say that those who elected him may be disappointed in some way,” said Scott Bok, who heads boutique investment bank Greenhill & Co. “But I think all those people want is a stronger economy. If tax cuts and infrastructure spending get them that, I think they’ll be happy.”
Mnuchin, 53, the son of a Goldman Sachs partner, thrived at the institutions Trump mocked during the campaign. He was tapped into the Skull and Bones secret society at Yale, joined the bank and became a top executive, ran a hedge fund and invested in Hollywood blockbusters. When he saw TV news shots of customers lined up outside a branch of California bank IndyMac trying to pull their money in 2008, he spotted an opportunity.
“I’ve seen this game before,” he recalled saying in an interview earlier this year. “This bank is going to end up failing, and we need to figure out how to buy it.”
Mnuchin gathered billionaires including George Soros and John Paulson and assembled a $1.6 billion bid to buy IndyMac. They rebranded it OneWest and sold the bank in August 2015 for $3.4 billion. It carried out more than 36,000 foreclosures during Mnuchin’s reign, according to the nonprofit California Reinvestment Coalition, which accused OneWest of shoddy foreclosure practices and avoiding business in largely black or Latino neighborhoods, claims the bank has denied.
Former Minnesota Governor Tim Pawlenty, a Republican who leads the Financial Services Roundtable, a bank lobbying group, thinks any rage over Mnuchin’s pedigree will fade if he does his job well. “If those results are really good for everyday Americans, it will be ‘mission accomplished,” Pawlenty said. “The public’s focus will soon shift, Americans have the attention span of a gold fish.”
On Wednesday morning, as a former Goldman Sachs executive was getting into his car in the suburbs to drive into New York, he said he was relieved by the Mnuchin news. The executive, who asked for anonymity to talk politics, brushed aside a question about populist fury over Trump’s Wall Street picks by saying a blue-collar high school graduate wouldn’t belong at the head of the Treasury Department.
Shares of all the big Wall Street firms climbed Wednesday, with Goldman Sachs rising 3.6 percent, the best performance in the Dow Jones Industrial Average.
Another former Goldman Sachs banker, SkyBridge Capital founder Anthony Scaramucci, is said by analysts to be under consideration for a job as a top Treasury deputy. He’s well known for once asking President Barack Obama when he’d stop bashing Wall Street. Stephen Bannon, Trump’s chief strategist, worked at Goldman Sachs, too.
Tilson, who was relieved Trump picked an industry veteran instead of a wildcard, still has concerns, especially because Trump promised to dismantle the Dodd-Frank Act, enacted after the financial crisis almost toppled the global economy.
“I’m a fan of Dodd-Frank, I think banking should be boring,” said Tilson, who voted for Hillary Clinton. “I worry about Wall Street returning to being a casino.”
Massachusetts Senator Elizabeth Warren is worried, too. “Mnuchin is the Forrest Gump of the financial crisis — he managed to participate in all the worst practices on Wall Street,” the Democrat said in a statement. “His selection as Treasury secretary should send shivers down the spine of every American who got hit hard by the financial crisis.”