We Need a Bank Tax
Think about the costs of the financial crisis. According to the International Labor Organization, 34 million people around the world have lost their jobs. According to the World Bank, 60 million people were pushed further into extreme poverty, living on less than $2 a day. And what caused it? Greed. Excessive risk-taking by a financial sector, secure that it could keep the upside and have the taxpayer pay all the downside. It was a lucrative one-way bet and it paid off.
This is why it is imperative to close the casino, to make sure this never happens again. We need far stronger regulation over the financial sector, to reverse the damaging trends of deregulation from the 1980s onwards. We also need to impose a levy on the financial sector – to make them pay pre-emptively for future crises, to reduce risk-taking, and to reduce the size, wealth, and power of the sector. After all, inequality today is back at the level it had reached just before the Great Depression, and yet again, a powerful and aggressive financial sector is one of the main reasons for that. Just look at what Pope Pius XI was saying at the time in Quadragesimo Anno:
“In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.
This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.
This concentration of power and might, the characteristic mark, as it were, of contemporary economic life, is the fruit that the unlimited freedom of struggle among competitors has of its own nature produced, and which lets only the strongest survive; and this is often the same as saying, those who fight the most violently, those who give least heed to their conscience.
This accumulation of might and of power generates in turn three kinds of conflict. First, there is the struggle for economic supremacy itself; then there is the bitter fight to gain supremacy over the State in order to use in economic struggles its resources and authority; finally there is conflict between States themselves, not only because countries employ their power and shape their policies to promote every economic advantage of their citizens, but also because they seek to decide political controversies that arise among nations through the use of their economic supremacy and strength.”
And yet today, to no surprise, the Republicans refuse to back re-regulation. Look to their leaders. After a closed-door meeting with Wall Street investment managers, Mitch McConnell tried to spin the reform effort as another “bailout”. More recently, John Boehner said that the bill was akin to using nuclear weapons to kill an ant. Think about this. The greatest economic crisis since the Great Depression, millions thrown into unemployment and poverty – is like an ant. In this view, there is nothing fundamentally wrong with the financial sector. And certainly, you don’t need to worry about little things like unemployment benefits.
Unfortunately, this tawdry alliance between government and big finance is bipartisan scam. The New York Democrats are some of Wall Streets biggest defenders. But with the Republicans, there is an added issue – common sense runs straight into inflexible ideology and the mantra of Reaganism. A quarter of a century later, we are reaping the ugly rewards of this ugly ideology, and the zealots seem to have learned no lessons at all.
And then there are the latest developments, involving the tiny number of moderate Republicans who actually believe that regulation is important. But even here, they cannot get past the ideology. They opposed a levy on the biggest banks and the biggest hedge funds. But since there is no free lunch, that means taxpayers pay, as the money will now be raised from unspent bank bailout money and higher bank assessments. It’s actually even more perverse – while the big investment banks pay nothing, the small community banks are worse off. To sum up, we have a free market ideology that manifests itself as a government alliance with big business and big finance. So much for subsidiarity.
But at every twist and turn, Chairman Frank has been absolutely brilliant. He has guided though the best possible legislation, compromising when he needed to and giving up nothing he did not need to.
The Republicans fought the Wall Street Reform and Consumer Protection Act tooth and nail carrying the water of the big New York banks and their ability to cheat the public.
No, that wouldn’t work. Too. . . complicated. . .
http://crookedtimber.org/2010/02/10/the-curtis-nighy-tobin-tax-video/
MM, please. Your party – I don’t have a party, thank God – is in power. Your party controls the White House, the Senate, the House, all the executive departments of the government, and much of the bureaucratic rank and file. So, if the Republicans are to blame, why wasn’t a restoration of Glass-Steagall part of the “financial reform package” worked out by Dodd and Frank, neither of whom is either a Republican or a New York Democrat? Why was the Volker Rule watered down so much that it is now unrecognizable? Why did banking stocks go through the roof last Friday, the day the “reform” bill passed a Democrat-controlled Senate (and before Sen. Byrd passed away)?
Why is it that the first thing out of liberals is the words “We need more taxes”?
Mark:
I mentioned clearly that too many Democrats are in the pocket of Wall Street. That said, this is a pretty strong bill, and Blanche Lincoln’s tough derivative language surprised many. That said, I would have gone much further and actually broken up the biggest banks.
As for the Volcker rule, it was watered down for one reason only – to appease the Republican from Massachusetts.
And yes, while the Democrats are theoretically in the power, the ludicrous rules of the Senate means that in reality they are not.
Why is it that the first thing out of liberals is the words “We need more taxes”?
Here is a classic example of the kind of context-free ideological blindspot that I criticized in this post. As for why we need more taxes on banks, the answer is pellucid – taxes can raise revenue, and taxes can change behavior. Taking the latter first, we need to end the casino mentality, reduce risk-taking, and curb the size of a financial sector that has little if any social value. On revenue, we have a hige fiscal gap that ought not be filled on the backs of the poor and the middle class. We have record-level inequality that can be largely traced to activities of the financial sector from the 1980s through today.
Do you have any counterarguments are are you going to stay with the tired old slogans that have bankupted this country – literally and figuratively?
Absolutely briliant?” Kurt, “Chairman” Frank did nothing to reform Fannie and Freddie, two institutions he has gone to extraordinary lengths to protect, despite their central role in the collapse of 2008. Taxpayers have already bailed them out to the tune of $145 billion (none of which will be repaid, by the way) and we’re still on the hook for another $1 trillion. But Frank has avoided dealing with those two institutions because to do so would call into question his own role in creating the conditions that led to the crash. It is much easier for him to sit back and bask in the praise of syncophantic Hill staffers.
The “financial reform” bill’s biggest fans are Wall Street bankers. They dodged any real discipline, Glass-Steagall is permanently off the table, and the Volker Rule is dead. They can proceed with business as usual secure in the knowledge that future bailouts are now official government policy. There isn’t a dime’s worth of difference between the two Neoliberal parties that run Washington, no matter what their cheerleaders tell us.
Fannie and Freddie had nothing to do with the crisis. At the time of the subprime explosion (2004-07), they were actually shrinking their balance sheets. What happened is that they had to step into the breach later on after the private mortgage market collapsed. That’s not to say that there were no governance issues wih Fannie and Freddie – there were – but they were not responsible for this crisis. Those who like to point the finger at the GSEs do so because they cannot possibly impute any wrong to the free market.
Oh, please. By the time of the crash, Fannie and Freddie owned half of all the mortgages in the United States. $5 trillion worth, including an inordinate percentage of subprime paper. Those who like to absolve the GSEs of any responsibility do so because they cannot possibly impute any wrong to government or the Democratic politicians who pushed the frantic expansion of home ownership in the late 1990′s and early 2000′s. Please.
Again, under the neoliberal regime, any supposed distinction between “government” and the “free market” is a complete fiction.
Would you consider it a problem is the result of a tax on banks was that they decided to be much more hesitant (or charge higher fees) to accept accounts with people who don’t have much money — and instead chose to major on the account holders with large balances since that’s where they make their money?
Or would driving the poor and lower middle class towards more of a cash-only economy be one of the benefits of such a tax?