WASHINGTON (Reuters) – An appeals court on Wednesday scheduled rare oral arguments for next week over whether to temporarily allow federal funding of human embryonic stem cell research.
Israeli-Palestinian peace talks have made progress on the issue of Jewish settlements, US envoy George Mitchell says.
This Week’s Basel Accord and New Poll Show How to Prevent Wall Street Meltdowns and Reduce the Debt with One Tool
This week’s news made the path for great idea a lot clearer. The international agreement in Basel this weekend introducing mild controls on financial firms is proof that a bolder proposal to reduce instability by taxing speculation is an idea whose time has come. Further urgency came this week with yesterday’s AP-CNBC poll showing that “Wild gyrations on Wall Street have made U.S investors leery of buying individual stocks and skeptical that the market is a fair place to park their money.”
For decades various economists have proposed a simple way to make the American financial system more stable. As the 2008 Wall Street meltdown reminds us, financial markets become more volatile when huge volumes of money slosh across financial markets seeking tiny margins on high-volume trades. Nobel Laureate economist and presidential adviser James Tobin proposed in 1972 the first version of this simple solution currently before Congress. By placing an infinitesimal fee on short-term financial trades, real productive investments won’t be discouraged; but purely speculative trades seeking tiny gains will disappear because they’ll no longer be profitable.
The simple elegance of a speculation fee has captured the imagination of a broad swath (PDF) of world leaders and economists (PDF) because it would dry up the financial waves that disrupt markets and can devastate communities (link). Government budget writers have also been drawn to the promise of raising billions in tax revenue while improving capital markets. A tax of a measly quarter ($0.25) per $100 would not discourage investors, but would raise an estimated $150 billion annually that could be dedicated to funds against future financial meltdowns, paying down debt, or other needs. Dozens of far-sighted members of Congress have even lined up behind Rep. DeFazio to introduce legislation to create a “Financial Transaction Tax” that would exempt smaller middle-class investors and pension funds.
Wall Street doesn’t like this idea. Financial firms make a bundle flipping large sums back and forth. Their lobbyists and think tanks have succeeded in dismissing the idea even while politicians of all stripes position themselves as enemies of Wall Street.
The fact that proposed legislation would return trading costs to where they stood in the 1980s is not the biggest impediment. After all, many other transactions are subject to much higher sales taxes or gas taxes. Problems with speculative trading even remain in the public consciousness due to wild swings in the Dow and “flash crashes” created by hair-trigger computers at major financial firms that anticipate and magnify slight market fluctuations with instant mega-trading. Yesterday’s poll indicates that 61 percent of Americans say the market’s recent volatility has made them less confident about buying and selling individual stocks.
No, despite Wall Street’s best efforts, opponents of a speculation fee haven’t convinced the country that there isn’t a problem, but simply that a speculation fee couldn’t be effectively applied or wouldn’t actually work. Never mind that the Securities and Exchange Commission already imposes a miniscule fee to finance its own operations or that the UK has long imposed a financial tax that raises $30 billion annually on stock trades. Opponents claim that the world’s financial titans could never agree to measures that would reduce the profits of bankers. Without impossibly close international coordination, they argue, the financial industry will simply circumvent new fees and conduct trades through shadow markets and other countries, leaving the U.S. less able to control financial speculation. Globalization and electronic trading, the argument goes, have made financial regulations obsolete.
But alas, this week’s news declares that the United States, along with over two dozen of the largest and most economically important nations agreed this weekend to new banking rules that will lend some stability and reduce Wall Street profits by increasing the amount of money banks must set aside to secure against loans and other bets. These new rules signed in Basel will do little to reduce speculative sloshing and don’t go far enough to reduce financial risk, but they are exactly the kind of accord that naysayers claim could never happen for a financial speculation fee. Yet it did.
The claim that financial regulation is obsolete in the face of globalization and the Internet is one that should have died with all the babble about a “New Economy” during the 1990s. Back then the swelling dot-com bubble inflated, fantasies about the end of financial regulation because traders could re-reroute transactions around regulatory and tax structures and place their legal structures in unregulated havens such as the Cayman Islands, Panama or Gibraltar.
Putting aside the fact that electronic transactions have been around since the telegraph, the argument may be persuasive when applied to regulation of activities such as hate speech or pornography.
But the fundamental difference is that the financial industry ultimately needs regulatory authority to function. As I’ve written at greater length elsewhere, the international capital exchange system is specifically constructed so that electronic funds can not be reproduced in a haphazard and decentralized manner the way hate speech or pornography can. International financial players have a great interest in keeping it this way.
Financial transfers may take the form of a digitalized string of zeros and ones, just like an image or a political petition circulating over the Internet; but the value of this binary code can not similarly be multiplied through instant reproduction. When a bank wires money it relies on a centralized infrastructure guaranteed by governments to make sure the money is subtracted from that account and added only to a specific location. Even though individuals can create their own instant offshore banks over the Internet, globalized money will never be like free-flowing information because the infrastructure that makes it possible to electronically send money across borders also makes it technically possible to restrict and tax these transfers. A system of mutual recognition and settlement between powerful institutions anchored by government Central Banks confirms that a person who transfers money actually owns those funds and is not simultaneously promising them to banks all over the world.
The obstacles to enforcing a financial speculation fee are, as economist Dean Baker has argued, trivial compared to enforcement of copyright laws. Unlike a copy of a Hollywood movie or a computer game, traders have a much stronger incentive in maintaining a system that keeps track of their financial assets, so that the same dollar or stock share can not be promised or sent two places at once.
In addition to growing investor fears about financial volatility, the biggest impetus behind a financial speculation tax may be Congressional interest and a Presidential commission to reduce the national debt. As U.S. PIRG has shown, a financial speculation fee can be part of a package of reforms to reduce the debt by trillions while reducing wasteful subsidies and making the economy more efficient.
Thus, with opposition arguments laid bare and the need for a financial speculation fee increasing clear, it’s time for reformers in Congress to push legislation forward.
Read more: Fiscal Commission, Global Economy, Financial Transaction Tax, Tobin Tax, Federal Budget Deficit, Wall Street, Financial Speculation Tax, Wall Street Speculators, Speculation, Financial Reform, Basel Accord, Global Financial Crisis, Financial Crises, Financial Regulation, Politics News
For the last few years, the conventional wisdom in American politics has been that despite Wall Street’s destructive effect on the economy, the national Democratic Party cannot really crack down on Wall Street because it is allegedly hamstrung by the supposed inherent political constraints put on their large New York congressional delegation. The theory — most honestly articulated by onetime New York Senate candidate Harold Ford, and embodied by the weekly pro-Wall Street declarations of Michael Bloomberg — suggests that New York lawmakers cannot be pro-regulation because those lawmakers’ constituents would punish them at the polls for juxtaposing themselves against the New York-based financial sector.
But as the Wall Street Journal reports this morning, that conventional wisdom was destroyed yesterday once and for all:
How Did Wall Street Vets Fare in Primaries? Not Well.
It wasn’t a good day for Wall Street vets or watchdogs in the New York primary.
Reshma Saujani, a former lawyer for hedge fund Fortress Investments and white shoe law firm Davis Polk, lost the Democratic primary race for a Congressional seat representing Manhattan’s Upper East Side.
Rick Lazio, a former lobbyist for J.P. Morgan Chase who was taunted by opponents for earning a $1.3 million bonus during the 2008 bailout, lost out in the Republican primary for governor…
Eric Dinallo (who also did a stint early this decade at Morgan Stanley) was trounced in the Democratic primary for Attorney General by Eric Schneiderman.
Couple this with Harold Ford being drubbed out of the Senate race and with Bloomberg’s pathetically weak reelection numbers in 2009 and the truth is pretty simple: It’s not that New York Democrats like Sen. Chuck Schumer are compelled by rank-and-file voters to protect Wall Street interests. It’s that many of those New York Democrats have taken a huge amount of campaign cash from those interests and are choosing to protect them rhetorically, politically and legislatively.
This makes perfect sense when you go one inch beneath the inane conventional wisdom that says everyone in New York must love Wall Street simply because Wall Street happens to be located in New York. The fact is, New York — both the city and the state — is extraordinarily economically stratified. While the financial sector is certainly a part of the New York economy, so too are the very serious downsides of financialization.
The political media may try to make us mentally associate New York with Goldman Sachs’ gleaming taxpayer-subsidized office tower, but for most regular New Yorkers, the state is in the midst of the same Wall Street-induced Great Recession as the rest of us – and that means foreclosures, the destruction of the manufacturing base, lower wages and a lack of credit for capital investment.
Considering that, these New York election results aren’t surprising in the least. They are an affirmation that rank-and-file New Yorkers are as angry at corporate special interests as the rest of us. Let’s hope this finally debunks the notion that the politics of New York automatically restricts the national Democratic Party from being as economically populist as it can be — and needs to be. If the Democratic Party is, indeed, too afraid to take on corporate interests, that’s not because of voters in New York (or elsewhere) — it’s because the Democratic Party is choosing its donors over the public.
NEW YORK – A sure sign of a dysfunctional market economy is the persistence of unemployment. In the United States today, one out of six workers who would like a full-time job can’t find one. It is an economy with huge unmet needs and yet vast idle resources.
The housing market is another U.S. anomaly: there are hundreds of thousands of homeless people (more than 1.5 million Americans spent at least one night in a shelter in 2009), while hundreds of thousands of houses sit vacant.
Indeed, the foreclosure rate is increasing. Two million Americans lost their homes in 2008, and 2.8 million more in 2009, but the numbers are expected to be even higher in 2010. Our financial markets performed dismally — well-performing, “rational” markets do not lend to people who cannot or will not repay — and yet those running these markets were rewarded as if they were financial geniuses.
None of this is news. What is news is the Obama administration’s reluctant and belated recognition that its efforts to get the housing and mortgage markets working again have largely failed. Curiously, there is a growing consensus on both the left and the right that the government will have to continue propping up the housing market for the foreseeable future. This stance is perplexing and possibly dangerous.
Watching our kindergartners engaged in a game of musical chairs, we nudge them along mentally, past the gaps, hoping they end up in the right place, at the right time.
The music stops. Ten kids scramble for nine chairs. Nine land safely; one panic-stricken kid is left standing, squeezed out of the game. When it’s our kid who has no place to sit, our hearts break just a little.
And so we baby boomers watch, with trepidation, as our grown children scramble for their spots in the middle class, with its tricky dance steps, its new rules, its ever-dwindling number of chairs. We observe their progress, nudging them forward, helping where we can, hoping they’re in the right place, at the right time.
If they’re lucky, they approach the game with all the basic tools – a solid upbringing, an adequate education, a firm work ethic, a pocketful of emotional intelligence, a head screwed on straight.
Getting a toehold
Maybe they are fortified with degrees from good schools. Maybe they are ambitious, or charming, or lucky. Maybe they know somebody who knows somebody with an employment opportunity. Maybe they are blessed with perfect timing.
Or maybe they are just more resumes in tall stacks on the unoccupied desks of people who were downsized — more college graduates with big student loans and big dreams on hold, struggling to get a toehold in the world.
They piece together part-time jobs that may, or may not, turn into something bigger. They work outside their fields. They roll with the punches — downsizing, pay freezes, unpaid furlough days. If they are fortunate, they accept bare-bones health insurance grudgingly bestowed up them by tight-fisted employers; if they are not so fortunate, they pay for their own insurance, or go without it. They scrape. They stay alive.
A different script
We’ve been inclined, for some time now, to wonder if our children will ever duplicate our standard of living — a standard built on steady, if unspectacular compensation, good health, rising real estate values, and the prudent use of readily available credit.
We rose above our parents, economically, following the script of the American Dream. Is that still a viable model? Will the next generation rise above the previous one? Mounting evidence says it won’t.
Everywhere you look these days Arianna Huffington is talking about her book, Third World America, in which the Huffington Post creator lays out a convincing case for the disappearance of the middle class in this country.
Huffington is hardly the first person to notice the growing gulf between rich and poor, and the erosion of the middle. Consider just one piece of the crumbling puzzle: A record 2.8 million U.S. households got foreclosure notices in 2009, and the wreckage could be even worse this year.
Will our children own their own homes? Will they find jobs, and keep them? Will they be able to give their children the advantages they, themselves, enjoyed? Will they figure it out? Will they find a chair when the music stops?
Email John Schneider at email@example.com.
BRUSSELS — The European Union’s executive on Wednesday proposed tougher curbs on financial market practices seen to have contributed to the global market crisis that drove the world’s largest economies into recession.
EU Services Commissioner Michel Barnier said Wednesday he wants to rein in the market for derivatives – financial instruments based on the value of other assets – and insisted regulators should have powers to restrict, and even ban, short selling.