Great post.<quoted text>Taxing the Speculators
By PAUL KRUGMAN
Published: November 26, 2009
Should we use taxes to deter financial speculation? Yes, say top British officials, who oversee the City of London, one of the worlds two great banking centers. Other European governments agree and theyre right.
Unfortunately, United States officials especially Timothy Geithner, the Treasury secretary are dead set against the proposal. Lets hope they reconsider: a financial transactions tax is an idea whose time has come.
...The Turner-Brown proposal is a modern version of an idea originally floated in 1972 by the late James Tobin, the Nobel-winning Yale economist. Tobin argued that currency speculation money moving internationally to bet on fluctuations in exchange rates was having a disruptive effect on the world economy. To reduce these disruptions, he called for a small tax on every exchange of currencies.
Such a tax would be a trivial expense for people engaged in foreign trade or long-term investment; but it would be a major disincentive for people trying to make a fast buck (or euro, or yen) by outguessing the markets over the course of a few days or weeks. It would, as Tobin said,throw some sand in the well-greased wheels of speculation.
...This would be a bad thing if financial hyperactivity were productive. But after the debacle of the past two years, theres broad agreement Im tempted to say, agreement on the part of almost everyone not on the financial industrys payroll with Mr. Turners assertion that a lot of what Wall Street and the City do is socially useless. And a transactions tax could generate substantial revenue, helping alleviate fears about government deficits.
...As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on repo transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system there was a run on repo.
And a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis and could help us avoid a future replay.
Would a Tobin tax solve all our problems? Of course not. But it could be part of the process of shrinking our bloated financial sector. On this, as on other issues, the Obama administration needs to free its mind from Wall Streets thrall.
We have developed a tax structure that incentivizes insanity.
Like the Investment Banksters who received a $3 Million Dollar bonus for "inventing" Credit Default Swaps said : They serve no purpose but let us move money back and forth and charge commission for moving it"