Treasury Secretary Tim Geithner did something the other day that not only perfectly reveals his economic priorities (and those of the Obama Administration), it suggests the still very shaky state of some of our biggest banks. He put the kibosh on a proposal for a so-called “Tobin Tax” — named for the Nobel laureate who originally proposed it — a tax on stock sale transactions.
Such a tax is simply another kind of sales tax. Unlike the ones you or I now pay when buying all manner of goods, which now often run to 8 or 9 percent, a Tobin Tax would be piddling, perhaps just 0.1 percent. It would therefore have almost no affect on stock transactions by individuals, or even on large institutions that hold most of their stocks for a reasonable amount of time. The traders it would hit hard are the ones now engaged in the speculative, computer-based, in-and-out-in-a-nano-second high frequency trading that warps markets, increasing the risk of future meltdowns that could require huge new government bailouts.
So great is the volume of such trading today that a 0.1 percent Tobin Tax would generate an estimated $50-$100 billion a year for the U,.S. Treasury. The AFofL has suggested such sums could be used on job creating infrastructure projects. Others say it could be used to bankroll future meltdown bailouts. Still others point to the costs of health care legislation now before the Congress, estimated to be $1 trillion over 10 years, and note that if a Tobin Tax brought in its potential $100 billion annually, it could fully pay for health insurance for 36 million more Americans simply by reducing Wall Street bonuses. This year these bonuses are projected to be $140 billion. Take away the Tobin Tax and that still leaves $40 billion.
Sounds like a pretty good deal, doesn’t it? Improved national infrastructure, or security against another meltdown, or 36 million more Americans with health care at the cost of fewer bragging bucks for a few thousand massively overcompensated folks on Wall Street. What, then, are the arguments against what is in essence just a tax on grossly excessive Wall Street profits?
There are two basic ones. The first is that it will lessen market liquidity, the seas of money that are always out there looking for things to buy. This argument is silly, however, because the only liquidity it would lessen is the insanely short-term kind that’s currently enriching hedge funds and big banks without doing good for anyone else. The other argument against this tax is that it will cause financial business to leave these shores and trade on markets elsewhere. And here’s where Tim Geithner stepped in.
At the just completed G-20 meeting, Britain’s Gordon Brown proposed that all members impose a similar transaction tax so that financial business would not be lost to any country that did so alone. Tim Geithner vetoed the proposal.
What does this say about Geithner and the policies he has done so much to create? Is he an evil man, a foolish man, a hiring of Goldman Sach? None of these things is true, of course. Rather, it appears to this observer that the bubble stock market profits the nano-second trades have done much to create and perpetuate find their way into the coffers of financial institutions that are still too big to fail because we haven’t done anything to make them smaller or even to properly regulate them. This means Geithner must ensure this beast is fed with greater and greater profits lest it totally collapse.
If this analysis is correct, promoting the same selfishness and greed that got us into our present economic straits is now our official cure to get our economy healthy again. Which when you consider the matter, makes a rather strong case for the midnight sweats.