Matt Taibbi, the Rolling Stone journalist known for earthily projecting outrage at abuses of financial power, offers a surprisingly measured list of demands for the #OWS movement.
1. Break up the monopolies. The so-called “Too Big to Fail” financial companies – now sometimes called by the more accurate term “Systemically Dangerous Institutions” – are a direct threat to national security. They are above the law and above market consequence, making them more dangerous and unaccountable than a thousand mafias combined. There are about 20 such firms in America, and they need to be dismantled; a good start would be to repeal the Gramm-Leach-Bliley Act and mandate the separation of insurance companies, investment banks and commercial banks.
Given that other countries have fared relatively well without such a separation, e.g., Canada, it’s not obvious that this is the right place to start. But the idea that there should be size limits on major financial institutions has been advanced by a number of credible people, including Jonathan Macey and James Holdcroft Jr. I was particularly struck by this line from Macey and Holdcroft:
[I]f there is an advantage in having very large financial institutions, that advantage is not reflected in creating financial institutions that are stronger than financial institutions that are significantly smaller—at least without the generosity of Uncle Sam. If big financial institutions do in fact provide services and products to large corporate clients that only very large financial institutions can provide, or if big financial institutions enjoy an efficiency advantage due to superior scale, then it is reasonable to assume that they should be able to capture above-normal fees or profits from these activities. That, in turn, should lead to either a stronger balance sheet and capital position or higher compensation and higher dividends. The data show that, if these advantages exist, Big Banks have not used this advantage to build stronger capital positions. In other words, just as the government-sponsored entities, Fannie Mae and Freddie Mac, have done, the Big Banks have privatized the gains and socialized the risks of their businesses. To the extent that these advantages do not make a meaningful difference in the performance or financial strength of the Big Banks, claiming that these advantages justify the increased risk associated with these very large banks is similarly questionable. [Emphasis added]
As always, I’m interested in hearing compelling counterarguments.
2. Pay for your own bailouts. A tax of 0.1 percent on all trades of stocks and bonds and a 0.01 percent tax on all trades of derivatives would generate enough revenue to pay us back for the bailouts, and still have plenty left over to fight the deficits the banks claim to be so worried about. It would also deter the endless chase for instant profits through computerized insider-trading schemes like High Frequency Trading, and force Wall Street to go back to the job it’s supposed to be doing, i.e., making sober investments in job-creating businesses and watching them grow.
We’ve discussed the possibility of a financial transactions tax in this space, including its potential pros and cons. I wouldn’t dismiss the FTT out of hand, but I do think that we need to consider its systemwide impact before we embrace it.
3. No public money for private lobbying. A company that receives a public bailout should not be allowed to use the taxpayer’s own money to lobby against him. You can either suck on the public teat or influence the next presidential race, but you can’t do both. Butt out for once and let the people choose the next president and Congress.
A blanket ban would be difficult to enforce, e.g., does this apply to individuals employed by institutions that have received bailout funds? Moreover, there’s a danger in creating an asymmetry. A large number of state and local governments received an injection of federal resources to preserve public employment levels, and there has been continued political pressure for more fiscal stimulus. Should we also ban public money for public sector lobbying? This would be a very big deal indeed.
4. Tax hedge-fund gamblers. For starters, we need an immediate repeal of the preposterous and indefensible carried-interest tax break, which allows hedge-fund titans like Stevie Cohen and John Paulson to pay taxes of only 15 percent on their billions in gambling income, while ordinary Americans pay twice that for teaching kids and putting out fires. I defy any politician to stand up and defend that loophole during an election year.
How one feels about carried-interest should reflect how one feels about sweat equity.
5. Change the way bankers get paid. We need new laws preventing Wall Street executives from getting bonuses upfront for deals that might blow up in all of our faces later. It should be: You make a deal today, you get company stock you can redeem two or three years from now. That forces everyone to be invested in his own company’s long-term health – no more Joe Cassanos pocketing multimillion-dollar bonuses for destroying the AIGs of the world.
I tend to think it is unwise to regulate how firms compensate employees, short of enforcing minimum wage laws in an even-handed manner. Yet there is something to be said for fostering more private-sector experimentation in this space.