[Peace-discuss] "Banks own the US government", by Dean Baker [and Peter DeFazio's proposal for an oil-speculation tax]

[Stuart Levy]

[Dean Baker's article from The Guardian,
passed along by Beverly Walters of the ICJPE]

    Banks own the US government

There are smart ways to raise money and regulate the market,
but Wall Street is working to kill any meaningful financial reform

http://www.guardian.co.uk/commentisfree/cifamerica/2009/jun/30/congress-financial-reform-banks
By Dean Baker
Tuesday, June 30, 2009

 
Last month, when the US Congress failed to pass a bankruptcy reform measure 
that would have allowed home mortgages to be modified in bankruptcy, 
senator Dick Durbin succinctly commented: "The banks own the place."

That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony 
loans that were guaranteed to go bad. Of course the finance guys also made a 
fortune guaranteeing the loans that were guaranteed to go bad (ie AIG ), and 
when everything went bust, the taxpayers got handed the bill. The cost of 
the bailout will certainly be in the hundreds of billions, if not more than 
$1tn when it is all over. 

More importantly, we are looking at the most severe economic downturn since 
the Great Depression. The cumulative lost output over the years 2008-2012 
will almost certainly exceed $5tn. That comes to more than $60,000 for an 
average family of four. This is the price that we are paying for the bankers' 
greed, coupled with incredible incompetence and/or corruption from our 
regulators.

Under these circumstances, it would be reasonable to think that the bankers 
would be keeping a low profile for a while. That's not the way it works in 
Washington. The banks are aggressively pushing their case in Congress and 
Obama administration . Not only are we not going to see bankruptcy reform, but 
any financial reform package that gets through Congress will probably 
contain enough loopholes that it will be almost useless. 

In this political environment, the poor might get empathy, but Wall Street 
gets money, and lots of it. Even when the issue is global warming Wall 
Street has its hand out. The fees on trading carbon permits could run into the 
hundreds of billions of dollars in coming decades. A simple carbon tax would 
have been far more efficient, but efficiency is not the most important value 
when it comes to making Wall Street richer.

This is why it was so encouraging to see congressman Peter DeFazio's 
proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% 
on trades in oil futures and options as a way to make up a shortfall in the 
federal government's highway trust fund. This tax could raise billions of 
dollars each year in revenue and make speculation in the oil market a more 
dangerous affair. 

The logic is very simple. For someone using these markets to hedge, the tax 
will be inconsequential. For example, a farmer that hedges a $400,000 wheat 
crop will pay $80 when selling a future. Similarly, airlines that hedge by 
buying oil futures will barely notice the higher cost. In fact, because 
trading costs have fallen so much in recent decades, a tax at this level would 
just be raising costs back to their levels of two decades ago, a point at 
which there was already a very vibrant futures and options market.

However, even a modest tax will make life much more difficult for 
speculators. Many of them expect to make quick short-term gains, often buying and 
selling the same day. For these traders, an increase in transactions costs of 
0.02% would be a burden. 

Of course, a modest tax will not drive the speculators out of the market 
altogether, it is just likely to reduce the volume of speculation. For this 
reason, even a modest tax can still raise an enormous amount of money in a 
market where tens of trillions of dollars of derivatives changes hands each 
year.

This tax can best be thought of as a tax on gambling. Gambling is heavily 
taxed in every state that allows it. DeFazio's bill is effectively a tax on 
gambling in the oil markets. It will not stop it, but it would discourage it, 
and in the process raise a huge amount of money that could go to productive 
purposes.

The bill faces an enormous uphill struggle in Congress. As Durbin said, the 
banks own the place, and they are not going to just step aside and let 
Congress impose a tax on such a lucrative business. But, it is important that 
people know about the DeFazio bill.  First, DeFazio deserves a place on the 
honour roll for standing up to Wall Street.

Also, it is important for the public to know that there is a relatively 
low-cost way to make up the shortfall in the highway trust fund.  When Congress 
raises some other tax and/or cuts a useful programme, people should know 
that there was a better alternative.  It just didn't happen because, as we know, 
the banks own the place.