Nationwide Bank Protests Push Reform Agenda, Ask ‘Where’s My Bailout?’

Despite popular anger at the big banks, there’s only a very weak grassroots movement so far to regulate them or, as labor’s two-week protest principally demands, to force the financial sector to contribute to job creation. 

“There’s enough gut understanding that the banks have not served the average person well and that the banks are big sources of revenue and that the banks got bailed out, but we’re dealing with high unemployment,” says Madison-based South Central Federation of Labor President Jim Cavanaugh. ​“But I can’t say people are walking in every day talking about the banks. We’ll see how many turn out.”

The AFL-CIO wants banks to repay Troubled Asset Relief Program costs (now about $70 billion, according to the Congressional Budget Office). It wants higher taxes on financial sector bonuses (and later aims to raise taxes on financial sector salaries, then corporate salaries generally, according to policy director Damon Silvers). It also is pressing for legislation that would close a loophole allowing hedge fund operators to pay at the lower capital gains rate for income defined as ​“carried interest.”

A new tax on trading

Most importantly, the AFL-CIO wants to impose a very small excise tax on all financial transactions. Championed in the 1930s by economist John Maynard Keynes, it’s an idea with wide and growing support from an unusual range of individuals and institutions – UK prime minister Gordon Brown, French President Nicolas Sarkozy, German chancellor Angela Merkel, Obama chief economic advisor Lawrence Summers, investor Warren Buffet, Vanguard mutual funds founder John Bogle, former International Monetary Fund chief economist Simon Johnson, hedge fund operator and philanthropist George Soros, Nobel economics prizewinners Paul Krugman and Joseph Stiglitz (and a couple hundred other economists), and labor movements around the world.

First, even at very low tax rates – such as 0.25 percent or less – the tax could bring in lots of much-needed tax revenue. Silvers estimates up to $400 billion a year. Center for Economic and Policy Research Co-Director Dean Baker and Political Economy Research Institute Co-Director Robert Pollin estimate $177 to $354 billion a year. The Chicago Political Economy Group puts the number much higher — $750 billion to $1.2 trillion a year.

Second, and equally important, the tax would depress some of the most useless but also costly and destructive speculative financial trading activity. It would be one important step toward returning the financial sector to serving long-term investment in the real economy, not short-term churning for quick profits at the expense of jobs and production of useful goods and services.

Critics of the tax say it would hurt financial markets – making them more volatile, less liquid, less efficient and harmful to middle-class investors – and that the tax can’t be enforced in a meaningful way – trading volume will plummet so little revenue will be collected and speculators will move trading to other countries or shift to untaxed assets to avoid the tax.

Baker takes on all these arguments, pointing out that since the cost of trading has declined, the new tax would only restore costs to the level of roughly the 1980s, when capital markets thrived. In general, he argues that the research on potential damage to markets is mixed, and even if real would be small and offset by advantages. ​“Hedge funds and other large traders will pay the tax,” not middle-class investors, he writes, especially under proposed legislation.

There’s already movement toward imposing such taxes in major financial markets (and indeed the UK has had a stock transaction tax for many years while remaining a global financial center), reducing the likelihood of speculators moving to other countries. In any case, U.S. corporations or investors would have to pay the tax regardless or where they traded under current proposals, which also cover the full range of financial instruments.

Taxing the speculators to create more good jobs here: maybe that’s an idea that will help channel diffuse popular anger about the bailout into a movement for change.