"As if the global capital markets hadn’t suffered enough shocks lately -- artillery fire in Korea, meltdown in Ireland, Eva Longoria Parker’s divorce filing -- life just threw America’s hedge-fund masters a beanball."
I think the greatest problem facing the US and world economy is the fact the things Weil mentions can have such a profound effect. I understand those kinds of things have always affected the world of finance, but we have reached the point where finance now dominates the economy as opposed to being a necessary part.
Too much power lies in the hands of the few(even without any serious leveraging) and we now have the tail wagging the dog. No greater evidence of such exists more than the finance caused bubble in housing.
My "answer" is a financial transactions tax, not so much as a revenue producer but as a restraint on such actions. Make it like a time delayed medicine. The shorter period of time an instrument is held, the higher the tax, reducing it to zero after awhile.
At the very least, it would stop the billions of dollars per year siphoned off from the economy by glorified day traders who, in the interest of speed, moved their super computers from the midwest to NY to take advantage of a couple of seconds in placing their orders. At the most, perhaps it would help to prevent or greatly reduce the effects of "shocks" like the housing bubble.
Think BOA could have issued so much AAA rated garbage" if each owner along the line had to hold it for a period of time to avoid that kind of tax?
Interesting idea. I know there was talk of something like a 'financial tax' awhile back, although I'm not sure if the one discussed was anything like what you describe.
Another interesting recent development, loosely along the lines of what you're describing, is the higher FDIC insurance charges for large banks. Smaller banks will be charged less by the FDIC than large banks. Apparently Sheila Bair has realized that small can in fact be beautiful
My neighbor works for the FDIC(I call him the Grim Reaper), I will ask him what he thinks of the increased insurance costs for the large banks. I just do not know how the increase can be high enough without causing serious problems.
It is a fine line between protecting the economy from financial entities and actually hurting the economy because of such protections. No question we have listened too intently to the pleas against regulation, I just do not know how far we can go. I certainly know I am not smart enough to state where the balance should be, I just fear that no one is smart enough to know.
Banks are not producers, as necessary as they are. They are like the parasites that humans need to survive. The problem we have is that some of these "parasites" are now more equal than others.
I'm not sure what the practical impact of the FDIC's higher rates for large banks will be, but I'm encouraged by the fact that this development recognizes the additional risk and costs to society of Too Big to Fail.
Similar to the watered down Basel III, the FDIC's move doesn't go far enough, but hopefully it's an indication of changes in how the financial sector will be regulated (soon).
Too funny.
ReplyDeleteThe opening caught my eye:
"As if the global capital markets hadn’t suffered enough shocks lately -- artillery fire in Korea, meltdown in Ireland, Eva Longoria Parker’s divorce filing -- life just threw America’s hedge-fund masters a beanball."
I think the greatest problem facing the US and world economy is the fact the things Weil mentions can have such a profound effect. I understand those kinds of things have always affected the world of finance, but we have reached the point where finance now dominates the economy as opposed to being a necessary part.
Too much power lies in the hands of the few(even without any serious leveraging) and we now have the tail wagging the dog. No greater evidence of such exists more than the finance caused bubble in housing.
My "answer" is a financial transactions tax, not so much as a revenue producer but as a restraint on such actions. Make it like a time delayed medicine. The shorter period of time an instrument is held, the higher the tax, reducing it to zero after awhile.
At the very least, it would stop the billions of dollars per year siphoned off from the economy by glorified day traders who, in the interest of speed, moved their super computers from the midwest to NY to take advantage of a couple of seconds in placing their orders. At the most, perhaps it would help to prevent or greatly reduce the effects of "shocks" like the housing bubble.
Think BOA could have issued so much AAA rated garbage" if each owner along the line had to hold it for a period of time to avoid that kind of tax?
Interesting idea. I know there was talk of something like a 'financial tax' awhile back, although I'm not sure if the one discussed was anything like what you describe.
ReplyDeleteAnother interesting recent development, loosely along the lines of what you're describing, is the higher FDIC insurance charges for large banks. Smaller banks will be charged less by the FDIC than large banks. Apparently Sheila Bair has realized that small can in fact be beautiful
My neighbor works for the FDIC(I call him the Grim Reaper), I will ask him what he thinks of the increased insurance costs for the large banks. I just do not know how the increase can be high enough without causing serious problems.
ReplyDeleteIt is a fine line between protecting the economy from financial entities and actually hurting the economy because of such protections. No question we have listened too intently to the pleas against regulation, I just do not know how far we can go. I certainly know I am not smart enough to state where the balance should be, I just fear that no one is smart enough to know.
Banks are not producers, as necessary as they are. They are like the parasites that humans need to survive. The problem we have is that some of these "parasites" are now more equal than others.
I'm not sure what the practical impact of the FDIC's higher rates for large banks will be, but I'm encouraged by the fact that this development recognizes the additional risk and costs to society of Too Big to Fail.
ReplyDeleteSimilar to the watered down Basel III, the FDIC's move doesn't go far enough, but hopefully it's an indication of changes in how the financial sector will be regulated (soon).
More on FDIC rule change:
http://www.dailyfinance.com/story/investing/fdic-fees-banks/19711466/
and Basel III's shortcomings:
http://www.gsb.stanford.edu/news/research/admatiopen.html