Efforts to regulate the financial industry are ramping up, fueled by populist anger at Wall Street. Reforms may go so far as to cap the size of banks or break them up. My Modest Proposal this week says we should consider doing even more: Compel Wall Street to pay damages to the American people.
The banks’ defense would be, of course, lack of foreseeability—no one could reasonably foresee the far-reaching harmful consequences of developing and selling the toxic products we’ve discussed this week. (Links to the earlier posts are at right.) Recall that bank executives have used terms such as “tsunami” to refer to the crash—comparable to acts of God outside human agency. Right. This crash was exacerbated by people making decisions that profited the few at the expense of the many.
It would be impossible to pin damages on each firm. Just as in the case of DES I described yesterday—the drug that ended up harming millions—so many factors would have to be considered that it makes impractical a bank-specific calculation.
How about holding the financial industry accountable instead? That’s the method applied for DES. It’s a simple, clean, and straightforward solution. Here, the financial industry would have to pay damages, with each firm paying its portion in accordance with its market share. The market share of each bank is public information. In fact, the banks use market share to rank themselves. Washington could use the same ranking to determine the portion of damages each bank would pay.
Here’s another idea: A financial speculation tax. That’s what Dean Baker (no relation) proposes in a recent Huffington Post piece. Small taxes on, say, stock trades could raises billions, he says. “This would go a long way toward addressing future budget shortfalls and it would raise money from people who can afford it: the Wall Street crew whose financial shenanigans led to the meltdown.” Baker is Co-Director of the Center for Economic and Policy Research.
So that’s it. You have my Modest Proposal. Today, I’m calling on you to vote. Do you support it? Yes or no.
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