Obama announces a “financial responsibility tax” to impact large financial firms that benefited from TARP*. This is to remain in place until all TARP money is re-paid and internal practices regarding risk taking and ridiculous compensation and bonuses are changed. That may strikes the right note of populist anger.
I’m not sure that it will have the intended effect. I suppose that bankers will just pass along the costs where possible, but that in itself may move some money out of the financial sector and into other areas. After all, much of what the financial sector does these days produces nothing and may well be harmful. Things like exotic derivative instruments and high speed trading based on micro moves in asset prices. If money and talent are moved away from gaming the system and selling derivatives that only seem to exist to add complexity and obfuscate what’s actually being sold, I see that as a positive development. Maybe that money and talent might actually be directed into something that helps the public instead of enriching overpaid, self-righteous pricks, who then use that money to further skew the rules in their favor and eliminate regulations that cramp their style.
If they want to restore sanity the federal government needs to force banks to separate commercial banking and investment banking in the way it was under the Glass-Stegall Act before both Republicans and Democrats slowly killed it. A small transaction tax on financial instrument trades would eliminate the high speed trading and cause investors to look at longer term returns. I’d also suggest a capital gains tax that starts higher and declines by 20% for each year, down to zero after 5 years. Perhaps an exemption for retirees below some level of income would help keep it from impacting people who need the money. A hardship exemption could also be added for those who find they really need access to their investments. It should be applied in a revenue neutral way that will encourage a longer term perspective in investing instead of simply chasing the next quarter’s results or a short term price move.
*BTW, I’ve always thought that the name TARP (troubled asset relief program) was a bad choice. It should have been called “bad asset relief fund” or BARF. That’s much closer to how it made most people feel, isn’t it?
