Every time one of the Republican presidential candidates is asked about the Occupy Wall Street movement, the candidate expresses wonderment over what these people want and suggests that they occupy Pennsylvania Avenue instead.
It’s not a bad point, actually. The other day, on TV, they showed a Wall Street occupier waving a sign reading, “Tax the Rich.” If that’s what you want, then why are you waving your sign in lower Manhattan? Wall Street doesn’t tax anybody, especially itself. That’s what politicians do.
Moreover, if history is any guide, neither party is going to do that. The Republicans are shameless in their legs-in-the-air whoredom to big business, especially the financial industry. The Democrats aren’t much better.
Jim Webb, the Virginia Democrat who has decided to leave the U. S. Senate in apparent disgust and despair, wanted to raise the 15 per cent capital gains tax that allows Warren Buffet to pay a lower tax rate than his secretary, who lives on salary and not investment profits. That lower capital gains tax rate is one of the factors that makes the rich rich to begin with and helps them stay that way. Webb’s Democratic party, which controls the Senate, refused to do that.
Webb also pushed a bill last year to raise billions in new taxes on executives of financial institutions that received at least $5 billion in federal bailout money. That plan also never came up for a vote.
The people stomping around Zuccotti Park in lower Manhattan, Academy Park in Albany and other locations around the country have a legitimate grudge. The Wall Street people were largely responsible for this financial crisis that has one in five people out of work and one in five homeowners in the country owing more on their mortgages than their house is worth. And the Wall Street people whose recklessness created the crisis have prospered spectacularly ever since the taxpayers bailed them out to the tune of nearly a trillion bucks. Meanwhile, many of those taxpayers have sunk into financial ruin.
But raging around public places, waving signs and peeing on bushes doesn’t accomplish much – especially if you’re not sure what you want to accomplish in the first place. If the Occupy Wall Streeters would like a little clarity on this issue, here it is:
After the dust settled on the financial crisis and the last presidential election, Congress passed the Dodd-Frank bill. In simple terms, it did the following:
1) Consolidated regulatory agencies;
2) Tried to create comprehensive regulation of financial markets, including increased transparency of derivatives, the sort of securities that triggered the crisis;
3) Created a new consumer protection agency and strengthened investor protection;
4) Created some stronger tools for managing financial crises, and
5) Required improved accounting and tightened regulation of credit rating agencies.
Later on, at President Obama’s request, Congress added a measure that forbids banks in which ordinary people deposit money from investing more than 3% of their basic capital in private equity and hedge funds and imposed other restrictions on investment practices.
And that solved everything, right? Well, not quite.That legislation ignores the role that government played in creating the crisis. The government helped bring on the recession by keeping interest rates too low when housing prices soared out of sight and by distorting the housing market through lax credit standards used by Fannie Mae and Freddie Mac. Moreover, the government permitted some banks to grow so big that their failure would collapse the world economy, and nobody has done a damned thing to fix that – not the Republicans, of course, but not the Democrats, either.
More than three years after the financial crisis began and Congress had to bail out the banks, the six largest American financial institutions are significantly bigger than they were before. These banks now have assets worth over 66% of this country’s gross domestic product, up from 20% of GDP just a decade ago. Institutions that large pose a persistent and conspicuous risk to the world financial system, and – contrary to what the Republicans claim – offer value to the economy woefully insufficient to justify that risk.
It’s true that the very size of these banks, and the certain knowledge on the part of lenders that the federal government will never let them go belly up, keeps their borrowing costs lower by about half a per cent. The banks maintain that they need that borrowing edge to compete against foreign banks. The only problem with that argument is that foreign governments are cracking down on their banks in a big way. Among other things, governments in Switzerland and the United Kingdom are making their banks retain more capital as a hedge against risky investments.
Oh, but wait a minute. If the government forces the big banks to break into smaller pieces so the taxpayers can ignore them if they fail, isn’t that socialism? Well, that’s true only if you believe that antitrust laws, enacted more than a century ago, constitute socialism. And keeping banks small enough to fall victim to capitalism if they screw up strikes me as true capitalism. As of now, the banks enjoy the benefits of capitalism without its risks because they know that the taxpayers, in a pinch, will save them through socialism.
Hedge funds and private equity funds go down all the time when they screw up. Who cares? They’re not too big to fail. Make the banks live the same way.
And ordering them to break up isn’t the only way to solve the problem. Another would be to do what the Brits are considering doing – imposing a hefty tax on banks whose size exceeds a certain percentage of the nation’s economy. Proceeds from that tax could then go into a special reserve fund to bail out banks too big to be permitted to fail. You also could end the tax deduction that banks get on interest payments to discourage them from borrowing so much.
The reality is that there exist all sorts of solutions to the problems of a banking industry grown so enormously fat that if they topple they flatten the entire economy when they come crashing down. There exist also all sorts of solutions to the problem of income inequality that now threatens to destroy the American middle class, not the least of which is to tax income earned through investment more justly compared to income earned through labor.
What are the odds of any of that happening with the bought-and-paid-for politicians we have in both parties in Washington right now?
Hold on there. Didn’t I just spot a pig come flying by?