Speaking of excessive risk-taking, Mark Thoma wants the financial industry to bear more of the costs for economic downturns:
I believe that far too much of the cost of the financial meltdown was imposed on working class households and far too little on the industry itself. Is there a way to change this? Can we shift more of the cost of financial meltdowns to the financial industry? Yes we can, and one way to do this is to implement a financial transactions tax.
I think that Dr. Thoma must have attended the same economics classes I did. He almost always thinks in terms of behavior modification via tax. I don’t think his tax will have the consequences he thinks they will. More likely the opposite.
After all, imagine that you were Goldman-Sachs, that the financial transaction tax had reduced your margins, but that you knew with a confidence based on experience that the federal government in one of its myriad forms would underwrite your losses. Wouldn’t that predispose you to making riskier investments rather than less risky ones?
We don’t need additional taxes or even additional laws to “shift more of the cost of financial meltdowns to the financial industry”. Enforcing the laws we have would be enough.
If Mark Thoma does not like the financial system he has, he should work to change it, but the financial system he has provides the funding for all the goodies he wants to give away.
When you allow the financial sector to create money at will, do not be surprised at how they invest it, and if you want them to invest responsibly, do not allow them to create money at will.
The downside is that easy credit dries up, and an economy built upon easy credit comes to a screeching halt. When this is combined with the regulations outlawing manufacturing, you have the world predicted by conservatives and a PE investor.
Until then, any and all taxes will simply be rolled into the back or absorbed in the front, but they will simply be another cost of doing business.
My guess is that Mark Thoma has been behind almost every major economic event for the last 20 years, and his excuse is that nobody could have known. If Mark Thoma could outfox Wall Street, he would be working on Wall Street.
If you want to protect the working man, woman, and child from the lions, and tigers, and bears of Wall Street, you build a really high fence between the two, and you do not let them intermingle. If grandma jumps the fence and gets eaten, she has nobody to blame but herself.
“Enforcing the laws we have would be enough.”
A point I make over, and over, and over……….
“you knew with a confidence based on experience that the federal government in one of its myriad forms would underwrite your losses. Wouldn’t that predispose you to making riskier investments rather than less risky ones?”
Suppose this is true. Why would GS wait for a transaction tax to make riskier investments? Why would they do so even absent the tax?
“Enforcing the laws we have would be enough.”
I think it was PD who made the point that the Attorney General is probably the most political member of the cabinet. If true, I think he is probably correct, I don’t think you can count to them to do anything other than selectively enforce the laws they like. If that is the case, you need another means to affect the financial sector. I doubt that a transaction tax would affect their bottom line that much, maybe the HFTs, but it could at least provide a source of money for the eventual bailouts.
Steve
I see where Fitch has downgraded Chicago Board of Education bonds to junk status. I am not picking on them, but I seriously doubt they are going to repay all the debt they owe. Unless they are allowed to issue more bonds to repay the previous bonds, they will never be able to repay that which they do not have.
Nonetheless, somebody will lend them money, and that somebody will lend them as much as they desire. If Mark Thoma is truly concerned about the working man, he would be howling about this, or he would be manning the barricades over unfunded pension funds.
Instead, he will do everything in his power to keep from learning that the pension funds are based upon rates of return that require the types of behavior he wants to stop.
Eight years and all those beautiful theories and all they have to show for it is the rich getting richer and the poor getting poorer. Honestly, it sounds like some evil genius Republican plot against the elegant black man. Republicans may be a lot of things, but they are not going to “cut off their nose to spite their face”.
Mark Thoma is too stupid to realize that he needs Wall Street far more than they need him. As a matter of fact, they do not need the Republicans or the Democrats. Just like any drug dealer, they not only have what he needs, but they also have access to his future supply.
@steve, I think I opined that Attorney Generals should be killed at the end of their term. I’m not sure if that creates the proper balance of incentives and punishments, but it is what it is.
What makes you think they are waiting?
IMO large financial services companies restrain themselves a little for fear of greater scrutiny. Cut back on their profits and they’ll extend themselves a little more. They’ll think it’s worth the risk.
“They’ll think it’s worth the risk.”
What risk? They think they are going to get bailed out. Let’s face it, they crashed the entire world economy, and not much happened to them. Bonuses were hardly touched. What could they do that would be much worse than what they did in the early 2000s, and what makes us, or them, think they will suffer any consequences? The GOP will just concoct some story about how it was the fault of govt. The Dems will try to pass half-assed bills, not wanting to irritate their campaign funds and future employers.
Steve