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Regulations should be organized on the premise that credit should be allocated to productive activities

Tax the speculators and create a public bank


Several mintues into the interview Robert Pollin, Professor of Economics and founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst says the following …

~~~ “… POLLIN: Well, I think the simplest idea, the simplest principle, is the financial system and the regulations around it should be organized on the premise that credit should be allocated to productive activities, to support productive activities. And in this era, we need credit to be channeled to job-creating activities and to promoting the creation of a clean-energy economy. Now, and by the same token, credit should be prevented from building up the kinds of bubbles, the kind of hyperspeculation that were characteristic of casino capitalism. Now, those are very, very general, broad statements, but they’re some things that you could think about that would get you pretty far pretty efficiently in terms of regulations.

JAY: For example?

POLLIN: Okay. One thing is you have to start taxing speculative financial transactions. And this is being done in many countries throughout the world. It was actually proposed in the US in 1987-88 after the Wall Street crash then. It was supported by the George Bush administration. The Treasury secretary, Brady at the time, supported the idea.

JAY: How would it work?

POLLIN: Well, just like a sales tax. If you want to trade in financial assets, okay, you trade, but there is a tax and you pay a tax. So the more you trade, the higher your burden of taxes, so it discourages taxation, it discourages trading. I mean, the idea was, you know, the modern version was first articulated by James Tobin, who was a Nobel prize-winning economist at Yale, and he proposed it for the global foreign exchange markets. But the same idea does—it is in place and it does work and can work in the United States.

JAY: This isn’t a tax of some ordinary person who goes and buys the shares. This is a tax on speculation [inaudible] and such.

POLLIN: If an ordinary—everything. So every—yes, an ordinary person, if you go and buy a share, you’ll pay a small tax, but you wouldn’t care ’cause it would be a small tax if you were going to hold. If you were buying to hold, the tax would be trivial, if we say, like, 0.5 percent or 0.25 percent. The tax starts to bite, though, when you decide that you’re a trader and you’re trying to gamble on the market that the market’s going up, and so you can trade continuously. And so then the tax starts to get serious, because every trade you make, instead of doing it and paying the tax once, you’re going to pay it for every time you trade. And so the tax—we actually have the apparatus in place now.

There’s a very small tax through the Securities and Exchange Commission that companies have to pay, and so we already have the apparatus, and that finances the Securities and Exchange Commission. But the tax, no, even a modest tax, 0.5 percent, say, on a stock or a share and a smaller tax for bonds and derivatives, even at that level, some research I’ve done you can think about raising about $175 billion per year, and that would assume that you cut trading by 50 percent, which is implausibly high. But it is a very effective policy tool that—. And, you know, a lot of people are saying that, you know, the market is too big, too big, there’s too much going on. Well, the whole point of this would be to shrink the market, so all the activity that goes on would be diminished relative to productive investment activity. One other point I should make is, if you look at actually how productive investments get financed, almost 100 percent are financed by the corporation’s own internal profits—almost none of it comes from any of this stuff on the financial market. It is almost entirely a gambling casino.

JAY: Now, one of the things that came out of the McClatchy series was that Goldman was betting against its own properties it was selling clients. So it was selling these bundled mortgages to a pension fund, and over here is buying insurance from AIG because they knew that the whole thing was going to crash. But there was no regulation that caused them to disclose to their clients that they’re betting the other way over here. What do you do in an environment where the people writing the regulation, they’re all coming from Goldman, so that the people who were playing that game are the ones supposed to be writing the rules now?

POLLIN: Yeah, and that, unfortunately, is kind of what’s going on now, in that the people that are deeply involved in writing the new financial regulation regime are almost entirely from the industry—maybe not all from Goldman per se, but they are dominating the discussion. And, you know, you’re not going to get a good end result. The only reason there’s any semblance of a serious discussion is because the disaster that these people brought on us—I mean, you know, in the absence of this trillion-dollars bailout, you know, we would be in a great depression right now, and they brought it on. And why? Because there’s so much money to be made by leveraging, leveraging, leveraging, leveraging that it’s irresistible. So it’s an irresistible attraction, and it has to be controlled by regulation.