Over the weekend, the G-20 held a summit on the financial crisis, and several nations put forward the idea of a “Tobin tax,” a fractional tax on international financial transactions, to help pay for economic recovery and future bank failures. Germany, France and now Britain have all endorsed the idea. Timothy Geithner, speaking for the United States, rejected it.
Gordon Brown suffered a rebuff from Washington yesterday after he signalled Britain’s backing for plans for an international transactions tax on banks to help the world recover from the financial crisis.
At the G20 summit in St Andrews, Fife, the Prime Minister dropped Britain’s longstanding opposition to the scheme, which could raise billions a year for poor nations.
But within hours of the significant shift in UK policy on the so-called “Tobin tax”, the US Treasury Secretary Tim Geithner dismissed the move, saying Washington was “not prepared” to support it.
This would be a .05% tax on currency, stock and derivative transactions that could yield as much as $600 billion dollars annually, in addition to discouraging the kind of speculation and flash trading that can destabilize the financial economy. The purpose of this financial transaction tax, whether going to poor nations or financing potential future bank bailouts, can be debated. What is harder to debate is the utility of a financial transaction tax generally. It would raise significant revenue from the most speculative banks, like Goldman Sachs, and it would at least claw back a tiny fraction of their massive profits (31% of all domestic corporate profits this year, even in the midst of a crisis) while reducing the volume of trading and making the financial sector more efficient and productive, as capital could flow to investment in people and businesses instead of speculation.
And what is truly puzzling is how Timothy Geithner feels emboldened to reject policy that would have to be set by the legislative branch and not him. The executive and the Treasury Department have a role to play in that, but unlike Parliamentary democracies in Europe, it is not Geithner’s decision to make on the Tobin tax. Despite this, world powers all agree that implementation of the transaction tax “would be impossible without the backing of Barack Obama.”
This deference to the executive has played itself out throughout the debate over regulatory reform. Rahm Emanuel has been immersing himself in regulatory reform, concerned yet again with getting a “w.” (“The president needs a scalp, a pelt on the wall,” said one source in the above-linked article) Rahm has also been seen counseling Congress to weaken Sarbanes-Oxley protections for investors, seeking to exempt firms for certain reporting requirements under the law. Put all this together and you get a picture of the White House far more interested in protecting Wall Street than anything else.
It is certainly not unusual for the executive branch to take an interest in legislation. But Geithner is in little position to reject something like a tax out of hand. Expansion of executive power does not only manifest itself in the area of civil liberties.




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Does this guy think he is a Czar or something?
Think?
He wishes! (If wishes were horses, beggars would ride.) He’s riding way too high now. I do hope Congress brings him down to earth very soon with a big ker-plop, gives him and his position a come-uppance and gets his hands off any part of our economy.
“And what is truly puzzling is how Timothy Geithner feels emboldened to reject policy that would have to be set by the legislative branch and not him.” ; why is this puzzling? At EVERY turn, Obamarahma has had Geithner’s back.
Again, why isn’t support for Obamarahma being withdrawn until he acts in a manner consistent with his campaign?
James Tobin was my professor for my senior seminar in 1981: the Keynesian Revolution and its Aftermath. I love that his name is still out there!
Why does this guy still have a job?
And Summers and (especially) the very sleazy Rahm Emanuel?
As far as a Tobin tax to assist developing nations, there is plenty to admire in such a view, but it’s an issue that’s neither here nor there as far as Treasury is concerned. The question is whether a Tobin-like tax on each transaction, not to aid developing countries, but for some other purpose, is a good idea. I think it definitely is. For example, such a scheme would be a very good way to fund the resolutions scheme for systemically important entities. Instead of prefunding the mechanism through annual assessments, we should institute a Tobin-like tax with higher rates on more systemically risky deals. This has to be done globally to prevent all the swaps business from simply moving offshore. Failure to act in tandem will cause businesses to shift where they are registered and alter their contract law to choose a cheap forum and avoid the whole taxation structure.
There you lost me. A tax without a clear purpose?
Look, I’m all for firing Gietner, who apppears to have job because he telegenic, then again Saraha Palin is telegenic and I don’t want her running the economy either.
But a tax without a stated purpose? WTF?
I think Summers, Gietner and Pauson –and especaily Rahm, should all spend some quality time with their families before they completley give the farm away to the banksters, if they haven’t already.
But to my minf there is world of difference between a tax on internatioanl transactions by big risky banks that creates a fund to undo the messes made by those banks, and that same tax if it is just to go to some unspecified third world investment.
Heran said what I was trying to say. And did it much better than I could. Thnx Herman
Does anyone happen to be watching C-span? The Senate Budget Committee has been holding an Entitlement Reform Hearing. Naturally all the witnesses are Budget hawks from Cato, Peterson, etc. The Senate Millionaires are very concerned about these runaway entitlements. We need a BRAC-like Committee to act upon this every few years. They think it needs to have a lot of CEOs on it, according to David Walker. Our Democratic Friend Kent Conrad feels they have great leverage, “The moment is now!”
My British nephew posted a Financial Times link on facebook this morning that said Gordon flipflopped under the pressure and is now not insisting on the tax. I didn’t save the link tho.
I get the desire to have such a fund, and I think there should be a transaction tax if we’re intent on keeping these dubious financial tools around, so that they can provide at least some value to something.
However, it’s hard not to see this as essentially a different form of codifying an explicit government guarantee on risky investment banking activity.
Banker #1: “Won’t doubling down in that market probably bankrupt us?”
Banker #2: “Well sure, but haven’t you heard. Now the government has a fund made by skimming of our transactions to use to bail us out. If we don’t use it, somebody will.”
We have enough perverse incentives at play here, and I’m not sure adding this one really accomplishes what we’d like it to.
AGREED
What do they want to do outsource the entitlements too.
I have never understood why Geithner remains Sec Trea or how he who because of his position at the NY Fed has dirty hands ever got the job. Someone from the House and Senate should let him know he is not an elected official of the US and does NOT set policy. Wouldn’t hurt for him to contact PM Brown as well and admit overstepping.
This tax is known as an APT (Automated Payments/Transaction Tax). I have become a huge supporter of this as the answer to replace the convoluted tax code. By capitalizing on financial data processing technology, it is possible to create a tax code for the 21st century– one that is astonishingly easy for all citizens to understand, that is easy to administer and to comply with because it eliminates the need to file tax or information returns. The system, developed by University of Wisconsin Professor of Economics Edgar L. Feige. Here is a link, http://www.apttax.com/. Everyone who is interested in ending the government’s use of the tax code to manipulate the economy and facilitate corporate welfare at the expense of the middle class should go to this site and push for this as real and effective tax reform. It will eliminate all the hassels and be truely progressive because wealthy people make way more transactions for way more money than middle class and the poor. It is .0005 on the dollar for every transaction, deducted automatically with no need for the IRS. (that would be bad for me however because my wife works for the IRS and would lose her job)
Giethner, who apppears to have job because he’s telegenic.
*
ewwwwwww
He has a gummy smile
He smirks as much a GW ever did as if the pain of Americans seems to amuse him.
His hair is so specifically curled it looks like it costs 5 thousand bucks per salon visit just because it can.
Is he missing a part of a finger like Paulson and Emanuel? Just wonderin’.
He got hired to do the bidding of GS. And the Chinese. He speaks it perfectly. He’s been at the the edges of the table since Clinton’s time, no?
He has his job simply because he is in “The IN GROUP” of people or better criminals who are invovled in our current WHITE HOUSE COUP. I was in a family for more than 26 years who are directly involved in the criminal organization working almost directly with CIA Operatives and the Big Banks. The Big Banks are the ones who have been planning this for decades.
Marty Didier
Northbrook, IL
Giethner and the GS cabal need to be run out of Washington. We should make it part of the criteria for our continued support for Obama.
that sure is puzzling, oh yes what a puzzle.
nothing to do with Wall Street having more influence over Washington under Democrats, as Matt Tabibi says.
Unfortunately, this stuff is way too poorly understood by most people. Geithner is still a true believer in neoliberal free market fundamentalism, which is why he Treasury Secretary. This is also why he is pushing the Doha round of GATT which would further damage nation’s sovereignty over financial regulation within their borders. A Tobin Tax is an ever so slight brake on the race to the bottom and slight disincentive for speculative investment (especially in currency). The idea is to promote stable economic development rather than debilitating boom-bust cycles that extract wealth and resources from developing economies while leaving their poorest residents poorer. The proceeds would then go to economic development in the poorest nations, bank deposit insurance or another type of economic stabilization. To true neoliberals, any impediment to the flow of capital is harmful interference of the path to economic and social nirvana–in the long run. In the long run of course, we are all dead.
If Summers and Geithner have their way it won’t take long for the US to have the kind of economy that brought the Soviet Union to its knees. Soviet workers couldn’t afford anything but cheap products, our workers are stuck with buying cheap products from China. In the Soviet Union the wealth was held by top industry officials and party members. Here it’s the banksters, Wall Street speculators and politicians at all levels.
The more salient question if we voted for “change” is why is Geithner even in Obama’s cabinet?
Agreed. The U.S. is heading for a real crash. Some see it coming and some are completely oblivious.
Why does anyone here support the Democratic Party?
Why?
Tell me why.
Some here advocate working within the Dem Party.
To which I say, good luck.
I say, tear down the Dem Party and then rebuild it.
Listening to a sound bite from Obama’s speech at the memorial for those killed and wounded at Ft Hood.
Nothing like warmongering at at memorial. *spit*
Got a plan for that? I’d sure like to hear it.
Ditto…. and O/T Frontline (PBS) has program tonite re healthcare in other advanced countries tonight… Think it’s a repeat. But worthwhile all the same.
yes, the US, standing virtually alone, vociferously opposes real international finance regulatory reform on all fronts, even now. It’s quite pathetic, really.
There is a serious risk – Japan is initiating a dialogue with China and South Korea for the beginning of what looks like might become a common regulatory framework and possibly even a common currency, eventually. Europe is already there, with the Germans and the French leading on greatly enhanced regulatory powers.
If things continue as they are, NYC will be no longer be a major financial center… it’ll just be the cowboy hub of insanely high bonuses and world-jeopardizing financial brinksmenship.
Over the longterm, capital moves to where it find the greatest amount of regulatory transparency and stability. Risk mitigation (fear) ALWAYS, historically, over the long term, becomes a greater determinant of financial sector actor behavior than does raw, unmitigated greed. Either we get with the program or the program will go away. And then where we will be? Just a big debtor nation run by a pack of hyenas, whose greed will be intermediated by more responsible counterparties in London, Frankfurt, Shanghai and Tokyo. Enjoy destitution, and our new foreign masters….
A veritable Berlin Wall bounding the rogue US from Atlantic shore to the Pacific, protecting the rest of the financially sane world from the consequences of our excesses.
I am glad people are bringing the Tobin Tax idea back to life. I do want to point out one thing about Mr. Geithner’s role in the Tobin Tax debate that I think clouds the argument for the tax:
1. The Executive Branch is the part of government that would be responsible for negotiating a Tobin Tax, not the legislative. The Tobin Tax (in its original and G-20 incarnations) is an international treaty. Under Article II of the US Constitution, only the President has the power to conclude treaties.
2. Congress (the Senate) would only ratify the treaty once it is completed.
3. After #1 and #2, The House would probably need to pass enabling legislation consistent with the all revenue bills must originate in the House part of Article I.
The reason I mention this is so that the Tobin Tax does not become an “imperial White House” canard. I could easily see a Beck/Hannity twisting this into another meme for how Obama/Democrats/Soros are Socialists trying to take power away from the people. Progressives need to avoid the noise and stick with facts.
As to the Tobin Tax itself, I would agree that there is not a lot of hope for getting something like this done. The original tax was a small tax on foreign currency exchange flows to fund United Nations programs. It is a well-studied, Nobel prize winning, mainstream idea that always gets marginalized as “too radical” when it looks like it has a realistic chance of becoming serious policy.
The G-20 proposal is very similar to Tobin’s early idea and is worthy of serious debate and consideration. The issue is not whether Mr. Geithner should or should not talk about the Tobin Tax, but to insist Mr. Geithner not relive mistakes of the past and have a serious discussion about the Tobin Tax.
All of Timmy’s and the White House’s top economics advisers are ex-Goldman men. They all hope to return to Goldman or to live on their retirement or former earnings from Goldman (some of which may still be in Goldman’s hands). Then there’s the basic premise of government power: the power to tax is also the power to regulate.
I can see where Mr. Geithner must be one of the most frustrated lobbyists in Washington. He’s the most lowly-paid. He is doing what every top agency head in the Bush administration did: as ex-lobbyists for the industries the government hired them nominally to regulate, their job was and Mr. Geithner views his job as protecting those industries from regulation, from government supervision, and from government taxes or charges. (Never mind that their job description as public employees spells out vastly different requirements and statutory obligations.)
In protecting the financial services industry from the government, Mr. Geithner has earned his only “exceeds expectations” rating on his performance evaluation. Like Mr. Obama’s, though, it’s not the public’s expectations that he exceeds; it’s the private sector’s.
Or the house could just originate a revenue measure on its own, absent the framework of a treaty.
duck, duck, duck. It’s got feathers, a bill, big triangle shaped feet for paddling in water. It quacks.
what the hell more do we need to know? Our president has anointed a crook to watch over crooks.
nice.
Tobin tax of .05% for unproductive Wall Street gambling is far too timid.
dday, thank you so much for recognizing and highlighting this exceedingly-disturbing trend. You’ve identified a profoundly-important subversion of our system of government.
That is exactly what is going on between the Speaker, the Majority Leader, and the White House – though mostly unseen because deliberately concealed – in a continuation of the practice between Bush and Congress, on most of the current legislative agenda, from legislation addressing state secrets to Military Comissions to the stimulus to health care reform. By their stealth, those three individuals, of one Party, but two branches of government, help demonstrate that they know that such backroom ceding of power to the President – which makes the Congress nothing but a secret proxy for the President, implementing, and unquestioningly deferring to, his will – goes against every tenet of our Constitutional system of government, with its deliberate focus on separated powers.
A separation of powers whose wise design and limitations on power were once honored and respected by our American Congress – even before the horrific modern lesson we should have learned from seeing what the German government’s repeated ceding of state power to a small group around Hitler led to. Our Members of Congress, regardless of Party, who even today are still purportedly independent, self-governing representatives of the people, used to understand and appreciate the profound wisdom of ensuring that no one man (or two men and one woman) could ever effectively control the direction – and the scarcely-overseen lethal military assets – of this nation, singlehanded.
Furthermore, as the Baucus Caucus fiasco helped expose, the same dynamic has been taking place on the health care legislation, even while Obama pretends to be leaving the Congress alone to do its work. Dennis Kucinich just quietly helped demonstrate this in his comprehensive statement about the House-passed health care legislation, in a clear and, to me, quite-horrifying sentence:
Referring, of course, to his own state-waiver amendment, which a committee of Congress had voted to include in the bill, only to see it stripped behind closed doors by an unseen somebody or somebodies.
We’ve come to this treacherous pass, because of the groundwork the two Parties have laid in Congress over years and decades, with the increasing complicity of their caucus members, that is their successful efforts to concentrate the will and voice of our federal legislature in the hands of a dangerously-powerful few.
First the Parties slowly gathered and concentrated the (voluntarily-ceded) power of 535 individual, oath-sworn legislators under the control of only a select few Party leaders. That practice – epitomized in the House by the House Rules Committee, which is now nothing but a Majority Party-will Enforcement Committee completely beholden to the Speaker – has been slowly institutionalized and accelerated, starting with the misuse and abuse of the House Rules Committee that started in earnest in about the mid-1970s. See the history of the House Rules Committee – written from a sympathetic-to-majority-Party-power perspective – here.
By now, those few Party leaders – almost always acting to direct the business of Congress outside public view – have such an unchallenged grip on the power and prerogratives of Congress as a whole, that it’s an easy and predictable step from there (as we saw during the Bush Reign), to the quiet ceding of the power nominally held by our representatives in the Legislative Branch of government to one man in the White House.
House members back in 1938 still knew why that was dangerous, here explained by Illinois Republican Representative Church:
Where are such House members today?
If any exist, “bringing down the [corrupt Party] rule” – even if it is a dictate from their own Party, as it was with Kucinich’s amendment – is the place to start to reclaim Congressional power for Congress, and thus to revive representative self-government in America.
It honestly doesn’t make a whole lot of sense. If we’re willing to accept that what they’re doing is essentially unproductive, and adds almost no value to the greater economy, then we just need to get rid of the activity entirely.
Otherwise we’re implicitly stating that the real purpose of capital markets is white-collar gambling; not investment.
My concern is where these moneys go. Before we start letting the money go to build some insurance fund for the failure of the to big to fail the US people need to be made whole.
Excellent point Nathan. There are many things which need to be done before considering this tax.
We can raise money in many different ways. Each hinders that specific activity to some extent. The idea that the market transaction tax is small doesn’t eliminate the fact it hinders transactions.
So, ask yourself, what do we want to hinder.
To me it’s excessive distance between the wealthy and everybody else. To hinder that I suggest higher taxes on great individual wealth and hopefully lower taxes on activities which improve productivity and production of useful things. Considering that the idea of a market transaction tax is, I think, too broad as there are man useful transactions.
I suggest we follow the lead of Sen. Dodd and Rep. Frank and hope to fix the fundamentals of the system, hinder ridiculous market activities which only soak up money without producing good things and let that reform run for a while before we consider things much more radical.
Yeah, I thought not.
It’s not even ‘gambling’ to those on Wall St. who get a commission from various deals which are non-productive. The more deals they can make, regardless of their usefulness, the more money flows into the hands of Wall Streeters. Why should they care whether it’s particularly useful or if it should hurt people who lose their homes & businesses & 401k savings?
It’s government’s job to set the rules to eliminate that garbage dealing and regulate it shall.
Incidentally, ever since Washington it has been regularly seen as an important job of the President to be THE primary legislator. Though he doesn’t vote he can write legislation, promote it and have friendly members of Congress submit it on his behalf.
OK, two issues: 1) Is it wrong to oppose the Tobin tax? 2) Was Geithner’s expression of opposition an example of executive overreach?
I think we’re all clear on question 1, although Nathan broadens the issue to encompass the legitimacy of the transactions being taxed. But unless someone definitively refutes the comment by keng @32, which certainly sounds credible, I’m withholding judgment on question 2.
(tried to edit out that stray apostrophe, to no avail somehow)
If this tax is going to be an international thing then doesn’t the negotiation of treaties fall to the executive with ultimate approval by the congress?
He’s a banker who has confused “playing God” with “Doing God’s work”.
Got any examples or cites to back up this “regularly seen ever since Washington” assertion?
I take it you are appovingly referring here, not to the obvious, good government practice (itself a great rarity anymore on Capitol Hill) of those who write the laws in our legislature requesting Executive Branch input and feedback on legislation, whether proposed or enacted, from those who actually do the work, but instead to what it sounds like you’re promoting: the antithesis of an independent Legislative Branch of government.
And I also take it that you personally disagree with Rousseau (whom Church was quoting in 1938), and Montesquieu, and the other 18th Century thinkers whom the creators of our three-branch (not our Parliament with Prime Minister) Constitutional system of government attended to, and learned lessons from to add to their own hard-earned experiences of the ever-present danger of executive tyranny?
So that when you speak of “following the lead of Sen. Dodd and Rep. Frank” what you really mean is “following the lead of” Barack Obama and Timothy Geithner, or anyone else Obama privately selects in the Executive Branch, who will and should “write legislation (to fix the fundamentals of the system), promote it and have friendly members of Congress submit it on [their] behalf.” If so, you’re in luck – that seems to be exactly the way that Barney Frank operates. [And it's certainly the way that Chris Dodd operated during the TARP bailout a year ago; Dodd's latest reform proposals may differ from Geithner's enough to be worth something - if so, Dodd'll be fighting "THE primary legislator" every step of the way to get his (genuine) reforms enacted into law.]
Montesquieu, in 1748:
But MarkH thinks the executive power should have all but final rubberstamping legislative power, for the good of the nation, no need for the poor saps warming the seats of our federal legislature to think or act for themselves until the executive tells them what to do, and how to do it?
I profoundly disagree.
Who da hell is any of us to tell da Masters of the Universe what dey can or cannot do?!?
There’s nothing wrong with the legislative and executive branch collaborating on crafting legislation that everyone can get on board with.
I do not see how you can craft regulations that would be able to discern executive-driven legislating against an honest collaboration.
Have any of you all ever had to work with a public sector white collar regulatory agency? Given the disparity between the public sector regulators and the high priced attorneys and accountants, there really is no contest and the pricey lawyers run circles around the hapless private sector rejects.
Any regulatory framework capable of figuring out what freshly and uniquely rolled turds the smarty pantses are trying to foist off as grade-AAA investments is going to need to be staffed and run by a team of professional forensics investigators as well as talented financial wizards. That is going to cost money, and if the conflicts can be managed, that would be a good investment.
The tax would be no impediment, merely the slightest mist of evaporation. The mist would be no more noticeable were it, say, 20%?
ROTFLMAO… oh the irony..
Not sure if she’s just blowing smoke or she’s actually prepared to (horrors) do something about this, but:
HuffPo – Maria Cantwell: I’m “Not Sure” Why Geithner Still Has Job (VIDEO)
Cantwell ‘not sure’ why Geithner has job – The Hill’s Blog Briefing Room
Cantwell sits on Senate Finance. I’ve been no big fan of hers ever since she decided to vote for cloture on the Alito appointment, but I’d have her back if she’s trying to do something here. Not sure what she can do.