PROTECTING OUR ECONOMY AND DEMOCRACY FROM WALL STREET

We need to protect our economy from the risky behavior of the big Wall Street banks and financial corporations. This is the fourth of the Ten Big Ideas to Save the Economy, presented by Robert Reich and MoveOn.org. [1] We need to prevent these Wall St. giants from crashing the financial system and sending our economy into a severe recession again – as they did in 2008. Millions of Americans lost their jobs, their homes, and their savings in the Great Recession of 2008. The Wall Street corporations and their senior managers got bailed out, but the rest of us got sold out.

The giant Wall St. banking corporations are bigger than ever and are up to their old tricks. Given their increased size, they are even more potent economically and politically than before the 2008 crash. They continue to engage in speculative trading and other risky financial activities that could bring them and our economy crashing down again. They are pushing to repeal even the very modest financial regulations that were put in place to better protect us after the 2008 crash (by the Dodd-Frank law). They have friends in Congress (from both parties), as well as in the administration, who are supporting their efforts. They press their case by spending tens of millions of dollars on campaign contributions and lobbying.

Three actions need to be taken:

  • Reinstate the requirement that banking activities involving government-insured deposits be kept separate from risky financial activities. The Glass-Steagall Act that used to do this – and kept our banking system safe for 70 years – was repealed in the late 1990s. This led to the 2008 collapse and bailout.
  • Re-institute a small transaction tax, a sales tax, on the purchase of financial assets. This would discourage speculative activity that has no value beyond self-enrichment (especially high-volume, computer-driven trading) and would produce significant revenue that could be put to good use. A 0.5% sales tax on the purchase of financial assets ($5 on every $1,000) would generate roughly $500 billion per year. (See my posts of 10/8/12 and 9/29/12 for more details.)
  • Split the big banks into multiple, smaller entities. Currently, they are too big to fail, which should mean that they are too big to exist. Their size gives them too much clout, both economically and politically. This makes them dangerous to our economy and our democracy. In the past, the country used its anti-trust laws to break up the big oil companies and the telephone monopoly ATT. Similarly, we should break up the giant Wall St. financial corporations of today. They are so big that a speculative trade that goes sour and puts them into bankruptcy threatens our whole financial system and economy, and, therefore, requires a public bailout. And they are so big that through spending on campaigns and lobbying, coupled with the revolving door that puts former employees in key government positions, they are able to bend the rules of our financial system and economy to their benefit.

[1]       You can watch the 3 minute video at: http://civic.moveon.org/tamewallstreet/share.html?id=116548-5637721-c7x9Tcx.

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