Monday, July 27, 2009

Superfast Financial Sleaze

A New York Times article published in the last few days details how deep-pocketed stock traders, a la Goldman Sachs and many hedge funds are using supercomputers to game the market system. They have tricks like buying and selling a stock within milliseconds or executing a buy order and then canceling it within a few milliseconds. If you can buy and sell the same stock several times in one minute and make even a minute profit on every share on every sale, then the moolah starts adding up very quickly.

Thus a part of Goldman Sachs’ recent record quarterly profit was derived from such super-fast trading. It is estimated that high-frequency traders earned $21 billion in profits last year. Moreover, a handful of them are now responsible for half of all trading on the NYSE.

Without going into the details of supercomputer based automatic trading, which would melt my brain if I actually learned enough to explain them and confuse you to tears if you tried to understand such, here is the essence: they are skimming income from everybody else in the business and diverting it to themselves, the superwealthy.

At any rate, that’s what the great minds of finance are using their wisdom for. Forget actually creating something of value, this is about making money, pure and simple. Moreover this is about a kind of speculation which milks the society for the benefit of the favored few without a shred of corresponding benefit for anyone else. I understand that the people who are reaping the windfalls - and their mouthpieces and defenders in the business community - can spout their reasons and rationales for the underlying value of their machinations but we know what that’s worth.

I brought this story up as a perfect example of the importance of taxing stock transactions. Obviously the scam would be instantly shut down if even a miniscule tax were levied; the stock market could then begin to return to what’s supposedly its main purpose; investment. There is absolutely no reason to encourage that type of speculative activity; it serves no good purpose whatever. Moreover, there is no investor who is in it for the long run who would be hurt by paying a one percent tax on their stock purchases. And that one percent would bring in a very large and urgently needed amount of money. If you have the money to invest in stocks you obviously have the money to support government.

Representative Peter DeFazio of Oregon, arguably one of the most liberal members of congress, has proposed a .02 % tax on some stock transactions. As a testament to how warped the system has become his proposal has brought a howl of protests from affected parties, who, after all, since they own the government, will easily quash his proposed tax.

This is similar to Obama wanting to add an income tax surcharge to the top one percent of income earners – those above $280,000 per year – to pay for his health care plan. The protests were so vociferous, that number has now been changed to $1 million, leaving a large revenue shortfall.

And lets not forget that capital gains are taxed at a very low rate compared to income that comes from actually working for a living. Warren Buffet, one of the world’s richest people, has famously remarked that he pays income taxes at a lower rate than his domestic staff.

Contrast Americans’ current desire to have government without paying for it, and the concurrent difficulty of having the wealthy contribute their fair share, to the 1960’s. Back then, top wage earners paid a 91% income tax rate; corporations paid one third of all income taxes as opposed to about 7% today; and even I, in 1960, earning a pay rate very close to the bottom of the scale, paid $400 income tax on a $4000 income. I thought it was quite unfair at the time, considering the hardship of living on that meager income, but at least everyone was coughing up and paying their share.

Not so anymore, only future generations need worry about paying for today’s government. And, absent drastic changes to America’s political culture, certainly not the well healed, ever.

Thursday, July 16, 2009

Obama the Diplomat

He may be the best president to come along in decades but he’s really missed his calling: he is the consummate diplomat. Obama has managed to maintain approval ratings in the sixties in spite of continuing most of Bush’s worst programs, especially as pertains to rule of law. Indefinite detention, illegal spying, government secrecy, all have been embraced by Obama. The rhetoric has changed for the better, but the policies are nearly identical.

Thus his true greatness is in diplomacy. Diplomats forge agreements and consensuses but they are not leaders, rather they are charged with expressing their government’s policies. He is a rock star on the diplomatic front. His rhetoric soars while he stays cool, calm and collected. If he chides, it’s done gently; there’s no sense that he’s lecturing or browbeating. But he’s not a leader; with the exception of his position on Israeli colonization of Palestinian land, (and there’s still the question whether he will back up his words against Israeli settlements with real actions) which I greatly appreciate, he has not taken a stand on any issue of import if there’s the slightest bit of controversy involved. Or rather, if it goes against mainstream or corporate thinking.

Take climate change, for instance; the only achievement of the recent legislation is rhetorical. At least now the US has a president who accepts global warming as a problem, but unfortunately, the bill which has passed the House and is pending before the Senate, is worse than worthless as a means of actually tackling the problem. For one, it sets a meaningful goal - 80% reduction in carbon emissions - so far in the future, 2050, as to be totally meaningless. You know, we go on our merry way destroying the planet for 20 or 30 years, then suddenly get cracking on real changes in time to meet our goal.

For another, it sets up a cap and trade system to limit greenhouse gases, which will become just another permit to pollute - if I buy a small forest in the tropics then I can build a new coal-fired electric generator in the US. It’ll also be a great boondoggle for derivatives traders who will be given a trillion dollars of new securities to play with. The only way to reduce carbon emissions is through a carbon tax.

Here’s where is greatness as a diplomat comes in. He knows how hard, if not impossible, it would be to get congress to do the right thing by the planet so he settles for lofty words. Some would say better than nothing - at least we are not still in denial. Unfortunately, it’s nearly the same level of denial to pass legislation that won’t solve the problem. A true leader would square with the people the imperative of action now, not a generation in the future, and the best way to do it would be through a carbon tax. He’d also make clear the reality that everything the country might do to reduce emissions would also make it healthier and more self-reliant, essentially a win-win for the future.

A majority of Americans are in favor of a single-payer system of health care and so was Obama before he became president. However, throughout the health care debate, even the mere discussion of single payer as an option has been forbidden. Senator Max Baucus of Montana who heads the committee drawing up health care legislation held a forum a while back where all voices were supposedly brought to the table. Ten of the fifteen participants were representatives of industry, none of the others were advocates of single payer. Several activists who tried to bring up the subject in the committee room were jailed for their efforts. It’s not hard to understand where Baucus is coming from, he’s the largest recipient of insurance money in the Senate.

Single payer is the only way to insure everybody and keep costs down, it’s also the simplest because everybody is automatically covered as opposed to the Obama plan which continues the present employer based system, which is an evil in itself, and then mandates those outside of it to purchase insurance. Presumably, those with insufficient income would get their coverage subsidized, which would require means testing and probably endless filling out of forms.

But the insurance industry is a big part of the problem. The majority of people forced into bankruptcy by medical bills had insurance but couldn’t make the co-pays. It’s a rotten system but Obama’s a practical politician and understands the great challenge of fighting the insurance industry so he started out with the idea of a public option similar to the current Medicare plan for retirees. People would be mandated to purchase health insurance but could choose the public plan.

First, as an aside, it’s really delicious to hear haters of government who rail on about how everything it does is wasteful and inefficient, oppose the public option because they’re afraid the insurance industry would be at an unfair disadvantage and not be able to compete. Those poor insurance companies, we sure wouldn’t want to cause them any pain… sorry wingnuts, you can’t have it both ways.

They’re also afraid, and rightly so, that the public option would be the back door to single payer; that is, once people see how much better it is, they’ll abandon the insurance industry in droves and single payer will eventually be the end result. Thus, the industry is fighting hard to weaken the public option, the inclusion of which, by the way, is favored by more than 70% of the population. One idea they’ve put forth is a trigger for it. In other words, the public option would only come into play if the plan without it didn’t actually work very well. Clearly a delaying tactic and poison pill designed to prevent it ever coming into effect.

Once the industry started making noises, the administration started equivocating on the public option. Fortunately, by some miracle, 120 progressive house members suddenly grew a backbone and drew a line in the sand and said they’d vote against any plan that didn’t include a strong public option. I’m still reeling from the implications of that many Democrats actually standing for something.

But where is Obama? Why is it so difficult for him to take a leadership role? What is he afraid of?

He stood behind the bankers when they begged for rescue, but not for homeowners facing foreclosure. The subject of paying for the bank bailout was never broached, but health care, that can only be done in a fiscally responsible way. He’s presiding over unprecedented and ultimately very dangerous deficits, but can’t level with the people on the need to raise revenue.

There is a tremendous reservoir of wealth in America that desperately needs to be taxed, not just to raise income, but also because it is simply bad economics and disastrous socially policy to allocate so much of the country’s wealth in the hands of the few.

We need to go back to deriving half of income taxes from the corporations as we did in the fifties; their wealth gives them far to much power. Maybe then they’d no longer have the money to pay exorbitant executive compensation. The top income tax rate for high earners needs to rise back to at least 50%; in my mind 60% would be more appropriate. Until the seventies it stood at 91%.

All stock and commodity transactions need to be taxed, and especially derivatives and such. Once again not just because we need the money but to curb speculation which serves absolutely no good purpose for the economy or the world.

We need to heavily tax carbon emissions, not provide a trillion dollar giveaway of emissions credits which will just become another derivatives boondoggle.

Obama is asking for more money for the military than Bush did. The US has nearly 800 bases in 100 countries around the world; is that really necessary?

There you have it, I’ve easily found at least one trillion dollars to begin to get America’s fiscal house in order and get the country on the correct social-economic-philosophical track.

Obama is the quintessential politician whose activist attitude changes upon taking office. They campaign on and believe in change, but become ‘serious’ and ‘practical’ once in office. Maybe he’s especially deferential to America’s corporate controllers because he feels himself, being half African-American, as an outsider.

The awful truth is that he’s still the best that’s happened to the presidency in a long time, which only reflects how debased the system is and how treacherous life the future is likely to become.