Ten Ideas to Save the Economy #4: Bust Up Wall Street

When Americans think of how the economic rules are stacked against them, they naturally think of Wall Street. 

When the Wall Street bubble burst in 2008 because of excessive risk-taking, millions of working Americans lost their jobs, health insurance, savings, and homes.

But The Street is back to many of its old tricks. And its lobbyists are busily rolling back the Dodd-Frank Act, intended to prevent another crash.

The biggest Wall Street banks are also much larger. In 1990, the five biggest banks had 10 percent of all of the nation’s banking assets. Now, they have 44 percent – more than they had at the time of the 2008 crash.

They have a virtual lock on taking companies public, play key roles pricing commodities, are involved in all major U.S. mergers and acquisitions and many overseas, and responsible for most of the trading in derivatives and other complex financial instruments.  

And as they’ve gained dominance over the financial sector, they’ve become more politically potent. They’re major sources of campaign funds for both Republicans and Democrats.

Wall Street banks supply personnel for key economic posts in Republican and Democratic administrations, and lucrative employment to economic officials when they leave Washington.

It’s a vicious cycle. The bigger they get, the more likely it is that government will bail them out if they get into trouble again. This, in turn, confers on them an ever-larger competitive advantage over smaller, community-minded banks that don’t have the implied guarantee – which gives the biggest banks even more economic and political power.

What should be done?

First, resurrect the Glass-Steagall Act that used to separate investment from commercial banking.

Second, put a small sales tax on every financial transaction. This would discourage speculation and slow down the casino. Not incidentally, such a tax could generate billions of dollars a year for, say, better schools.

But the most important thing we should do is bust up the big banks. Any bank that’s too big to fail is too big, period.

Antitrust law should be used the way it was against the big oil trusts and the telephone monopoly. The idea was to prevent too much economic and political power from concentrating in too few hands. And that’s precisely the problem with Wall Street.

The only sure way to stop excessive risk-taking on Wall Street so you don’t risk losing your job or your savings or your home, is to put an end to the excessive economic and political power of Wall Street.

It’s time to bust up the big banks.

For Every $10B in Trade Deficit We Lose 10,000 jobs

Export of Jobs

As of May 14, 2015 we've a $50 billion dollar trade deficit, mostly with China and what we need is a balanced trade deficit, one that is equitable for all and not lopsided as we have today.

In a recent interview on the Thom Hartmann program was an interview with Dr. Ravi Batra. Batra is the author of six bestselling books, two of which appeared on The New York Times Best Seller list, with one (The Great Depression of 1990) reaching #1 in late 1987. 

In this video Dr. Batra present his take on how to eliminate joblessness.

Create Low Interest Credit Cards at 5% Rate

Credit card companies can borrow at zero percent interest rates from the FDIC and yet in turn they charge high interest rates to those in the lower and middle incomes, those profits go into CEO salaries. 

To assist these lower and middle income groups Dr. Batra states that current law allows for the FDIC to start a "Bridge Bank" but instead of selling it off to another large bank, like Bank of America, the FDIC can create their own bank and offer the low interest rate cards to consumers.

This would effectively give much credit relief to those who need it most. Of course, ideally it would be beneficial to break up the big banks, thereby promoting more competition, but Congress would never allow that since the banks contribute greatly to their financial campaign funds.

The President can bypass the ineffective Congress by creating this new bank via the FDIC.

Helping the Retired

The Federal Reserves low interest rates have depressed the incomes of many retirees, Dr. Batra suggests the government provide a 5 year bond at a fixed rate of 3.5% which will help the income of retirees and can be done without going through Congress. This will make a big difference in retiree income.

Treat Oil Futures the Same As Stock

Oil futures can be purchased now with only 10 percent margins which creates artificially high oil prices due to speculation. Currently at $60/barrel. Stocks have a 50% margin requirement and if this same rule were applied to oil futures we could see a drop in oil to more stable and realistic value of $20/barrel. This is turn would greatly help low and middle income groups.

ROBERT REICH DEBUNKS 6 BIG GOP LIES ABOUT THE ECONOMY

BIG LIE #1
"TRICKLE DOWN" TAX CUTS

Ratio of corporate profits to wages is higher than it was before the great depression of the 1930's. They're sitting on over $2 trillion in cash.

BIG LIE #2
SHRINK GOVERNMENT TO CREATE JOBS

If you layoff school teachers, firefighters and police officers, and you have fewer people building the roads, the infrastructure, rebuilding schools doing all of the public's work, how can that create more jobs? Their answer: "government always gets in the way" no factual answer, just rhetoric.

BIG LIE #3
TAXES ON RICH HURT THE ECONOMY

In the 1960's the top income earners never paid below a marginal income tax of 70%, during the Eisenhower years it was 91%. Yet the economy grew faster. The lie that we must not tax the rich because it would deter them from working hard and investing in jobs, is nothing but a bold-faced lie, based on ideology and not facts.

BIG LIE #4
THE DEBT BOOGYMAN

If you get growth and jobs back the debt shrinks in proportion to the national economy, becoming more and more manageable. Another lie Long term debt is because of social security and Medicare, wrong, it's because of rising healthcare costs. Medicare is the most efficient system we have. The Medicare costs of administration are so tiny relative to private insurance, and what we really need if we want to get Medicare and medical costs down is Medicare for ALL!.

BIG LIE #5
SOCIAL SECURITY IS A PONZI SCHEME

Another lie, Social Security is solvent at least for the next 26 years, the reason the post system is in danger because of the raging inequality, as so much money has gone to the top, that the proportion of income subjected to social security taxes is not going to be enough. That's why the easiest and most direct response to post 26 years from now is the raise the cap on the proportion of income that supports social security.

BIG LIE #6
WE NEED TO TAX THE POOR

This lie is so backwards, we've got to reduce taxes on the middle and the lower middle, increase taxes on the top and have more tax brackets, go back to where were in the 60's at least.

The greatest enemy we have is mass cynicism, when people get to the point when they think nothing can be done...then THE OTHER SIDE WINS. That's what they want, they want government to be underfunded, to function so badly that people say, "oh, government can't work." They want government and politics to be so ineffective and paralyzed, that most Americans will say, "oh, I'm gonna give up, nothing can be done." Then they win.

It's easy when people are fearful and disorganized, feeling separate. They want us to fight amongst ourselves so we can be vulnerable to demagogues who will say it's because of government, it's because of immigrants, because of blacks, or because of a number of scapegoats offered again and again. When in actuality we are all struggled over a smaller and smaller share of a bigger AND BIGGER pie.

They are deflecting and diverting attention from the big story of all the income going to the top, going to the super rich and the big corporations and that is what has to be reversed and that's is why we have to take back America.

How to Get It Done [Excerpted from Robert Reiche's book AFTERSHOCK

TRANSITIONAL STRATEGY: I agree with sentiments of how we go about changing laws, regulations to offset threats to inequality. The ECONOMIC threat, the POLITICAL threat.

I. ECONOMIC - unless America's middle class receives a fair share, it cannot consume without going into debt. Debt which is unsustainable.

II. POLITICAL - Big government & big business are in cahoots to make the rich even richer causing resentment, anger, demagogues, movements and perhaps revolution.

Some Ideas:

1. A Reverse Income Tax, workers earning less than $20,000 would receive a wage supplement of $15,000. Supplements would be scaled up to those making $50,000 where it would reach $0 for F/T workers.

2. Cut Taxes to 10% for those w/ incomes between $50K-$90K. Those making $90k-$160K taxes would be 20%. In addition a carbon tax [starting at $35/metric ton of CO2 up to $115/ton], and higher taxes on the top 5% of incomes; example: top 1% pay 55% tax, top 2% 50% tax, top 5% 40% tax. Revenues could reach nearly a trillion in the first year and surpluses used for reemployment.

3. Reemployment system rather than an unemployment system. Free education, 90% of former wages are paid for a minimum of 1 to 2 years during retraining.

4. School vouchers based on family income.

5. College loans linked to subsequent earnings. Tuition should be FREE at all public colleges and universities.

6. Medicare for all. As of 2010 almost 50% of Americans already receive some form of public health care.

7. Public Goods. There should be a sizable increase in public goods such as public transportation, public parks, recreational facilities, museums, libraries all free of charge to users.

8. Get Money Out of Politics.

How to Get It Done?
Politicians and media can't keep saying it's getting better, when it's not. People feel the heat from housing foreclosures, high unemployment, lower earnings, less economic security, widening inequality, soaring pay on Wall Street and they are angry. Another deep recession might be enough to trigger reform but a mild recession may not be enough to upend vested interests that can too readily hold on to their power and anachronistic views.

Pretty soon Wall Street banks and corporations will become concerned about their inability to generate profit, as the middle class cannot afford to purchase their products and services.

If nothing is done to counter present trends, the fault line will go beyond Democrats and Republicans to the mad-as-hell populace determined to take back America. None of us can thrive in a nation divided. The lopsidedness not only diminishes prosperity but tears the fabric our society. Stability rests in a system that operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, it's the only sensible option we have.