There is a spectre haunting Wall Street: That spectre is regulation.
If Wall Street investors want the government to keep out of their business, than they should start thinking a little bit more about how they can stabilize their business on their own. Here is a suggestion.
First, however, let me note the shortcomings of a Tobin Tax (also called a “financial transactions tax”): It simply siphons financial resources out of the market much in the same way that a tax on cigarettes siphons financial resources out of smokers. These taxes actually do little to prevent or treat the diseases caused by poor habits — they simply aim to discourage such habits. But taking a risk is not necessarily a bad habit. It primarily becomes evil when one person takes a risk and expects other people to pay the price if and when the outcome is bad.
Therefore, why not create a “financial transaction fee” instead of a financial transaction tax? What is the difference?
The difference could be that the fee goes into a coffer that actually functions an insurance fund in case a bad event happens.
So in the simplest case, for example, let’s say that the transaction fee is $1 per transaction, and after a billion transactions a bad event causes one bank to need help (say, on the order of $1 billion). Then perhaps the bank could be “saved” using the resources available to the insurance fund, and then the bank could continue operating — and perhaps this bank would then have to either repay the amount (plus interest), or maybe the bank would now have to pay a transaction fee of $1.10 per transaction.
Moreover: The governance of this insurance fund could be operated by the members of such a banking consortium. They could, for example, vote to include or exclude certain “good” or “bad” banks. They could establish their own regulatory systems for determining the rates and fees required for transactions. With such actions, banking consortiums could remain relatively free of government regulation.
If banking institutions do not like this idea, then that is fine: They are also free to choose to run into the arms of government regulators.
