![]() Even short-selling provides valuable information to help direct capital, and earning millions of dollars per year is not a prerequisite for tapping into the wealth created by any of these trades. It is also factually incorrect that “high-risk trades” add no real value to the economy, or that they “leave working families behind.” Stock (and bond) trades of all kinds help ensure that capital flows to where it is most needed and most productive, thus helping working families. Firefighters, teachers, university endowments, and private retirement savings all benefit from sophisticated equity markets. The proof is in the polling evidence that shows strong opposition, across the political spectrum, to a financial transaction tax.Īs my former colleague Adam Michel points out: Some of the largest shareholders and beneficiaries of our modern financial system are pension funds for public-sector employees and private retirement account holders. ![]() In this era, too many Americans – of all economic backgrounds – invest in the stock market to fall for this political pandering. Glass, but he has no special knowledge of which areas of the economy are the most productive. Schatz does a great impersonation of Sen. By raising the price of financial transactions, we can make our financial system work better while bringing in billions in new revenue that we can reinvest in our workers and our communities. We need to curb this dangerous trading to reduce volatility in the markets and encourage investment that can actually help our economy grow. Brian Schatz (D-Hawaii) introduced a new financial transaction tax bill and noted that “a tax on financial transactions would discourage unproductive trading and redirect investment toward more productive areas of the economy.” He went on to argue: During the pandemic, Wall Street has cashed in on high-risk trades that add no real value to our economy and leave working families behind. They also have every reason to be skeptical of a financial transaction tax, not least of all because its supporters use the same rhetoric as those who champion Glass-Stegall. (There is no doubt that risk-based bank capital regulations contributed mightily to the 2008 crisis.)Īmericans have every reason to distrust anything that remotely resembles the Glass-Steagall Act, as well as anyone who insists that regulations can ensure financial safety. It also disregards the fact that financial regulators were instrumental in building every piece of the pre-2008 regulatory framework. This naïve view ignores (among other things) that regulators have no special ability to determine which investments are safest. Yet, Warren and her acolytes would have us believe that if we can just give regulators the right set of tools, they can finally keep everyone safe and make them wealthy. There is no objective definition of purely speculative investment, and there is no reason to believe that quelling anyone’s version of it will make the financial system any safer. They ignore, of course, the fact that commercial lending involves many of the same types of financial risks as the securities activities they loathe. ![]() Like many progressives and populists after him, Glass was preoccupied with the notion that “purely speculative” investment activity was harmful and had to be kept out of commercial banks. If anything, the Glass-Steagall Act made financial markets less safe, and the blame lies mainly with Sen. But the GLBA repealed only two sections of Glass–Steagall while leaving intact key financial market restrictions from the 1933 law, and the same mortgage investments were allowed under both regulatory regimes.įurthermore, although the GLBA allowed some firms to engage in activities from which they were previously restricted, those financial activities remained heavily regulated after the law was enacted. The most recent Glass–Steagall myth is that its repeal (via the 1999 Gramm–Leach–Bliley Act (GLBA)) led to uncontrolled speculation that caused the 2008 financial crisis. In many cases, commentators refer to practices that had nothing to do with the combination of investment and commercial banking, such as tax avoidance and “excessive” salaries. They typically refer to secondary sources rather than the original record, and to opinions and allegations rather than actual evidence of abuses. ![]() But most of these assertions are exaggerated or untrue. True, numerous reports cite many abusive and reckless investment practices that Congress uncovered prior to passing the Glass–Steagall Act. ![]()
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