'Free marketers, free traders, Wall Street Sharks, Corporate executives' are all one group of people that can be accurately described as those that support unbridled capitalism.

Reagan (get government out of the way)set them loose on the country and we've been paying ever since. The Leveraged Buyout gang of the 80s, the S & L gang, the ENRON boys, the sub prime sharks, and the $100/200 million annual compensation and or retirement packages for CEOs who head money losing corporations, such as CitiGroup, Merril Lynch, and Countrywide.

Mister Baker's suggestion that we do what they did in GB won't work because then the Sharks might lose something, and we can't have that in this wonderful Capitalism system.

Oh, did I mention the 15% tax rate paid by Hedge Fund Managers that earn $75/200 million per year
while Joe Lunch Bucket and his $40K per year pays 28%?

Another scandal by the sharks, another bail out by the taxpayer

Until people start going to jail, I say this, Everything changes but nothing ever changes.

Bears Stearns, the Wall Street investment banking giant, is now on life support, being kept alive only by infusions of tens of billions of taxpayer dollars courtesy of the Federal Reserve Board. Dean Baker

The size and terms of the credit line were not disclosed. JPMorgan will borrow the money from the Fed and lend it to Bear Stearns, and the Fed will ultimately bear the risk of the loan. NYT 3/15/2008

It seems to me that we have little idea of how much "money" -- and Dean himself never trusts a New York Times reporter to accurately describe the components of any business transaction -- is at risk or the extent of that risk. In fact we don't even know whether the Fed is trying to save Bear Stearns or rather, trying to save its customers, that is, other banks, investment houses, and hedge funds to whom Bear Stearns owes money.

What we should be demanding is an explanation from the Fed of why it thinks it is unable to state the terms of the bailout. We're supposed to be living in a democracy, after all, and deserve to be informed of what our rulers are doing on our behalf.

Fed Bailout = Socialism. I was really struck by this when someone pointed this out yesterday.

Excellent writing. I wish you were on CSPAN this morning explaining this problem - rather than the AEI guy who insisted that we must bailout Bear Stearns and we must Not over-regulate.

None of these Banks and Investment Firms are taking any responsibility about how stupid they were to invest in risky mortgage investments.

Why not bailout with some of that compensation that they lying Alan Schwartz received $35,734,422 in salary & bonus, and $52,907,900 in stock options for 2007 alone. Those amounts would provide a lot of Unemployment relief for us taxpayers.

I am not sure a transfer tax is a great idea (not saying it is a bad idea either). I like to look at these things from an engineering point of view: the mechanism works best when there is a minimal, but nonzero, amount of friction, as it were. One wants money, which ideally simply measures resources, to flow freely towards the best use of resources.

What I would like to see, but have no idea how to structure, is not so much this kind of transfer tax as, instead, a general "wealth tax" on resources in general. We have one on real-estate, in the form of real estate taxes, that keeps a modest amount of pressure on everyone (rich and poor alike) to use the real estate in a productive manner. (One fly in the ointment lies in determining "productive".) We do not, however, have one on stock, bond, etc., assets, except for the general erosive power of inflation. And in any case these taxes tend to be flat (inflation and R.E. taxes are both linear).

It might be interesting to have a geometrically progressive "wealth tax", in which if any entity's net worth is (say) $1 million, the tax rate is (say) about .1% ($1k/yr), but it goes up more than linearly, so that at $10M, it is (say) 1% or $100k/yr, and at $100M, it hits 10% or $10M/yr. Of course that means anyone or anything worth $1B is at 100%, and all the multi-billionaires are over 100%, so maybe this needs some tuning. :-)

Like Richardxx said, a financial transactions tax will not discourage any transactions where much gain could come, because it is small, and it would still be profitable to do them.

It is also hugely progressive. Ownership of stock is still hugely concentrated among the wealthy (that doesn't mean middle class people don't own any, just that they don't own very much). The big traders are also overwhelmingly wealthy.

Middle class people can get themselves into funds that are big traders, but they have the option not to. Unless they feel like throwing money in the toilet, they can get into funds that don't trade heavily.

Finally, a properly scaled transaction tax would discourage a lot of the CDOs, CMOs, and other exotic instruments that involved layering of debt upon debt. While the tax on the sale of an individual bond might be minuscule, when it is layered into several separate transactions, the tax could large enough to discourage too much game-playing. This is exactly what we would want.

Tom Wright

The commission brokers charge is not a tax but a fee for performing a service - that is how they make a living. I being one of them cannot call it a tax.

Ellen
I agree the 'bailout' of Bear Stearns is to protect the wealthy ultimately. But I feel if the bank made mistakes then it should face the consequences, it is the survival of the fittest that drives western economies and now Chinese, Indian & Russian economies too. The bank or hedge fund as some called it (which incidentally it is not) should be bought out by a liquid bank.

Johnw1141 & ct
You are quite right regressive is aterm used to define a declining rate. My inference was that such taxes result in the conomies of countries declining as socialistic ideas sound good but never work. Look at nationalization of industries in Westen Europe after WWII and the subsequent success of privatization.

Finally Dean
You have started an excellent debate, so congratulations even though I disagree with you on stock transfer tax. This penalises investors who don't always make a profit. What happens when they lose money on their stocks and then you charge them a tax on top of it, that will make many investors unhappy and possibly turn them off from investing.

The solution to chaos created by financial world through greed with investment in sub-prime instruments is that perhaps their ratings should be readjusted based on their investment portfolios so the investors know if they are dealing with an aggressive risk taker or a conservative banker.

Re: The U.K. imposes a modest stock transfer tax of 0.25 percent on every purchase or sale of a share of stock.

Agree, this is something we should debate. However I don't see it as any sort of remedy for the problems that have rocked Wall Street. The UK, as you point out, does have such a tax, and it has not prevented similar tumult and turmoil on Cannery Row.

Re: ... that bankers are these greedy "Wall Street boys" who want to deliberately make it hard on single moms. I don't know why any business worth its salt would want to be run by ideological conservatism, since our government is so large and it is so easy to engage in rent-seeking behavior by sucking at the government teat along with everybody else. Furthermore, part of the reason Bear Stearns is in this mess is BECAUSE it has offered loans and financing to single moms, among others - i.e., individuals and groups who tend to have higher risk portfolios than your typical suburban DINK couple.

I would also suggest looking at these banks' employment policies. I work for one of these companies (not Bear), more or less as a back office peon, but the pay and benefits and workplace policies are everything progressives would want to see enacted generally: high wages, strict non-discrmination policies (though yes, sometimes this degenerates into PC silliness), four weeks paid vacation to start, same sex partnerships treated as equal with marriages insofar as this is possible under our tax laws, generous sick and bereavement leave, excellent health coverage progressively structured (the more you make the more you pay for it). This is not the behavior of a Simon LeGree or a pre-Christmas Scrooge. Give good credit where it's due.

Re: This sales tax would be a good prophylactic measure, but regulation is also needed.

Absolutely! I would caution against half-considered measures motivated by panic, bu ti do thin kwe need to start examining what has gone wrong in minute detail and devise measures to prevent a recurrence.

Re: Dean is completely correct that the British takeover of Blackstone is the correct model. Replace the failed management and maintain the banking function while removing the worthless ownership

Um, do you want to see the Bush administration running an investment bank? I'd rather they scooped up some stray vagarnt off the streets of NYC and put him or her in charge. We might get better results.

Re: Look at nationalization of industries in Westen Europe after WWII and the subsequent success of privatization.

Taxing something is not the same as nationalizing it. Good grief! I just paid my yearly license plate and registration fee on my car. But guess what, I still own it.

Hmm...I'm sensing from you and many of the other respondents here that it's not enough that Bear Stearns is bankrupt; you all want the leadership to be held personally responsible for the bank's demise. What exactly do you have in mind, I hesitate to ask...strip them of their assets? Throw them into debtor's prison? Hard labor? Tarred and feathered? May I remind you that the whole reason for having corporations in the first place is so individuals don't have to risk their personal assets in a business enterprise. So when you say you want "personal accountability" from a corporation, you are really arguing against the entire economic rationale for corporations. Of course criminal behavior is a different story, but I don't think anyone is alleging that any crime has been committed here.

Also, after some further reading, I realized that this story is actually much more complex than what Dr. Baker is leading on. To wit:
1. The Fed loaned money to Bear Stearns, but the money was simply created. It isn't tax money. It's an increase in the total money supply. It was also approved by a unanimous vote of the Fed's Board of Governors. (This is regulatory-state democracy for you.)
2. The loan is due in only 28 days. Obviously Bear Stearns is not going to turn it around in 28 days. Thus this loan really is just about giving the market time for an orderly sale of Bear Stearns to (probably) J.P.Morgan Chase.
3. The Fed's collateral standards are very high, as one might expect. So it is unlikely that the undisclosed collateral for the Fed's loan was anything but high-grade securities. Thus, in the unlikely event that a sale is not completed in 28 days and Bear Stearns defaults, the Fed will get paid back.

What "collateral," disclosed or undisclosed, did the Fed take? According to the New York Times the Fed has no contractual relationship with Bear, Stearns and JP Morgan, the borrower, has no duty to pay back the loan the Fed made to it.

Am I misreading the chicken's entrails?

Nothing new here. American styled "capitalism" has, for at least the past 30 years, been all about privatizing profit while socializing risk. Capitalist ideologues are all about "free markets, unfettered by government interference" up until the precise moment when government help is needed to save their sorry necks from the trouble they got themselves into thanks to lack of government oversight and regulation. Once the bailout is accomplished, they go back to preaching about the evils of government interference.

Just a little perspective ...

Baker's stock transaction tax is usually known as a "Tobin tax" among economists, after the noted American economist who proposed back when we were young. A 0.25% rate is generally pretty high for a Tobin tax, which is usually set at 0.1% or less, one dollar in tax for one thousand in transaction. When I think about a Tobin tax I postulate it at even less, around 0.07% -- seven cents per hundred dollars, seventy cents per thousand, seven lousy bucks per 10,000 of financial transaction. It's not going to hurt anyone's middle-class savings, it's not even going to put much of a damper on arbitrage transactions. But because of the huge amounts that slush around the financial markets, the overall take could be quite significant.

My dad was very secretive about his business, he certainly wasn't rich when I was young but he kept at it, and it turned out that he just triggered the estate tax when he passed away. He was generous to some people in his will and not so to others, my wife and I were kind of in the middle, we got a low six-digit stock & bond portfolio to stabilize our situation after a lifetime of entrepreneurship that had left us 20 or 30 grand in the hole. I've done my best to hold on to it ... and in pursuing profitable high-dividend stocks, I've paid dividend taxes to France and New Zealand withheld at a rate around 20% and to Japan at a lower rate. (Oh yeah, and I still made a profit.) Some of those taxes may be only on dividends paid foreign to the taxing nation, yet still ... can anyone really argue today that Japanese and French Companies that have to pay these direct taxes on dividends are significantly hobbled compared to American companies, where the dividend is paid and it's up to the individual taxpayer to later figure our their situation and pay the appropriate tax -- again only 15% for most investors, lower than the middle class pays on their wages, and foreign dividend receivers pay no tax at all ??

The concept of the Tobin tax has been well-argued among economists, outside the "let business make its own rules and name its own regulators" school there is general agreement that a Tobin tax does not harm the overall economy and does not affect legitimate business investments in physical structures and productive enterprises. As dollar sinks and foreign investors buy out our former wealth, why not get a few bucks of tax out of them?

The problem with indexing investments for inflation is that it makes inflation itself painless for those whose investments are indexed.

That does two things. It encourages inflation making it less politically painful for the government to permit inflation and less likely to put into practice those actions that would control it, and it sets up two classes of investors, those whose investments are indexed and those who investments are not. Neither are good for the market itself.

Unindexed markets are themselves a way of discouraging inflation. The markets are supposed to be the place where investors bring all the information about the economy together with their investment funds and work out the best solutions. Indexing does nothing except complicate the calculations and create winners and losers in what is not an investment process.

If investors can't predict inflation and protect themselves from it, they aren't doing their jobs properly. The market is a place where good investors are rewarded and poor ones punished. That's what it's supposed to do. They didn't have to play in that game. Bailing out or protecting the losers is a bad idea.

This is one strong vote against indexing anything for inflation except pensions and the alternative minimum tax.

ANY COMMENTARY ON ARTICLE BY GREG PALLAST?

HERE ARE SOME EXCERPTS:

The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
By Greg Palast
(www.GregPalast.com )
*
While New York Governor Eliot Spitzer was paying an 'escort' $4,300 in a hotel room in Washington, just down the road, George Bush's new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
*
Both acts were wanton, wicked and lewd. But there's a BIG difference. The Governor was using his own checkbook. Bush's man Bernanke was using ours.
*
This week, Bernanke's Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks' mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
*
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers' bordello: Eliot Spitzer.
*
Who are they kidding? Spitzer's lynching and the bankers' enriching are intimately tied. How? Follow the money.
*
The press has swallowed Wall Street's line that millions of US families are about to lose their homes because they bought homes they couldn't afford or took loans too big for their wallets. Ba-LON-ey. That's blaming the victim.
*
Here's what happened. Since the Bush regime came to power, a new species of loan became the norm, the 'sub-prime' mortgage and it's variants including loans with teeny "introductory" interest rates. From out of nowhere, a company called 'Countrywide' became America's top mortgage lender, accounting for one in five home loans, a large chuck of these 'sub-prime.'
*
...
*
'Steering,' sub-prime loans with usurious kickers, fake inducements to over-borrow, called 'fraudulent conveyance' or 'predatory lending' under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
*
But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer'm, fake'm, charge'm and take'm.
*
But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.
*
Instead of regulating the banks that had run amok, Bush's regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of "federal pre-emption," Bush-bots ordered the states to NOT enforce their consumer protection laws.
*
Indeed, the feds actually filed a lawsuit to block Spitzer's investigation of ugly racial mortgage steering. Bush's banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.
*
Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup's Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called "securitization."
*
...
*
Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That's Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.
*
The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. ... Not one family was saved – but not one banker was left behind.
*
Every mortgage sharking operation shot up in value. Mozilo's Countrywide stock rose 17% in one day. The Citi sheiks saw their company's stock rise $10 billion in an afternoon.
*
And that very same day the bail-out was decided – what a coinkydink! – the man called, 'The Sheriff of Wall Street' was cuffed. Spitzer was silenced.
*
Do I believe the banks called Justice and said, "Take him down today!" Naw, that's not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was "Wall Street Declares War on Spitzer" - made clear to Bush's enforcers at Justice who their number one target should be. And it wasn't Bin Laden.
*
It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:
*
"Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye."
*
Bush, said Spitzer right in the headline, was the "Predator Lenders' Partner in Crime." The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.
*
IF THIS IS TRUE, WE SHOULD BE HEARING THIS FROM THE TALKING HEADS OF MSM AND ELSEWHERE ... NOT THE TITILLATING GOSSIP OF SPITZER'S PERSONAL DEMONS.
*
WOULD LOVE SOME COMMENTARY ON THIS... THE SPITZER PERSONAL "AFFAIR" QUITE A RED HERRING FOR FURTHER EXPLOITATION BY CORPORATE RAPISTS.
THANKS

Ellen
you say "By way of Calculated Risk and the Wall Street Journal is Lehman Next?"
Good question.

No one knows if other banks will sink or swim. One thing is clear, JPM is not likely to bail out another bank soon and there are not many other buyers in the market right now. BS's troubles became magnified because of a smaller capital base, other banks may be able to sustain larger hits - for now.

I've been thinking of something like this in a similar vein for a while, and it is a good thing.

I knew nothing of the tax in the UK.

It should apply to EVERYONE, including non-profits and pension funds, because part of the goal is to discourage rapid trades by the big players.