Banks are supposed to take our deposits and then lend the money to other people. The interest the give to their depositors is less than the interest the make on their borrowers. That difference is their profit. Lately, banks have been borrowing themselves to fund other investments that have a higher return on investment (ROI). The amount they borrow divided by the money the have is called leverage ratio. The ratios used to be around 10 to 1, but some grew to over 30 to 1 before the panic.

The higher the leverage ratio, the more susceptible the bank is to default. Why would a bank make itself more susceptible to default? Well the higher the ratio, the more money the bank makes. The ratio of bank's leverage is a lesson in trade offs and risk. From a regulation perspective, if too many banks are highly leveraged, then the systemic risk of a large scale run on banks becomes too great.

Some have proposed strict limits on leverage. I propose a soft limit on the leverage ratio. Allow a bank to reach say 15 to 1 ratio tax free. Above the 15 to 1 ratio, the banks will have to pay a tax. As the ratio goes up the higher the taxes. This tax would go to the Orderly Liquidation Fund that is used to liquidate failed firms. This type of tax would serve as an externalities tax that would discourage banks from having too high a leverage ratio without forbidding it entirely. It would also mean that the banks most in danger of defaulting would be paying more tax than a less leveraged, low risk bank.

The House's bill has a $150B fund while the Senate has a $50B fund. The right level of the fund would be somewhere in that range. After the fund reaches that limit, any additional funds could then be used to reduce the deficit. This would allow the bill to be passed using reconciliation and bypass the most obstructionist Senators.

How would the tax work? Basically like a sales tax or over investment tax. When the bank seeks to invest, the government would look at their publicly displayed balance sheets to see if they are over leveraging themselves. If so, they are assessed a tax. This would not prevent investing at low levels, but would discourage it at the higher ratio levels.

If a bank has a great deal that they want to invest in even though they are at a high leverage ratio, they can and pay the tax. If they decide they don't want to pay the tax, they can sell some of their assets to get below the tax. If they do so, they don't have to take a deflated price. If they have to get below some arbitrarily low ratio, the other firms would seek to take advantage of them by driving a hard bargain. After all, everyone knows they have to sell. That have to sell drives the price of the asset down, and the Mark to Market rules drive all other similar assets down as well. The soft cap removes the deflationary problems of arbitrary caps.

Voila. We have lowered systemic risk in the banking sector without limiting investments or flexibility unnecessarily. Low risk banks are not taxed to cover the defaults of high risk banks, which is a good thing.

All this delay due to health care has pushed back the sausage budget making process for 2010. Trying to pass a jobs bill will push it back even more. It seems to me that using the budget to create jobs would kill two birds with one stone and quicken the pace of legislation. The question then becomes, how could the budget be used to create jobs and fix the economy?

I would first adopt a modified idea from Mark Cuban to take money from Wall Street and give it to Main Street.

Some of our politicians are suggesting .025pct.  There really is no reason not to do it either way. Spreads have narrowed in the past several years to pennies from nickels, dimes and quarters. So we know that the market can operate with the wider spreads.  Historically spreads are the profit margin of market makers. Well in this era, who is a bigger market maker than the US Treasury ? They are providing liquidity at every corner, so why shouldn't they (we) get paid for it ?

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Of course the  tax will be paid for by those of us who are buying and selling stocks. So what. Here is the reality. If you are a true investor. Someone who wants to own a share of stock in a company you believe in, then its an amount that is not going to impact your investment decision making process.

If you are a professional trader or an institutional trader that trades continuously, then it may impact your decision making process, but only to the point of reducing your returns by a minimal amount. Its not going to change your inclination to trade. If you make 9.9pct instead of 10pct, you aren't going to stop trading.

Whats the economic impact ?

If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day, thats $ 200 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 52 Billion dollars a year.

Thats real money.

The new tax has two impacts. It taxes the most prolific traders at a higher rate than you or I. The prolific traders tend to have more money than you or I too. This makes it a progressive tax.

In addition, traders won't be able to hyper trade and it would slow down the creation of bubbles.Trader behavior would change to reflect the new paradigm and begin to invest in markets instead of just speculate. This is one way to prevent another market meltdown. This should fit one of Dylan Ratigan's criteria to fixing the financial sector.

3. Enact a tax-code to encourage long-term investment and discourage short-term profit. Fortunes should not be made in minutes but over years through the creation of value to society.      As long as the easiest way for a man or woman to make money is to spend their day clicking for dollars, why would they bother doing all the work of investing in the long-term economic development of private business in America? Tax code in general should encourage investment, jobs, and innovation in America and discourage idle speculation as the easiest way for a college kid to get rich.  There are sensible ways to use tax policy to encourage this that do not hamper liquidity.

A Democratic bill being written is planning on using half of the extra $150B to reduce the deficit and the other half is being put towards job creation. Mark Cuban suggests using the extra revenue to offset a repeal of the payroll tax for companies with 25 employees or less. Obviously you would have to ensure companies weren't gaming the system to ensure one company with 50 employees couldn't just split into two to avoid the tax.

This would be difficult to enforce and I'm not sure the new tax money would cover it. There are approximately 10.6M self-employed workers making an average $35,357 per year and removing the payroll tax for both Medicare and Social Security would be a 15% tax break for those individuals would be $56.2B (35.357 x .15 x 10.6M). According to census data taken from 2004, there are 21.2M employees working for firms with less than 20 employees. If you reduce the payroll tax required to be paid by the employer on those firms, it would cost $53.5B ((.062 SS tax + .0145 Medicare tax) * 33K average salary * 21.2M). So about $109.7B would cover these companies with 20 employees or less in 2004. Assuming the numbers went up $150B (from the article) sounds about right.

Of course tax cuts aren't the best way to create jobs. Spending does create a better multiplier affect than tax cuts. The advantage of tax cutting is the speed. The stimulus money has still yet to be spent and a light rail system yet to be built.

In addition to the light rail between cities, the US should commit to building a mass transit system in each major city. Funding for this kind of project in multiple states will not be cheap. The stimulus added $8B to high speed rail funding with Obama asking for an additional $1B annually. The Bush Tax cuts will cost about $1.7B this year. In addition, adding a millionaires bracket to the tax code that adjusted with inflation would produce approximately the same amount of revenue. One or both could be used to prime the mass transit pump.

Adding a new tax bracket for super high earners and lowering payroll taxes would be exactly the opposite of Reagan. I view that as a good thing.

Mr. Reagan's second tax increase was also motivated by a sense of responsibility or at least that's the way it seemed at the time. I'm referring to the Social Security Reform Act of 1983, which followed the recommendations of a commission led by Alan Greenspan. Its key provision was an increase in the payroll tax that pays for Social Security and Medicare hospital insurance.

For many middle- and low-income families, this tax increase more than undid any gains from Mr. Reagan's income tax cuts. In 1980, according to Congressional Budget Office estimates, middle-income families with children paid 8.2 percent of their income in income taxes, and 9.5 percent in payroll taxes. By 1988 the income tax share was down to 6.6 percent but the payroll tax share was up to 11.8 percent, and the combined burden was up, not down.

Indeed, undoing the Regan tax changes (he raised and lowered taxes) would restore a progressive taxation to the US tax system. Ending the supply-side hold on the tax code would go along way toward fixing the broken economy. In addition, the new Wall Street tax will slow if not end stock market bubbles and prevent the next Great Recession.

The NRA called me with a push poll today. They are claiming that UN delegates are sitting behind closed doors to create a gun free treaty, and then the UN will somehow force this on the U.S. while it has a gun hating congress. They implicate Hillary Clinton as an accomplice. They then ask should 3rd world dictators be taking away our guns? I was tempted to ask the caller when he stopped beating his wife. Instead I just told him to stop the fear mongering and that he was ruining our wonderful country.

Recently, the state of Texas started requiring all full-time teachers, substitute teachers, and other school employees to be fingerprinted before being allowed to teach. Teachers aren't allowed by law to go on strike and so were forced to go along or lose their teaching license. The teachers will also have to pay $40 themselves for their own fingerprints.

The lawmaker's intent they said was to prevent sex offenders from being in classrooms. Each teacher will be crosschecked with and added to a "massive national database for a criminal history background check and the data will also be shared with the FBI and Texas DPS"

However, state officials or school district admins have apparently been using the data for unintended uses. I know of at least one individual that was fired because he had a DUI in his past. If other schools discriminate against ex-felons the same way (and I believe they will), then it's likely this individual and others will never get a job in a Texas school ever again.

Without warning, he is being forced to change his career or leave the state. It's unfortunate, but Texas doesn't believe in second chances. I foresee more abuse of this system. Where are the protections for the employees? Am I missing something or is this wrongful termination? If it's not, the teacher unions in Texas need to push for a law to make illegal.

The company where I work has been overhauling their employee health benefits. In the past, they had several plans to choose. Recently they began offering us a new plan that was based heavily around co-insurance instead of co-pays. They have been heavily pushing us to buy this plan, but it hasn't gained wide spread acceptance.

The idea is that if the health consumer pays a portion of the cost, they will shop for the best deals. The co-insurance can be much larger than co-pays, but they cap yearly expenses. They also have a fund that can transfer from year to year that acts as a deductible. It gets used up before any out of pocket expenses are incurred and the company I work for puts a modest amount into the fund the first year so you don't immediately get screwed if you get sick the first year after selecting it. You also pay more to see an out-of-network doctor or to use a name brand medicine.

The overall effect is that if you are really healthy or really sick, you pay less. Those that get mildly sick tend to pay more under this plan than the old ones, but not enough to bankrupt you. These changes would be fine, if the premiums were lower. After all, if we're saving the insurance company money by shopping for the best price, we should be charged less for our yearly premiums. Unfortunately it has been one of the more expensive plans.

This year however, my company has dropped all other plans and is instead only allowing this one for next year. They haven't released the cost of premiums for next year, but they will likely be higher than the current plan I have.

Let me repeat. I will have NO CHOICE but to purchase this plan since it's the only employer based plan available to me. Trying to purchase a private plan without going through my employer is so expensive, it's a false choice.

It's at this point I would like to make the case for the Public Option, but I can't since I would likely not be able to get it due to the proposed firewall. Senator Wyden (D-OR) has proposed amendments that would change that. Under his plan, my company would have to offer a voucher worth 70% of the average of the three lowest plans in the exchange. I could also pick the public option or another private insurer using that voucher.

I really, really want this to happen. It will save me and people like me so much money. It will open up competition to make health insurance companies accountable to their consumers. It does a lot of really good things and it needs to happen.

Many politicians seem to be under the impression that a Public Option in health care reform is not popular with the American electorate. These statements seem to be at odds with poll after poll stating otherwise. Since misinformation is abundant on this debate, why not let the American people decide in a national referendum?

This is not only the most democratic (little d) way of deciding a major policy change, but it also would give political cover to Democratic (big D) congressmen and congresswomen who fear (wrongly I believe) that voting for the public option would end their politcal career. How can they be blamed for not representing their constituents' beliefs if they allow their constituents to express those believes themselves when they vote for or against the public option?

It appears that the FBI stopped a terrorist plot with the arrest of Zazi in Denver. This is interesting to me in that it seems to prove how incorrect many GOP assumptions are. For one, it didn't take torture (presumably) to learn about this plot. I hope President Obama comes out and states that fact personally thereby calling out Cheney.

The arrest also comes at a time when we have 60K U. S. troops (plus allies) occupying Afghanistan and preventing that country from being used as a safe haven. If terrorists can attempt to strike us here while we have troops over there, then it effectively counters the "we fight them there so they can't fight us here" argument.

I don't want to politicize the Zazi investigation, but it should bring some terrorist fighting street cred to the White House. Obama should use this cred to silence once and for all the torture loving neo-cons like Cheney. Cheney was betting that Zazi would succeed and bring the GOP back to power. He lost that bet and should be made to the political price for doing so.