Dimon, (pictured at right) who holds a seat on the Board of the New York Federal Reserve bank, may in fact be in a position to make a very educated assessment -- made with the precision that comes from a lifetime of taking huge bets and hedging against default risks, a strategy which has created record profits for JPMorgan Chase recently, despite the hardship experienced by nearly everyone else, save Goldman Sachs, a fellow practitioner of the "dark side" of the financial arts.
But where are the solutions? To deal with the debt crisis, California faces brutal choices, either proceed with massive cuts including laying off hundreds of educators, peace officers, and state fire crews, or revert to issuing IOUs, a stop-gap measure at best, according to Treasurer John Chiang. The austerity measures envisioned for California are tantamount to "death by Banker" -- and default would make the Golden State the nation's first failed state.
Should the state increase taxes?
But what about the fees on transfers of securities, such as bonds, credit default swaps, and mortgage-backed assets, and the alphabet soup of Wall Street's securitized instruments (CDO, MBS, ABS, etc)?
It may come as a surprise, but the state of
Furthermore many of the most complex structured finance products are traded "over the counter" designer derivatives bets which ought to be cleared on regulated exchanges. Proprietary and speed-trading systems churn further billions daily at banks and hedge funds from
Therefore, as one pillar of an urgent "Emergency Economic Stabilization Program" for California, we issue a call for a small fee to be imposed on the sales of securities -- not the 8.25% rate paid by a working parent for a child's shoes, but a far more modest one percent sales tax, payable by the seller of the security or paper instrument. Moreover, this "Tobin Tax" (named after the Nobel-prize winning economist James Tobin who first proposed it) would only be levied on securities trades of over $1,000,000 in value per year, exempting the vast majority of
This securities transfer tax (SST) would truly be a "Millionaires' tax" -- and may be critical to generating the kind of annual revenue streams California so desperately needs to stay afloat and thrive. Moreover, in addition to staving off collapse, a securities transfer tax could provide the foundation for California's eventual recovery and growth, allowing the state to invest in large scale infrastructure projects, such as the maglev & high-speed rail project, massive renewable energy arrays, and improvements to shipping ports, all of which would support California's organic economic growth.
How much annual revenue could this modest "Sales Tax on Wall Street" generate? By requiring all securities transfers to be reportable, including the opaque and obscure derivatives market, and subject to a small sales charge, a conservative estimate suggests that
We fully expect howls of protest from bankers and hedge fund managers like JPMorgan Chase CEO Jamie Dimon, Goldman Sachs and the titans of private equity. They have become accustomed to profiting through massive daily trading operations, even during the recession, and earning large bonuses as a result of the trillions in securities traded. Let us welcome the howls of Wall Street rage. It would be a small price to pay for what could be gained. Unlike many services that the state of California provides, speculative financial trades are not essential to human life.
In the year 2010,
The author is a former Candidate for