Monday, September 29, 2008

Free my markets?

I have a simple solution to solve the credit crisis, the national debt, speculative trading and the energy crisis. A very simple thing: a Speculation Tax.

A what?

A speculation tax. A sin tax on market speculation. Treat speculation like cigarettes, alchohol and whatever other sins the government taxes. Tell everyone they're bad for you, and that second hand debt will kill you just as fast as your own debt so your children pester you to stop using your credit cards... but have it kick in for everyone. Including the big boys, like this.

If you want to make a short sell on the market, or trade in futures commodities like oil, soyabeans, corns, wheat, natural gas, derivative debt, whatever, anything that doesn't involve a long term buy and hold in a company you'vre done research in and believe in thoroughly, then the government takes a non-negotiable, non deductible, no exemption for being 'Native American', over-65, under-18, minority, disabled, rich or poor, 1% tax on every transaction as it happens, and immediately applies that money to the national debt.

So if, as happened today, a bunch of nervous ninnies went and started selling shares in companies they owned for 45 minutes because the computers told them the fundamentals didn't look as good as they did a few minutes before, a penny of every dollar bought and sold on speculation would go to the government until the debt was paid off.

So if billions of dollars a day are changing hands on the oil markets, then a few hundred million of that would be diverted every day to pay down the debt.

Those who think they could still make money speculating, would still do it, and the debt would slowly dissolve into a sea of capital pulled out of artificially created markets and back into the hands of the government, paying down the debt.

Those who didn't want to lose 1% every time they made a transaction would look for good, long term products to invest in (solar, wind energy, clean coal, Mars exploration), make a determination of how much risk they were willing to stand, and invest more wisely. People spend more time evaluating products to whiten their teeth than what the companies in their mutual funds do. That's just stupid.

The influx of cash back into the US government would loosen the credit markets as the US needed to print less money, and the return on T Bills dropped. Private companies looking for financing to expand operations would have better access to cash since the government wouldn't be competing head to head against them.

As the debt shrinks, less tax is needed to pay for the interest on the debt, and lower taxes spur companies to remain in the US, where regulations may be tighter, but education levels are still relatively good.

The excess from reduced debt service would increase the flow of money into schools and infrastructure (bridges, roads, hospitals, mass transit, healthcare for everyone) to help boost productivity and long term goals.

And on the consumer credit side, the tax would apply to all credit card purchases. We all know credit is not the same as cash. Credit cards have been racking up 3-5% fees on all transactions for years. Now we just need the government to take their 1% off the top, and force the companies to fully disclose it. Pay cash, you pay this much. Pay with credit, you pay 1% more. Smart consumers would switch to cash almost immediately, and the credit card industry would be lowering their rates to compete with cash.

I'm not quite sure how to get this plan out there, but if anyone has Barak's ear, tell him about this, and let's see if the idea works.