America's New Math: 1 Wall Street Hour = 21 Years of Hard Work For the Rest of Us
Continued from previous page
4. High frequency trading. Here's a game for fun and profit that is both legal (for now) and foolproof. You set up your ultra-high-speed computers right next to the stock exchanges so that you get the feed a few nanoseconds before the rest of the world. Then with the help of expert programmers you use that information to automatically jump in ahead of normal investors, so that you buy stocks that others want, jack up the price a little bit and then sell them back to these normal speed buyers. This means that when the rest of us hit the buy button on E-Trade, a high frequency algorithm has probably jumped in there before us, bought the stock we want, and is selling it back to us for a few pennies of profit. They do this millions of times a minute, racking up from $5 to $20 billion a year. It's like a hidden private sales tax that goes into the pockets of high frequency traders. Our pension funds and 401ks are fleeced as well.
A Tax Break for Hedge Funds
And the list goes on and on. Some maneuvers are ethically challenged but legal. Other's are borderline. And some are flagrantly in violation of law. But in any event, most Americans would call it cheating. And to add insult to injury, hedge funds have a special tax break called "carried interest" which allows the richest of the rich to pay a lower tax rate than the rest of us.
Halting Runaway Inequality
Not only are we victims of the cheating and the tax breaks, but also, these outrageous incomes distort our entire income distribution. The more these guys make, the more every CEO desires (would Freud call it hedge fund envy?). Corporate compensation committees don't want to lose their talented executives to hedge funds, do they? So up and up go corporate compensation packages. In 1970 the top CEOs averaged $45 for every dollar paid in worker wages. By 2006 the ratio jumped to $1,723 to $1.
The solutions are straightforward:
1. Get rid of the carried interest loophole. The Obama administration now claims at long last to support the elimination of this outrageous loophole. But don't hold your breath. Instead of cutting back Social Security, the President should demand an immediate vote on this loophole all on its own. It might prove extremely embarrassing (and revealing) for members of both parties who for so long have quietly blocked its elimination. Voting on this loophole should become a litmus test of whether a politician is for Main Street or Wall Street.
2. Support the Robin Hood Tax. National Nurses United is leading the charge for a small tax on all sales of stock, bonds and derivatives. They aptly call it "A Sin Tax on Wall Street." Eleven other nations are instituting such a tax which would go a long way toward putting the high frequency vultures out of business, as well as moving significant sums from the bloated financial sector to the rest of the economy. The nurses union is sponsoring a march in Washington on April 20. We all should be there. (See robinhoodtax.org)
3 Full disclosure. We need to shine a bright light on what these hedge funds do. Many are so large they could have an enormous negative impact on the economy if their bets go wrong. We need to know exactly how they make their money. If revealing those "trade secrets" undermine their profitability, so be it.
Of course, none of this will come easy. But sooner or later, the American public will act on what they already sense: we are fleeced each day in a myriad of ways by the big banks and hedge funds.