Shifting the Burden From Main Street to Wall Street: Why Goldman Always Wins By ELLEN BROWN
Shifting the Burden From Main Street to Wall Street: Why Goldman Always Wins
Saturday 07 November 2009
by: Ellen Hodgson Brown J.D., t r u t h o u t | Op-Ed
"Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. Our laws are the output of a system which clothes rascals in robes and honesty in rags."
-1890 speech by Populist leader Mary Ellen Lease, thought to be the prototype for Dorothy in The Wizard of Oz
Consider these arresting facts:
The Bank for International Settlements estimates that in 2008, annual trading in over-the-counter derivatives amounted to $743 trillion globally - more than ten times the gross domestic product of all the nations of the world combined.
Just five super-rich Wall Street banks control 97% of the U.S. derivatives market: JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.
Wall Street traders compete to design computer programs that can move many trades in microseconds, allowing them to beat ordinary investors to the "buy" button and to manipulate markets for private gain.
Goldman Sachs, the uncontested leader in this game, was reported in September to be sitting on a cool $167 billion in cash. Meanwhile, a September survey of state finances found that state governments faced a collective budget shortfall for fiscal 2010 of $168 billion - nearly the same amount.
In 2008, Goldman Sachs paid a paltry 1% in income taxes - less than clerks at WalMart.
Also see:
Cut Wall Street Out! How States Can Finance Their Own Economic Recovery •
Wall Street bankers have been called today's "welfare queens," feeding at the public trough to the tune of trillions of dollars. They are taking from the taxpayers and not giving back. These banks were rescued so they could make loans, take deposits, and keep our money safe. But while that is what banks used to do, today the big Wall Street money comes from short-term speculation in currency transactions, commodities, stocks, and derivatives for the banks' own accounts.
Wall Street traders have been criticized for profiting from "speculation" or "gambling," but that criticism hardly goes far enough. With high-speed computer programs, math whizzes, and taxpayers to bail them out when all of that brain power short circuits, these traders are not even gambling. What they have is a sure bet, while the rest of us are gambling, taking real risks for our rewards, which are liable to be few. The winnings of the Wall Street traders are coming right out of our pockets and our tax money.
Meanwhile, the sales tax on these speculative trades is zero. Wall Street's gamblers have managed to trade in practically the only products left on the planet that are not subject to a sales tax. Parents in California are now paying 9% sales tax on their children's school bags and shoes, and race track winnings and other forms of gambling are taxed at up to 25%. But trades in Wall Street's "financial products" get off scot free.
We need to get some of our tax money back, and we can. But first, a closer look at Wall Street's questionable trading practices ....
Why Goldman Always Wins
In the midst of the worst recession since the Great Depression, Goldman Sachs is having a banner year. According to an October 16 article by Colin Barr on CNNMoney.com:
"While Goldman churned out $3 billion in profits in the third quarter, the economy shed 768,000 jobs, and home foreclosures set a new record. More than a million Americans have filed for bankruptcy this year, according to the American Bankruptcy Institute."
Barr writes that Goldman's "eye-popping profit" resulted "as revenue from trading rose fourfold from a year ago."
Why Goldman always seems to win at this game became evident in a revealing incident last summer, in which the bank sued an ex-Goldman computer programmer for stealing its proprietary trading software. Assistant U.S. Attorney Joseph Facciponti was quoted by Bloomberg as saying of the case:
"The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."
The obvious implication was that Goldman has a program that allows it to manipulate markets in unfair ways. Bloomberg went on:
"The proprietary code lets the firm do 'sophisticated, high-speed and high-volume trades on various stock and commodities markets,' prosecutors said in court papers. The trades generate 'many millions of dollars' each year."
Those many millions of dollars are coming from ordinary investors, who are being beaten to the punch by sophisticated computer programs. As one blogger mused:
"Why do we have a financial system? I mean, much of its activity looks an awful lot like gambling, and gambling is not exactly a constructive endeavor. In fact, many people would call gambling destructive, which is why it is generally illegal....
"What makes Goldman Sachs et. al. so evil is that they offer vast wealth to our society's best and brightest in exchange for spending their lives being non-productive. I want our geniuses to be proving theorems and curing cancer and developing fusion reactors, not designing algorithms to flip billions of shares in microseconds."
Gambling is an addiction, and the addicted need help. A tax on the microsecond trades of Wall Street gamblers could sober them up and return them to productive labor, and transform Wall Street from an out-of-control casino back into a place where investors pledge their capital for the development of useful products.
Speeding Tickets to Slow Day Traders: The Tobin Tax Gains Momentum
The fact that speculative trades remain untaxed suggests a tidy way the public
