TAXING THE SPECULATORS

(h/t Atrios)

A tax on ALL financial transactions conducted by the MOTU is a great idea. This would deter short-term stupid selfish moves by the MOTU and help out with our budget deficits. Paul Krugman argues for it in this column and includes this fact:

As Gary Gorton and Andrew Metrick of Yale have shown, by 2007 the United States banking system had become crucially dependent on “repo” transactions, in which financial institutions sell assets to investors while promising to buy them back after a short period — often a single day. Losses in subprime and other assets triggered a banking crisis because they undermined this system — there was a “run on repo.”

And a financial transactions tax, by discouraging reliance on ultra-short-run financing, would have made such a run much less likely. So contrary to what the skeptics say, such a tax would have helped prevent the current crisis — and could help us avoid a future replay.