Hedge Fund Gamblers Earn the Same In One Hour As a Middle-Class Household Makes In Over 47 Years
By Les Leopold, AlterNet
April 11, 2011
We live in a very, very rich country. Yet we seem to be utterly consumed by a
collective hysteria that we’re about to go broke. Historians are certain to look
back at this period and wonder why the richest country in history consumed
itself in a struggle over how many teachers to fire.
How rich are we?
Just take a look at the latest reports on what the top hedge fund managers haul
in. In 2010 John Paulson
led the list
with a record $4.9 billion in personal earnings. That’s a whopping $2.4 million
an HOUR. Here’s a factoid to make you wretch: It would take the median US
household over 47 years to earn as much as Paulson pocketed in just 60 minutes.
And, every hedge fund manager pays a lower tax rate than the average family.
The top 25 hedge fund earners took in $22.07 billion in 2010. Thanks to a
generous tax loophole these billionaires will pay a top tax rate of 15 percent
instead of 35 percent. Closing that loophole on just those 25 individuals – just
25 guys who wouldn’t miss a penny of it -- would raise $4.4 billion, which is
enough to rehire 126,000 laid-off teachers.
Wait a sec. This is America, not Russia. Don’t we want our entrepreneurs to go
out there and earn as much as possible? We don’t want to punish the successful
who are building up our economy, do we?
Maybe that’s a strong argument when you’re talking about the CEO billionaires of
Apple and Google and other successful companies that make products we use. But
when it comes to financial billionaires, we don’t even know what they do for a
living.
Each and every day I ask people and I get a blank stare or something like: “They
invest. They make money.” Sure enough, but how do they make so much money? Where
does it come from? How can hedge fund firms with fewer than 100 employees make
as much profit as companies like Apple with tens of thousands of employees?
This much we know. They speculate. The place bets. They jump in and out of
markets at lightening speeds. They have secret betting formulas just like card
counters in Vegas. And as any state attorney general can tell you, a good number
of them cheat by betting with illegal insider tips, front-running trades,
sneaking in trades after markets close and so on. The entire industry is barely
regulated as it plays with a bankroll of $2.2 trillion that comes mostly from
enormously rich investors. You can bet the next crisis will bubble out of this
vast and murky casino.
I have yet to hear a convincing argument that financial billionaires produce
economic value commensurate to what they earn. And if they don’t, that means
they are siphoning off the wealth from the rest of our nation. Either we do
something about it or we’ll watch our standard of living crumble.
Blah, blah blah. We’ve heard it all before. We know that super-rich financiers
are gaming the system. We know they pay low taxes or none at all. We know
they’re stashing their cash in offshore accounts. But now that the economy isn’t
crashing anymore, it seems there’s nothing we can do about it. We just have to
learn to live with a new kind of aristocracy. Get used to it.
Maybe not.
There’s a movement underway for what economist Dean Baker aptly named a
“financial speculation tax.” The idea, first put forth by the late James Tobin
to raise money to help eradicate global poverty, is to place a very small tax on
all financial transactions. Here’s how Baker’s Center for Economic and Policy
Research
describes it:
The FST (also known as a financial transactions tax or the Robin Hood tax) is a
modest set of taxes on Wall Street trading – e.g. 0.25% (1/4 of a percent) on a
stock purchase or sale and 0.02% (1/50 of a percent) on the sale or purchase of
a future, option, or credit default swap. These rates are proportional to the
actual transaction costs in the industry.
An FST would raise over $100 billion per year in badly needed revenue or $1
trillion over the course of a decade. This is a substantial sum of revenue,
which skims the fat off of a sector of the economy that can afford to pay it.
The beauty of this kind of tax is that it grabs the financial booty before it
lands in the financiers’ pockets. You avoid all the lobbying over loopholes and
trying to get back money that someone already has claimed as his or her own. You
also avoid the entire argument about whether or not the person has really
“earned” it.
By taxing financial speculation in real time, we reclaim some of the ungodly
accumulation of speculative wealth in the financial sector. Everyone knows that
the financial sector has grown too large for the good of our nation. Everyone
knows that its size allows it to play fast and loose with our implicit guarantee
of its bets. (Correction: everyone knows but Tim Geithner, who actually believes
the financial sector should get even larger so it can provide more speculative
services to emerging markets all over the world.) The financial speculation tax
is the perfect way to put that money back to work for the common good.
Furthermore, it’s the very best way to make the financial sector pay us back for
all the damage it has done to the economy. Before we succumb to financial
amnesia we should recall that Wall Street, and it alone, went on a massive
gambling spree that crashed the economy and killed 8 million jobs. To save the
system from falling into another Great Depression we bailed them out and now
they are again making record profits. Meanwhile, long-term unemployment remains
at record highs and states are in enormous fiscal distress.
Every American not tied to Wall Street knows that the high-stakes financial
gamblers should be paying us back. The speculation tax is the very best way to
do it -- grab the money before they stash it in their offshore accounts.
We’re not alone.
Financial transaction taxes are high on the agenda of European nations that seem
much less intimidated by their financial barons. The United Kingdom already has
such a tax on stock and bond transactions, and there are no adverse effects on
its financial center.
On March 8, a coalition of progressives succeeded in getting the European
Parliament to endorse this Robin Hood tax by a vote of 529 to 127. This
non-binding proposal if enacted would raise approximately $286 billion a year
for the European Union. The G20 group of the leading industrial nations is
considering such a tax, but the US and its billionaire bankers are fighting hard
to keep it off the agenda.
Back in the USA an ad hoc collection of economists are mounting a petition drive
to put the issue back on the agenda. It says in part:
The financial crisis has shown us the dangers of unregulated finance, and the
link between the financial sector and society has been broken. It is time to fix
this link and for the financial sector to give something back to society. …This
money is urgently needed to raise revenue for global and domestic public goods
such as health, education and water, and to tackle the challenge of climate
change.
Needless to say, winning won’t come easy because Wall Street is determined to
kill any and all efforts to siphon money away from its casinos. The joke is that
when the big boys were on their knees two years ago begging for money, this tax
easily could have been a condition for bailing them out. But in truth, the Obama
administration is siding with Wall Street and has come up with every lame excuse
for why it can’t work, even though it’s working just fine in England.
Clearly, we need our own Robin Hood movement like the one organized in Europe
that delivered more than 500,000 petitions to the European Parliament. And that
in turn requires we develop the will to fight Wall Street.
Each time I write about these issues, my editors worry that you, the readers,
have given up -- that nobody believes it’s possible to fight Wall Street and
win.
Well, I’m not giving up on you.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).