In Defense of Wall Street

Pity Wall Street. The democratic party’s presidential candidates have painted a bullseye on its back. Bernie Sanders wants, in effect, to nationalize Wall Street. Hillary Clinton joins in the anti-Wall Street feeding frenzy lest her and her husband’s ties to Goldman Sachs and other institutions become a bigger issue.

Wall Street bankers are widely portrayed as evil parasites, feeding their greed through speculation that serves no good other than to line unsavory pockets, and buying off politicians with campaign contributions and lucrative speaking fees. ``One percent’’ Wall Streeters are said to be getting mega-rich while everyone else suffers.

Republican candidates fear to come to Wall Street’s defense.  Any positive words about Wall Street will end up as a negative sound bite come election time. During the occupy Wall Street riots, I do not recall one political voice speaking up for Wall Street against the tirades of hooligan protesters.

go to Investors Business Daily.com

Note: IBD got my affiliation wrong: Cullen Professor of Economics, University of Houston and Research Fellow, Hoover Institution, Stanford.

Inconvenient Facts: If Only the State Ran Banks

A demand of the occupy Wall Street crowd is to nationalize banks and have the state rigidly regulate risk. The reason for the world financial crisis is the greed of bankers and financiers throughout the world. We would be safe if we let the state handle such matters, they say. The state would get rid of “risky schemes”  like the infamous credit-default swaps traded by financial institutions and threatening their solvency.

European bank regulators have published the list of the ten  European banks with the greatest exposure to Portugal, Italy, Ireland, Greece and Spain.

Of these ten, only three are privately owned. Three are owned by German state governments and France and Belgium. Four are owned by cooperatives.

These figures suggest that private banks did better than state and cooperative banks in managing risk. I thought state and cooperative ownership were supposed to eliminate excessive risk taking.

“Die Linke:” A Platform For Occupy Wall Street?

The Occupy Wall Street crowd is criticized for not offering an alternative to the capitalism that it says has failed. Maybe they should take the platform of Germany’s Die Linke (The Leftist) Party. It seems to suit their protest signs.
Die Linke’s base consists of young radicals and true-believer former members of the East German communist party. Its top leaders broke with the mainstream Social Democratic Party for having forgotten its Marxist roots.

As a minor party, Die Linke’s goal is to win enough votes to enter the German parliament and do well in local and state elections. Their platform rules out participation in coalition governments. It is therefore an electoral party that can be fairly open about its anti-capitalist agenda. It only has to win about five percent of the votes nationally to be a success.

In its party congress in Erfurt, symbolically a century after the Revolutionary Social Democratic party adopted its famous Erfurt Program, Die Linke adopted the following platform for the upcoming national elections:

Taxes:

53 percent tax rate for incomes of 65,000 Euros for singles or 130,000 for married couples (one Euro equals around $1.34).
5 percent annual wealth tax on a million Euros or more.
One percent tax on all security market transactions.

Economy:

Investment program of 200 billion Euros per year to create two million jobs, half in the public sector.
Nationalize banks.
State control of the financial sector
Employees get ownership shares of companies that receive subsidies.

Energy:

All atomic power generation should be stopped.
All energy from renewable energy.
Energy concerns to be nationalized.

Labor and Social Sphere:

Minimum wage of 9 Euros per hour to be raised each year.
Long term unemployed receive unemployment benefits basically for an unlimited amount of time.

Health:

All citizens must pay into “citizen’s health insurance” program.
All health care is free.
Employees in health care should be compensated according to fixed wages.

Foreign policy:

Replace NATO with a collective security system including Russia.

I imagine the American Left would embrace Die Linke platform, if it, like its German brethren, could be honest with the voting public.

The five percent wealth tax on a million Euros would be attractive. Millionaires who earn less than five percent will see their wealth fall each year. In a world of bad markets and low interest rates, we could get rid of marginal millionaires in a few years.