A Windfall Profit Tax for Wall Street?

The American taxpayer bailed out Wall Street. How does Wall Street return the favor and refund the American taxpayer? Why is Washington pursuing this topic now? The Washington establishment feels the beating pulse of rage from the American public.

I guess it would have been too much to expect the Washington crowd to proactively address the topic of repayment from its incestuous partners on Wall Street. In fact, we should expect to hear the Wall Street establishment bellow that they have paid back the TARP funds and that should be sufficient. Wall Street should not be so naive. The American taxpayer bailed out the entire industry as much as it bailed out any single specific firm. Washington should not be so cute in structuring a repayment program where the costs are conveniently passed along to the American public. American taxpayers should not be easily placated.

How should a program be structured? Do not think for a second that Wall Street will not look to pass along any costs to their customers. In fact, Tim Ryan said as much in a Wall Street Journal article, Banks Brace for Bailout Fee:

“In our industry, costs are typically passed along to institutions and individual investors, so the burden will likely fall on them,” said Timothy Ryan, president of the Securities Industry and Financial Markets Association. Major banks declined to comment.

Thanks Tim. Are hundreds of billions of dollars “typically” injected into the industry, as well? I think not.

High five to our loyal reader Bill for prompting the idea that if there were ever a time for a windfall profits tax, then Wall Street 2009 is it. The question still begs as to how a windfall profits tax would be structured. Where does Washington draw the line? How can it pinpoint the profits directly associated with Washington’s assistance?

Dare I suggest we start by exploring the high frequency trading activities of the major Wall Street banks. Did these banks manipulate the equity markets with the support and backing of Uncle Sam? Many, many seasoned financial professionals share that viewpoint.

Let’s start with Goldman Sachs (GS). Hit them with a windfall profits tax on their high frequency trading. Let Goldman kick and scream. Do you think Goldman would dare tell the American public how it can manipulate the equity markets via its high frequency computer programs? Recall that Goldman’s own internal counsel made that assessment last summer when a Goldman programmer stole the ’secret code’ to Goldman’s high frequency trading.

Might a windfall profit tax on high frequency trading merely encourage Wall Street banks to rework their computer programs? Perhaps. The windfall profit tax on these activities may also bring pressure on these activities so that real truth, transparency, and integrity is promoted.

Does Washington have the balls to clip the goose currently laying the golden eggs on Wall Street? Who in Washington might raise the topic? Where are our statesmen when we need them?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

Visit: Sense On Cents

7 Comments on A Windfall Profit Tax for Wall Street?

  1. Profits generated via high frequency trading is nothing but a tax on the civilian users of the financial markets; the resulting revenues, though, accrue to banks and hedge funds, not the government. This activity serves no social purpose, and the imposition of a 0.01% transaction tax (Tobin tax) would very rapidly relegate this to the bin where it belongs. Taxing the profits alone does not achieve the joint purpose of raising revenues and reducing one of the most obvious negative utility activities in the financial sector; just tax every single trade a basispoint tax and see banks start to concentrate more on the real business of providing financial services to the economy and less on proprietary trading.

  2. Really – where did the writer get the idea that high-frequency trading firms were the ones getting TARP money and that TARP money was then used for high-frequency trading? Ever heard of CDOs? How about bad real-estate loans? What did they have to do with high-frequency trading and why should high-frequency traders be the ones to pay when it is the stupid banks that led to the crisis and had to be bailed out? Cause/effect is outright missing in the analysis in the article.

  3. Well, I knew a comment such as that from AM would be forthcoming which is why I wrote,

    I guess it would have been too much to expect the Washington crowd to proactively address the topic of repayment from its incestuous partners on Wall Street. In fact, we should expect to hear the Wall Street establishment bellow that they have paid back the TARP funds and that should be sufficient. Wall Street should not be so naive. The American taxpayer bailed out the entire industry as much as it bailed out any single specific firm. Washington should not be so cute in structuring a repayment program where the costs are conveniently passed along to the American public. American taxpayers should not be easily placated.

    I repeat, the industry was bailed out as much as any single firm.

  4. Again – causal link between high-frequency trading shops and TARP is missing in the analysis. Why not tax the real culprits – banks making bad loans, then getting bailed out, and using that money to buy treasuries that pay interest and then pay bonuses to their top management for fleecing the taxpayer twice-over! High-frequency trading is a red-herring brought up by “know-not-a-lots” (or as is said in India, “a half-full container makes a lot of noise compared to a filled one”.

Leave a Reply

Your email address will not be published.


*