The US's Hidden Tax

Funny. Washington is paralyzed by a fight over deficits and the debt, over whether to raise taxes or cut taxes, over whether deregulation or a massive WPA will best create jobs. But these fights end up being over crumbs off the table.

Here is a bit from an article in Project Syndicate by Nassim Nicholas Taleb and Mark Spitznagel that point at a hidden $5 trillion tax on the American economy and the American people that Washington refuses to talk about or even acknowledge:

For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion for banks that have filings with the US Securities and Exchange Commission. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits.

That $5 trillion dollars is not money invested in building roads, schools, and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.

Sadly, the authors of this article see no hope in relying on government regulators or the politicians to rein in the fraud and crime in the big banks. Instead, their lone hope is that investors will turn their backs on these companies and refuse to invest in them.

We don’t believe that regulation is a panacea for this state of affairs. The largest, most sophisticated banks have become expert at remaining one step ahead of regulators – constantly creating complex financial products and derivatives that skirt the letter of the rules. In these circumstances, more complicated regulations merely mean more billable hours for lawyers, more income for regulators switching sides, and more profits for derivatives traders.

That could work, but it requires a huge amount of self discipline and a deep belief in cooperative self-regulation by investors. Personally, I don't see it happening. I think the justice system and the political system have to come down hard on the banks. But Obama has refused to do it. So my hope is that somehow in 2012 American citizens will find a way to select representatives at all levels of government who pledge to hold the criminals of Wall Street and the big banks accountable for their acts. They need to unleash the police and they need to unleash a torrent of heavy-duty regulation on the banks. They need to come down hard on the exorbitant salaries of the financial industry to get people to abandon it and and stop the lure for young people to take up a life of crime as a "financial engineer".