Tom Wolfe's The Bonfire of the Vanities continues to offer the most cogent description of bond traders ever written. Penned in the 1980s, when America invented exotic financial instruments and first experimented with them, the book had the wife of its main character, Sherman McCoy, explain to their daughter how daddy made so spectacular a living:
“Daddy doesn’t build roads or hospitals … but he does handle the bonds for the people who raise the money.”
“Yes. Just imagine that a bond is a slice of cake, and you didn’t bake the cake, but every time you hand somebody a slice of the cake a tiny little bit comes off, like a little crumb, and you can keep that.”
Now a municipal bond is hopelessly quaint in our era of mortgage-backed derivatives, hedge bets against European debt and every other way paper can be packaged, traded and profited from. But what if, in this time of screaming public needs, there was a silver bullet solution to be found in Sherman McCoy’s little slice of cake?
Well, that’s just what’s being proposed all over the world — in the Euro zone by Angela Merkel and Nicolas Sarkozy, in England by a growing number of activists, and in America by the Occupy movement and Democrats in Congress. They all agree that the so-called Robin Hood Tax on financial speculators could fund a long list of needs with minimal impact.
The tax itself is just like one of those crumbs that the traders normally keep. In the proposal before Congress, it would be a 0.03 percent tax on financial transactions by banks and registered traders (not consumers). That’s $3 on every $10,000 in value traded. Doesn’t sound like much, but it could add up to $350 billion over a decade. In the Euro zone, they’re looking at a $10-per-$10,000 tax rate. Even Pope Benedict has signed on to that one.
As big banks and investment houses continue to cash in and pay out huge bonuses after we bailed them out, it would seem foolish to line up against this idea — kind of like defending the cruel, greedy King John back in Robin Hood’s time. But of course, some are warning of impending doom if even the tiniest of their crumbs are diverted. They’re calling it treason against a pillar of capitalism.
Reminds me of that line in the classic 1938 film The Adventures of Robin Hood, when Maid Marian gasps to Robin of Locksley: “Why, you speak treason!” Knowing he’s on the right side of myth, history and common sense, Robin Hood answers: “Fluently.”
Ted S. McGregor Jr. is the Editor and Publisher of The Inlander.