Why does the US taxpayer have to guarantee every single transaction done on Wall Street? Since when is that our obligation?
If the taxpayer is on the hook to bailout systemic risk, then don’t they have the right to prevent that systemic risk? Or alternatively, reserve for/insure it?
I keep hearing that Wall Street must be free to innovate, to engineer, to create new products — but other than iShares and ETFs, I cant say I’ve seen much in the way of brilliant insights or creativity.
Here is the thing that really gets me angry about all of this nonsensical “innovation” on Wall Street talk: Its a misnomer. This innovation without oversight is in reality has led to an enormous transfer of wealth — first from shareholders to senior executives, then from taxpayers to bankrupt firms and their counter-parties. The entire industry has been hijacked by a few rogue finance engineers, and its been an utter disaster.
Consider the FDIC: They are the insurer of bank deposits of $100k (now $250k), and in the event they run out of money, they can go to the taxpayer. But they pay for themselves via a small insurance premium banks pay (on behalf of depositors) on every account.
All of the trillions of dollars in bailout expense plus the blather about restricting innovation has led me to this unfortunate conclusion: We need Wall Street Insurance.
In order to pay for the next round of disasters some 20 years hence, we need to set up a a reserved insurance fund. This means every transaction, M&A, IPO, bond under-writing, stock trade, CDO, CDS, every RMBS, etc has a 1% premium on it.
That should add up to a few trillion dollars, and by the time the next debacle comes along, we can afford to pay for it.