Tobacco Master Settlement Agreement,whereby state funding is dependent oncontinued sales of cigarettes, and the proposed cap-and-trade scheme for carbon emissions, for which the Obama budget contains $800 billion in revenue projections from auctioned permits—anamount that will help pay for Obamacare.So a tax aimed at reducing speculationwill lead to government encouragingspeculation. And when you consider government’s past role in encouragingspeculation in the housing market, this isnot something to look forward to.So how about a tax on bonuses?That would be treating the symptom,not the cause. Excessive bonuses wereunderpinned by modern nancial theory.When Harry Markowitz defended hisdissertation that laid the groundwork for modern portfolio theory at the Universityof Chicago, Milton Friedman correctlyobserved, “It’s not mathematics; it’s noteconomics; it’s not nance.” Without sucha theory, modern banking loses its short-termist nature. Bonuses will be reined in,not by a tax, but by a ight to quality.So what should we do? I could goon and on, and CEI will soon propose a package of reforms we would like to seeenacted, but here is a short list: No more bailouts—realign capital1.to the wise by allowing proper bankruptcy.Return to historical cost2.accounting, away from mark-to-market, which is the third leg of theshort-termist stool.Abolish deposit insurance that not3.only perpetuates the ction thatinvestments in banks are deposits, but encourages excessive risk-taking. Consider an arrangementlike that proposed by PolicyExchange for genuine depositaccounts backed by low-risk investments.End the closed shop in rating4.agencies in the U.S., where theSEC has delegated the ratingof securities to an accreditedduopoly—Moody’s and Standard& Poors—which regulatorshave embedded into solvencyrequirements. Without theserequirements, each of the ratingagencies will become just one of many competing ways to pursuedue diligence, instead of a crutch.Abolish the World Bank and IMF,5.which are, quite simply, in the business of making excessivelyrisky loans, usually to scallyirresponsible governments.End the revolving door between6.Wall Street and Washington.Lift the Obama administration’s7.moratorium on retailer-associatedlimited-purpose banks, whichwould allow real, vibrantcompetition for basic bankingservices. Wal-Mart can alreadysupply most of America’s domesticretail needs. Why shouldn’t itsupply domestic banking?These are just a handful of thereforms we should take. Above all, givengovernment’s role in the whole history of nancial crises, we need to keep governmentout of the banks as much as we can.After the South Sea Bubble, a proposalwas introduced in the British Parliament tohave the nanciers tied into sacks lled withsnakes and thrown into the Thames. If similar sternness accompanied the punishment for misguided regulation, perhaps we would seesome genuine progress.
is Vice President for Strategy and Director of theCenter for Economic Freedom at CEI. Thisarticle is adapted from remarks Mr. Murraydelivered at the September TransatlanticTaxPayers’ Conference in London.
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