Who Needs Wall Street?

Your correspondent, Roger Lowenstein, speaks favorably about the imposition of a Tobin Tax on financial transactions (New York Times Magazine, March 21st., 2010: 15-16).

This has two advantages. Government should tax where the money is. There is lots of it sloshing around.

Second, a first call on the funds raised should be to pay the rating agencies for their work. Right now, the rating agencies are paid by the very firms/issuers they rate. This is a major conflict of interest as the rating agencies are pressured by their paymasters to give high ratings.

In such a system, part of the fee could be tied to achievement: that is the medium and long term accuracy of their ratings. This would encourage the agencies to give accurate ratings.

It is a great shame that Congress has not yet moved to impose such a tax which would help reduce the deficit and help keep markets honest.


Sent to New York Times Magazine