Saturday, March 19, 2011

Geithner Trying to Shield $4 Trillion-a-day Forex Market from Regulation

The story of how the Obama administration favors Wall Street over Main Street is getting to be very, very old, and will, I think, become Obama's biggest obstacle to re-election. As I have argued before, the real underlying problem is that Obama is a true believer in the "neo-liberal" economic policies of free trade and free markets. The foreign exchange markets are one of the foremost examples of what has happened since nation states in the 1970s began to surrender their national sovereignty to market forces. Back in the 1950s and 1960s, ALL foreign exchange trading was directly related to either actual trade in goods and services; personal travel; or U.S. military expenditures and aid overseas. Today, foreign exchange trading is over 100 times larger than these three things. In other words. foreign exchange trading today is 99% pure speculation. A one fifth of one percent tax on all foreign exchange trading, as originally proposed by economist James Tobin in the 1970s, would provide hundreds of billions of dollars in tax revenues.

Blowing a Hole in Dodd-Frank
Treasury Secretary Timothy Geithner is close to a decision to exempt the $4 trillion-a-day foreign-currency market from key provisions of the Dodd-Frank Act requiring greater transparency in the trading of derivatives. In the horse-trading over the final conference version of that legislation last year, both Geithner and financial-industry executives lobbied extensively to give the Treasury secretary the right to create this loophole. As the practical reach of Dodd-Frank is defined by the executive branch, this will be the first major decision to signal whether regulators will act to strengthen or weaken the reforms.

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