Fear of heights has consumed Washington; more specifically the fear of the dreaded fiscal cliff. The stakes are big if President Obama and House Speaker Boehner hold hands and drive over the cliff, like the Washington version of the final scene of Thelma and Louise. The defense sector faces more than $50b in cuts and a million jobs lost. Already unemployed people will lose benefits. Employed people will pay higher payroll taxes. Doctors who see elderly patients will get lower payments. The agriculture sector is concerned about how higher estate taxes will hit farm land prices.

Wall Street expresses a lot of concern about the fiscal cliff. But the financial sector doesn’t have a direct stake in the political drama. Financial taxes won’t go up, investors will continue buying and selling, traders will still make money. Even while much of America is still struggling economically, the titans of finance are back in the black with profits, big bonuses, and parties.

Which raises a question: how is the financial sector contributing to digging the country out of the budget hole? The hole created by the economic crisis? The economic crisis that was created by the financial sector’s mismanagement, irresponsible risk-taking, and gross misbehavior?

Really, not much.

I have argued that a Robin Hood tax is justified on that basis—in addition to other reasons. But it was shouting into the wind. President Obama hasn’t supported it and there seemed no chance that Congress would embrace the idea. But maybe a window of opportunity is opening…

Robin Hood activists outside the San Francisco office of Rep. Pelosi. Photo by The Robin Hood Tax.

A likely outcome of the negotiations around the fiscal cliff is a punt. Congress and President Obama can put off the most severe cuts and tax increases in the hope that a broader and more comprehensive deal can be forged later. So, a second act is in discussion that would involve a significant tax reform. Tax reform, as the term is used in Washington, generally means trying to do four interrelated things: simplify the rules, broaden the base, lower the rates, increase (or reduce) revenue. Simplifying the rules is self-explanatory, except that the complexity is usually there for a reason—and behind every tax deduction is a lobbyist (or 10) working hard to keep it. “Broadening the base” means increasing the tax base, or the number of people and activities that are taxed. That will tend to increase tax revenues. Lowering rates is what politicians love to do: give away goodies to voters! Raising or lowering revenue can be done most simply by raising or lowering rates. But there are other strategies, like creating new deductions and exemptions.

A big tax measure comes around every 10 or 15 years. So we’re due.

Big tax bills are monsters: huge, complicated and sometimes politically dangerous. Once they start moving, they become vehicles for all sorts of ideas and initiatives. They are heavily lobbied by every possible special interest and group. So the question is whether a tax reform might offer an opportunity to push a Robin Hood tax, that asks for a bigger contribution from the financial sector and uses the revenues to pay for critical social needs.  That would be broadening the base. And raising revenues.

Something to consider.

Tomorrow is the fourth anniversary of TARP.  Probably, there won’t be a lot of parties.  Probably no one will mention it.  Maybe you don’t even remember what TARP is.

TARP was President Bush’s last-ditch effort to save the economy. In the face of a rapidly unraveling financial crisis, as many banks and insurers began revealing that they were on the edge of collapse, President Bush pushed through a program for the federal government to buy assets and ownership from financial institutions to help stabilize them.

A big government intervention in the economy runs against everything that President Bush and conservatives in Congress stood for (or say they did).  But desperate times called for desperate measures, and TARP was born with a whopping $700 billion dollars.

The result—although hotly highly debated—was generally a success.  For the most part, the big financial institutions survived.  There were no runs on the banks. The economy contracted, but hit bottom and has begun slowly moving back up.

To make sure that this kind of near-collapse doesn’t happen again, Congress passed the Dodd-Frank reform legislation. Except a lot of experts don’t think it will actually prevent another crisis.

So the titans of finance face a bit more regulation—although nothing that keeps them from returning to profitability, fat bonus checks, and continued “innovation” in financial chicanery.

And what do everyday taxpayers get for all this.  Nothing, really.  You might think that for all the trouble—the economic crisis, the layoffs, the foreclosures, the human misery—that the financial sector could contribute more to the common good.  How about a windfall tax on profits as the banks come back to profitability while the rest of the economy continues to drag?  Or how about a fee to build up a reserve fund against any future crisis?  If not as penance for past since, then as goodwill against future ones?  Or in gratitude for the assistance all the banks and holding companies and insurance companies received from taxpayers.

No.

Or maybe I should say, not yet.

Comes now, finally, a serious proposal to ask the banks and financial wizards to pay back—and pay into—the common good.  Rep. Keith Ellison (D-MN) has introduced “The Inclusive Prosperity Act” which would impose a Robin Hood Tax and raise some real revenue. Unlike other bills, it sets a small, but real tax on financial transactions (0.5% on stocks, 0.1% on bonds, 0.005% on derivatives) that could raise something like $350 billion a year.

This bill would put the US on par with France and Germany and other countries that are moving to institute a Robin Hood Tax.

Robin Hood activists are taking a lot of actions, visiting Congressional offices, and generally making noise today. Maybe you want to join them?

Editors note: Find out more about the Robin Hood Tax here.

A rough consensus has emerged around the causes of the high food prices that spiraled up in 2007 and 2008; increasing global food demand due to rising incomes and population, stalling agriculture productivity, and biofuels. But one factor that remains hotly debated is the role of financial speculation in food prices.

The amount of food produced and consumed has grown gradually in the last decade, but the amount of investment interest in food commodities has skyrocketed. For the most part, investors and speculators are not actually buying food commodities; they are buying futures contracts and various financial derivatives. Volumes have grown from less than $10 billion to more than $450 billion in a little over a decade. And while commodities markets once were largely composed of speculators who were directly engaged in food industries, financial investors—index funds, hedge funds, etc.—now dominate the markets. The usual explanation of the rapid movement of capital into commodities is that investors were seeking new, safer places to put money now that economic catastrophes have struck dot-coms, the stock market, the housing sector, and even government debt. Commodities, historically, have not been as tied to other economic assets, so are a good hedge; i.e. if the stock market collapses, commodities might not—and vice-versa.

Some analysts argue that this investor rush into commodities has inflated food prices. But the dominant view is that this financial activity on futures contracts and derivatives doesn’t really affect prices directly—that “market fundamentals” of supply and demand are still what determines the price of corn on Chicago Mercantile Exchange.

Part of the challenge is finding a way to test the question. The accelerating financial activity is not in physical hording or dumping of agriculture commodities, but in trading futures contracts and “derivatives” of these contracts—some of them quite exotic, obscure, or unregulated. The analytical tools to measure the impact of speculative activity on prices are not well developed. Attempts to do this have usually found no impact—or found mixed results. But it’s also true that the methods have been flawed—only able to capture parts of the market and activity—and good data is not always available.

Now comes a contribution from researchers at the United Nations Conference on Trade and Development (UNCTAD). They tried to investigate commodities trading at shorter intervals than the standard daily rate (i.e. were prices up or down each day?). Instead, they look at data measuring trades at one second, 10 seconds, 5 minutes, and one-hour. They analysis tells an interesting story, shown in this graph (Source: VoxEU.org):

What it measures is the correlation between commodities futures prices and stock market futures. And what it shows is that starting in 2008, at the height of the food price crisis—and at the moment of the collapse of Lehman Brothers, something changed. Before then, commodities futures and stock market futures had low correlation; close to zero. After that point, they have begun to move together more closely; closer to 1, which would be perfect correlation.

So, what does this tell us?

Well, I’m not totally sure. And this is just one study. And, you could certainly ask whether this tool—measuring the correlation of short-term movements between commodities futures and equities futures—is useful.

But here are some possible implications:

The authors say that “high-frequency trading strategies, in particular the trend-following ones, are playing a key role.” They argue that the “financialization” of commodity markets is impacting price determination—that if prices were set based on supply/demand fundamentals, there shouldn’t be a correlation with equities. Commodity prices should be affected by seasons, weather, demand, etc. not by changes in stock market prices. They find similar correlations over a range of commodities—including non-food commodities. So—they argue—the shifting “financialization” is changing price formation.

They argue that linking commodity markets to financial actors and stock markets in this way means “commodity markets are more and more prone to events in global financial markets and more likely to deviate from their fundamentals.”

The linkage also undermines the purpose of many financial actors in investing in commodities; to hedge against other markets, like the stock market. The idea that they are increasingly correlated will mean that commodities won’t be safe if the stock market crashes.

If true—and if, indeed, caused by the high frequency trading—this might also add the arguments in favor of measures like the financial transaction tax, which could help to mediate or reduce this linkage and risk.

As world leaders gather this week for the G20 Summit in Cannes, France, activists around the world are calling for a Robin Hood Tax to make Wall Street pay for their role in the economic meltdown. The tax would raise much needed support to create jobs, protect public services, and fight poverty and climate change.

On Sat Oct 29, the “Occupy” movement took to the streets to support the tax, and tomorrow unions like National Nurses United, the AFL-CIO, and the United Steelworkers are taking to the streets with a related message. Their call will be focused on the position of the Obama administration, particularly Treasury Secretary Timothy Geithner, who has repeatedly objected to European efforts to put such a tax in place, even amongst a “coalition of willing” European countries.

This obstructionist position could backfire. A negligible levy on the financial sector has shown great potential to address growing inequities in the financial system and could help prevent financial crises in the future. It could even encourage some countries to move forward with the tax in spite of the administration’s position

Today, more than 34 environmental, development, and other NGOs sent a letter to the President calling on his administration to “take a bold stand against Wall Street greed and negligence and stand for accountability and economic justice by supporting European leaders’ action on a financial transaction tax.” Unions and activists in support of financial reform have been flooding the President with petitions and emails in the lead up to the G20. The chorus is rising.

If you’re in the DC area tomorrow, head out to Lafayette Square (outside the Treasury Department) at 11:30am to lend your support and join the nurses and others in their rally to Make Wall Street pay.

This blog post was written by Porter McConnell, Oxfam America policy and advocacy manager for Aid Effectiveness. It was originally posted on DevEx and has also been reposted on the Oxfam blog.

Last year in Seoul, G20 leaders made an ambitious commitment to the “Seoul Development Consensus for Shared Growth.” This week in Cannes, the global financial meltdown and Eurozone crisis are likely to dominate.

Oxfam's pre-G20 summit stunt reminded G20 leaders that the decisions they make at Cannes this week will affect people living in poverty around the world. Photo: Delphine Bedel/Oxfam France

G20 leaders estimate that 64 million more people are now living in extreme poverty as a result of the financial crisis. Meanwhile, the Organization for Economic Cooperation and Development has predicted a sharp slowdown of aid levels in the next three years.

It’s no surprise, then, that the French G20 presidency has prioritized finding “innovative sources of finance” to meet the G20’s development commitments. Earlier in the year, French President Nicolas Sarkozy asked business magnate Bill Gates to identify the most promising sources of new finance. Gates’s report will be formally presented to G20 leaders this week, but the substance was shared with G20 finance and development ministers in September.

Gates is expected to identify a financial transactions tax (FTT) as one way to make up cash, estimating an additional $50 billion raised for global development if G20 countries adopted an FTT. Sarkozy has championed the FTT, and the European Commission recently drafted legislation for a European FTT. However, U.S. Treasury Secretary Tim Geithner has taken a strong stand against a European FTT, voicing his disapproval at a September meeting of European finance ministers. Geithner’s intervention may backfire at Cannes once he realizes how much the French love getting lectured by America.

Gates will also propose to G20 leaders a surcharge on shipping emissions, so-called “bunker” fuels, as another credible and feasible option, estimating an additional $25 billion raised if the charge was adopted by G20 countries. A measure is on the table at Cannes, but the United States again appears to be playing a blocking role.

In a measure that’s getting less attention, Gates will also call on the G20 to tap into the long-term power of domestic resources for tackling poverty. Gates will ask G20 leaders to share the experience of strengthening their tax and budget systems with developing countries, supporting governments to collect in a transparent manner the revenues they need to finance investment in the health and welfare of their citizens.

The bigger question on the table in Cannes will be whether the G20 will graduate from perpetual crisis mode to taking more proactive steps to promote broad-based growth. G20 nations are facing increased pressure at home, as more than half of the world’s poor live in G20 countries, and income inequality has worsened in most G20 countries since the 1990s. The success of the Cannes summit will depend largely on the willingness of G20 leaders, including the United States, to accept Gates’s challenge and adapt to a changing world.

Victoria Marzilli is leading Oxfam International digital communications at the G20 Summit. She is Oxfam America’s New Media Specialist and will be blogging and tweeting at the G20 in Cannes November 3-4.

The G20 countries represent around 90% of global gross national product, 80% of world trade, and two thirds of the world population. Isn’t it their responsibility to make real progress during the 2-day summit in Cannes?

The big issue on this year’s agenda is the current financial crisis, which has put 64 million people into poverty. G20 members have the mandate and the means to not only resolve this problem now, but to make sustainable solutions that will help us achieve global stability and resilience. So, in the lead up to the Summit, we are putting the pressure on the G20 to make changes to our global economy that will free up new resources so that people can escape from poverty.

Join us and make your voice heard. Send a message on Twitter using #tweetG20 and let them know what they need to do! We’ll bring the 10 most creative tweets to the mass demonstration in Nice on November 1st. We’ve provided some samples below to get you inspired, but feel free to customize your message, the more creative the better!

• #TweetG20: an #FTT within #G20 countries alone could raise $50 billion/yr for development. It’s time for #FTT now!

• #TweetG20: The cost of the financial crisis can’t be the lives of people in the world’s poorest countries. #FTT #G20

• The #G20 has the power to turn a global crisis into a global opportunity! #TweetG20

Our collective voice needs to be loud and clear: it’s time for the G20 to take action!

Read more

Oxfam at the G20.

President Obama has found a new voice in recent weeks around the economy and taxes. Presumably, he’s made a new political calculation that negotiation and compromise–speaking softly–won’t deliver results. So, he’s come out with much stronger rhetoric, saying “tax the rich” and pass the jobs bill “right away.”

But, the Obama administration has always been a bit wobbly when it comes to delivering justice to the banks and financial industry. You will recall taxpayers had to bail them out the tune of $550 billion, give or take. And, you will recall, it was irresponsible risk-taking and unregulated financial confabulation by the banks and finance industry that were a central cause of the financial and economic crisis that we are still suffering under.

In his financial reform proposal, President Obama included a modest fee on “systemically important” financial entities to help cover the potential costs of future bailouts. It wasn’t very big–only about $19b, which is chicken feed in the bank bailout business. But even that little thing was stripped out of the final Dodd-Frank financial reform bill.

So today, in the midst of a slow-moving crisis with a sickly economy, high unemployment, and home foreclosures, banks and investment funds are back to their old ways–issuing massive bonuses and flogging “innovative” financial products. The banks and Wall Street are contributing nothing more to the public or to the taxpayers: “thanks for the bailout, good luck balancing the budget”.

The Robin Hood Tax can raise billions to reduce poverty around the world. Photo by Ami Vitale/Oxfam.

For months, a movement has been growing to call on the financial industry to contribute more. Variously called a Robin Hood Tax, or a financial transactions tax, it started as an idea pushed by a few activists and economist and has become a serious policy proposal. On Wednesday, European Commission President Jose Manuel Barroso proposed a new Europe-wide financial transactions tax to help cover fiscal deficits and ensure support for core needs, saying “it’s a question of fairness, it is time for the financial sector to make a contribution back to society.”

So what has President Obama had to say on this? Well, nothing really. There’s a hint that he actually likes the idea–or so it was reported in Ron Susskind’s new book on the inside of Obama administration in the financial crisis. But, all the president’s men hate the idea and have been trying to suppress it. Economic advisor Lawrence Summers is said to have quashed it within the Administration. And Treasury Secretary Tim Geithner has taken it upon himself to fly to Europe and rail against it to European finance ministers. The latter was viewed as a bit impolite.

Now there’s a sit-in protest, occupying Wall Street. The Tea Party and MoveOn are united by thinking taxpayers have been too generous with the banks and Wall Street. Why doesn’t President Obama grab a pitchfork and get in front of this mob?

See also: C’est raisonnable.

It looks like the big banks got away scott free in the debt bill signed by President Obama last night while the poor and middle class are likely to pay the price. We won’t know how all of the numbers shake out until the fall, but there will be added pressure for greater cuts to international programs that are key to US standing globally and to our national security, not to mention the livelihoods of millions of poor people around the world.

In June, the European Commission proposed an EU-wide tax on financial transactions (such as large stock or options trading) to fund its next long-term budget. Details have not yet been released, but estimates have found that a small tax could raise €30 billion a year by 2020. French President Nicolas Sarkozy has expressed support for a Financial Transaction Tax (FTT) and the French Parliament voted by a big majority to support an EU-wide financial tax in June.

This is exactly the type of revenue raising proposal that makes sense in the US right now. As noted in Reuters Money over the weekend, most of the major US banks are pulling in profits while they still owe taxpayers $1.5 trillion of the $4.8 trillion in federal bailout loans are still outstanding. And prominent US pollster, Stanley Greenberg, pointed out in a Sunday Times op-ed that most Americans would support at least a modest tax on financial speculation and other types of large transactions that benefit institutions over people.

The debt ceiling compromise, and the politics surrounding it, left revenue raising mechanisms, whether taxes or other measures, off the table. But there’s an opportunity for the administration and Members of Congress to incorporate a Financial Transactions Tax into a longer-term strategy to reduce the deficit and save critical government programs. An important step in gaining some traction on a FTT would be a signal of support from the administration to EU countries in the lead up to the G20 in November.

Robin Hood is striking all over the world.  Campaigners are pushing for a new levy, called a financial transactions tax, to provide funding for critical development and humanitarian programs.  The campaign likens this levy to Robin Hood’s career, taking from the rich and giving to the poor.  The revenues could help donor countries avoid cutting aid programs, which seems like an inevitability given the hard economy and yawning public budget deficits.  New revenue could also help countries keep their promise to provide $100b in new funding for climate change prevention and response programs in poor countries.

Issuf Sangare, 26, loads organic fertilizer into a cart he received from his growers' cooperative in Faragouran, Mali. The Robin Hood Tax would provide new funding for development programs worldwide. Photo by Chris Hufstader/Oxfam America

French President Nicolas Sarkozy has announced his support and, as host of the G8 and the G20 this year, is pushing other countries to embrace the idea: 

« In the case of France, we believe that a very small tax on financial transactions would be fair, useful and effective…. Is it not fair, is it not understandable, is it not reasonable, reasonable to consider that those who contributed so much to a crisis of such scale should contribute a little to the development of the poor countries that were the hardest hit by the crisis? Is it totally unreasonable to say that? Personally, I believe it is reasonable. »

The FTT seems to be making some headway in Germany.  But, in the US, conventional wisdom says it’s dead-on-arrival, not least because US Treasury Secretary Tim Geithner keeps mumbling that the US won’t support it.  Of course, Sec. Geithner and President Obama did support a different levy on banks as part of the financial overhaul.  So they are not categorically opposed to taxing the financial sector more.

The bigger problem for enacting an FTT is getting it through the US Congress.   A bill has been introduced, but the votes aren’t there.  At least, not yet.

But it’s hard to see why imposing a very small tax on financial transactions should be objectionable.  Gross malfeasance in the US financial sector led the world into a deep economic crisis, obliterated as much as $50 trillion in wealth across the globe – as much as the global GDP for a year.  American households lost $14 trillion, more than a year’s worth of total income.  Yet, at the end of all of this, while we face a decade and digging out and rebuilding, the financial sector will contribute nothing more and nothing new to the recovery. The levy that Geithner and Obama proposed was stripped from the financial reform bill that passed Congress last summer.

But finding new revenue may be a necessity given the stark alternatives political leaders are facing, including cutting core government services and critical functions.  A tax set at $0.005 on financial transactions, like buying or selling stocks or options, would have a tiny impact on most citizens, unless they manage hedge funds or are high-velocity market traders.   At the same time, an FTT could raise significant new funds – perhaps more than $100b annually to offset disastrous cuts to both domestic and international programs.

As the grim reality of budget cuts begins to set in across the developed world, Sarkozy may have more luck convincing other leaders that the FTT, “c’est raisonnable.”