Bloomberg vows tougher Wall Street rules, transactions tax

Michael Bloomberg is proposing a financial transactions tax of 0.1 percent and merging Fannie Mae and Freddie Mac as part of a proposal for regulating Wall Street for a financial system “strong enough to weather crises without harming the broader economy or requiring taxpayer bailouts.”

The former New York mayor said he would work with Congress to introduce the tax on all transactions, including stocks, bonds and payments on derivative contracts, and that it would be phased in gradually starting at 0.02 percent, according to the proposal released Tuesday. He would also support measures such as setting a speed limit to curb harmful types of trading.

Bloomberg is calling for the reversal of Trump administration rollbacks by toughening Volcker Rule restrictions, setting higher capital requirements at financial firms and strengthening stress tests meant to ensure banks can withstand an economic downturn, according to the plan.

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The proposal calls for Fannie Mae and Freddie Mac, which have been under U.S. control since the 2008 financial crisis, to be merged into a single government-owned entity “to ensure that taxpayers are fully compensated for the risks they are assuming” and that lower-income households are served.

(Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)

The proposal to tax financial trades represents a tack to the left for the Bloomberg campaign. Similar plans have so far been backed by more progressive candidates, including Senators Bernie Sanders and Elizabeth Warren.

Proponents of the tax say it could help curb high-frequency trading and speculative betting, which can lead to chaotic swings in the market. Supporters also point to the significant revenue it could generate: a 0.1 percent tax could raise nearly $777 billion over a decade, according to the Congressional Budget Office.

Cowen & Co. Senior Policy Analyst Jaret Seiberg said in a note to clients on Tuesday that the Bloomberg proposal is a plan that seems to be designed to appeal to mainstream Democratic voters.

“It is inconceivable that a candidate could win without endorsing many of the ideas in the plan,” Seiberg wrote. “The key with Bloomberg for financials is that he is a pragmatist who understands how financial markets work. We believe that is more important than any specific plan he might endorse.”

The plan is likely to elicit criticism from pro-business groups, including the U.S. Chamber of Commerce and the Modern Markets Initiative. The Chamber has said financial transaction taxes would cause mortgage fees to rise and would increase the cost of hedging transactions that farmers, energy firms and transportation companies use to reduce risk. The Modern Markets Initiative has called financial transactions taxes a “tax on retirement.”

The Democratic Party first officially embraced financial transaction taxes in its 2016 party platform, but left room for the size and scope of the levy. Public Citizen, an advocacy group for progressive causes, said middle-income families would pay about $13 a year with a 0.1 percent tax on trades. The top 10 percent of income earners would see costs related to their retirement accounts increase an average of $155 a year and owe additional taxes ranging from $58 to $288 annually, according to their estimates.

The 2008 financial crisis undermined faith in the financial system, and authorities should be doing everything they can to fix the flaws it revealed, Bloomberg said in his proposal.

“Yet the Trump administration is rolling back what safeguards were put in place, and none of the candidates for president is offering a viable alternative,” Bloomberg said in his plan.

On Fannie Mae and Freddie Mac, Bloomberg would work with regulators and Congress to come up with a solution. The Trump administration, which has vowed to free Fannie and Freddie but hasn’t ironed out all the details, has pledged to go it alone without the help of Congress if necessary.

The plan calls for restoring the Volcker Rule and making enforcement more effective, by focusing on the outcome of speculative trading — big gains and losses — rather than trying to discern traders’ intent. Regulators appointed by President Donald Trump are in the process of rolling back the Dodd-Frank Act trading curbs with steps including allowing a smoother path for banks to do business with venture capital funds.

Bloomberg’s plan would also restore payday-lending and mandatory arbitration rules at the Consumer Financial Protection Bureau and give the agency jurisdiction over auto lending and credit reporting. It also would create a dedicated corporate crime group at the Justice Department and strengthen protections for whistleblowers.

Bloomberg’s progressive rivals have backed aggressive steps targeting Wall Street. Warren has proposed a 21st Century Glass-Steagall Act aimed at breaking up the big banks and called for overhauling the private-equity industry “so that Wall Street executives can’t bleed companies dry and walk away with millions while workers lose their jobs.”

— Mark Niquette and Laura Davison, with assistance from Elizabeth Dexheimer