Brad DeLong praises a proposal from the German Financial Minister. He proposed a tax on financial transactions (Called the Tobin tax after the economist who first suggested it) theat would raise the cost of speculation in financial markets. He also argued for regulating the shadow banking system which was heavily involved in the financial crisis. The shadow banking system includes hedge funds, money market funds and other financial intermediates. The shadow banking system is almost the size of the regulated banking system. Wall Street bankers have used the shadow banking system as an excuse to escape greater regulation. They argue that their employees would jump ship and move to hedge funds and private equity if they were subject to regulations which affected their income potential.
The UK, which views its version of Wall Street (The City) as a national resource, has fought against similar proposals in Europe. The German Financial Minister suggests that the eurozone should act on its own to get the ball rolling on financial reforms that might prevent the next financial crisis.
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