WASHINGTON, DC — Today’s financial markets are awash in speculation and financial engineering, crowding out the productive investments that grow the real economy, create jobs, and spur innovation—but both left and right have failed to effectively rein in the excesses of private equity, hedge funds, and high-frequency trading. A new collection of proposals and research from American Compass present a pro-market agenda for financial reform to address current misallocations of capital, talent, and risk.
In “Confronting Coin-Flip Capitalism: A Pro-Market Agenda for Financial Reform,” executive director Oren Cass lays out the key failures of modern financial markets and argues that both the progressive left and the free-market right have failed to fully address them. He proposes a series of substantial reforms, including:
- Create a new, primary obligation to workers that is paid first in the event of a bankruptcy.
- Eliminate the deductibility of interest.
- Require pre-registration of public benchmarks for private funds.
- Require self-capping of private funds’ fees.
- Require public release of annual performance by private funds.
- Apply an economy activity test for firms seeking to list their shares on a public exchange.
- Ban stock buybacks.
- Impose a financial transaction tax.
In a proposal for a U.S. financial transaction tax (FTT), policy director Chris Griswold explains how such a tax could rebalance economic activity away from speculation and toward real investment. In “No Need to Speculate: The Empirical Case for a Financial Transaction Tax,” Griswold argues for a small, 10-basis-point FTT, the revenue from which could be used for pro-investment tax reforms, including: move toward full expensing for capital investment; cancel the amortization of research and development costs; or cut capital gains for very-long-term investment.
The latest entry in the American Compass Atlas, A Guide to Private Equity, provides additional background research on the industry’s poor performance and increasing risk.