US Debt Reduction Sequester Tax Solution #3: Transaction Fee on All Big Financial Derivative Contracts

With all of the horrible financial havoc that financial swaps and other financial derivatives have played on the US economy, including the continuing massive increase in the US Debt, continuing high US unemployment and US underemployment, continuing high number of underwater home mortgages, and even the intense pressure placed on our National Security from the resultant massive US Debt increase, I think it only makes sense that there be a stiff US Debt Reduction Transaction Fee on all future Big Financial Derivative Contracts.

This Transaction Fee received by the US Government should not only pay for the substantial increase in the US Debt caused by the 2008 financial meltdown so far and in the future, but it should also help fund any future financial meltdowns caused by risky financial derivatives.

Even though the US Government has taken wise steps to reduce the likelihood of a future financial meltdown resulting from financial derivatives, it is impossible to totally prevent the negative consequences of some exotic future financial derivative contracts. 

Thus, it would be wise to build up a “US Debt Reduction” bank from these Transaction Fees to help cushion against the negative consequences to US Debt caused by future exotic financial derivatives gone askew, like they did in 2008 and previously.

In assessing this annual Transaction Fee, I would include all financial derivatives, including Oil and Gas Contracts.

Only really large Financial Institutions, including all Foreign Financial Institutions entering into financial derivative contracts in the US, would be subject to this Transaction Fee.  Hedge Funds, Large Financial Partnerships and Energy Trading Firms would also all be subject to this Transaction Fee.

I would make this Transaction Fee progressive, where the Percentage Transaction Fee rises sharply as the total annual nominal amount of all Financial Derivative Contracts entered into by each Big Financial Institution increases.

And it appears that one of the reasons gas prices, and all energy costs, have been so high is due to oil future contract speculators, who seem to be able to push up the price of oil with high volume trading, without suffering any financial consequences for taking such an action, that harms the entire country so much.

From my perspective, such speculative action is a loophole that these oil futures contract speculators have taking advantage of.  There is no penalty, tax, or fee that they are now required to pay to the US Government for their harmful actions here.

An additional benefit here, is that this very healthy, progressive Transaction Fee on Oil Futures Contacts should help reduce oil prices a bit by making it somewhat less attractive for oil contract speculators to push up the price of oil through high volume trading by somewhat cutting into the potential profit generated from lucrative, but high-risk, speculative oil future contract trading.

Also, it appears to me that deliberate actions taken by some employees of some worldwide Big Financial Institutions resulted in a misstatement of the Libor Interest Rate, which has been very harmful to the US and worldwide economies, and particularly harmful to many unknowing huge financial lenders and financial borrowers and financial derivative contract players like Fannie Mae and Freddie Mac.  I think this may have been one of the reasons for the year-after-year gigantic Derivative Losses of both Fannie Mae and Freddie Mac, which has resulted in additional substantial US Debt increases.

There will be substantially positive CBO scoring by reducing the US Government's Debt from this proposal for the next 10 years and for many years thereafter.