It is good to favour free markets. A well-functioning financial system is crucial to continuing growth and material prosperity. But advocating for these goods does not preclude us from noticing when problems arise and implementing reforms to fix them. Nor, though, does this mean blindly accepting the progressive solutions to these problems.
As Oren Cass outlines in a new paper for American Compass, Confronting Coin-Flip Capitalism, there are certainly issues in need of appropriate solutions, from refashioning the bankruptcy process, instituting new restrictions and taxes on unproductive transactions, and requiring broad disclosure of private-fund activity.
Specifically, in this paper he highlights three areas of dysfunction in today’s financial markets:
- Capital: American financial markets are not doing an effective job facilitating investment in the real economy.
- Talent: A disproportionate share of top business and engineering talent is flowing into the financial sector in pursuit of the outsized profits available to money managers regardless of the value they create.
- Risk: The diffuse and anonymous ownership of the modern corporation encourages increased risk-taking and leverage, tolerating the distress and collapse of some firms in exchange for greater returns at others.
Seeking solutions outside of the progressive left’s excesses and the right’s blind adherence to our current markets, Cass offers the following reform recommendations:
- Align risk & reward
- Create a new, primary obligation to workers that is paid first in the event of a bankruptcy.
- Eliminate the deductibility of interest.
- Increase information
- Require pre-registration of public benchmarks.
- Require self-capping of fees.
- Require public release of annual performance.
- Require public release of annual performance
- Apply an economic activity test.
- Ban buybacks.
- Impose a financial transaction tax.