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If you want to transform the economy, you have to cut Wall Street down to its proper size. One way to do that is to tax the short-term speculative activities that dominate and distort financial markets. Ad Policy

For ordinary investors, the costs would be negligible, like a tiny insurance fee to protect against crashes caused by speculation. But for the highfliers who are most responsible for the financial crisis, the tax could raise the cost of highly leveraged derivatives trading and stock-flipping enough to discourage the most dangerous behavior. Related Articles Slide Show: 16 Bold Ideas for a New Economy The Nation Nation Conversations: Mark Sorkin and William Greider on Reimagining Capitalism The Nation

Remember the “flash crash” of May 6, 2010, when the Dow plummeted nearly 1,000 points? If a tax of only 0.25 percent on each transaction had been in place for just the twenty most frenzied minutes of that day, traders would’ve faced $142 million in fees.

And remember AIG’s credit default swaps? A financial speculation tax might not have stopped those greed-crazed fools, but at least Uncle Sam would’ve taken in about $1.1 bil- lion on the deals.

The Center for Economic and Policy Research predicts that a tax on trades of stocks, derivatives and other financial instruments would curb excessive speculation while generating around $150 billion a year. That would be enough, for example, to fill projected Social Security shortfalls, with dough left over for other domestic and international needs.

So US politicians must be jumping on this as a solution to the country’s deficit problems, right? Not exactly. For more than a year, a diverse array of labor, consumer, environmental, global health and other progressive organizations have been hammering away on them, as part of a broader international campaign. But while legislators have introduced eleven bills to create various forms of speculation taxes, none have gained serious momentum.

In 2009, according to a WikiLeaks cable, former British Prime Minister Gordon Brown tried the diplomatic equivalent of a rugby maul to get Treasury Secretary Timothy Geithner on board with a G-20 agreement on financial speculation taxes. Such international coordination, while not necessary, would help address concerns about potential tax avoidance.

But Brown, too, wound up empty-handed. Geithner’s explanation: “I have not seen the version of that that I think works.” Perhaps he’s been too busy bailing out Wall Street to research the issue. Around the world more than a dozen countries already collect some form of tax on financial transactions. A British levy on stock trades alone raises between $5 billion and $6 billion per year.

If more countries begin raising massive revenues from speculation taxes, US politicians may see the light. And the prospects for progress elsewhere are strong. In March the European Parliament called for an EU-wide transactions tax, based on a report that projected nearly 200 billion euros a year from a tax of 0.01–0.05 percent on each trade.

French President Nicolas Sarkozy has announced plans to launch a “coalition of pioneers” with German Chancellor Angela Merkel and others at the November G-20 leaders meeting. This would be a prime opportunity for President Obama to stand alongside them and vow to do what’s right for the country’s short-term fiscal crisis and the world’s long-term health and stability. Let’s hope he doesn’t view this moment instead as a good time for a restroom break.

Read the next proposal in the “Reimagining Capitalism” series, “The Government Nudge: A Public Role in the Private Sector,” by Robert Weissman.