Financial life in a big town

A federal appeals court on Tuesday upheld a lower court’s $290 million patent infringement ruling against Microsoft that will prevent the world’s largest software maker from selling the current version of its popular Word program.

The injunction goes into effect on Jan. 11, but Microsoft said sales of Word will not be affected: The company will have a new version of the Word software available before that date that eliminates the feature in question.

"We have been preparing for this possibility … and have put the wheels in motion to remove this little-used feature from these products," said a Microsoft spokesman. "Therefore, we expect to have copies of Microsoft Word 2007 and Office 2007, with this feature removed, available for U.S. sale and distribution by the injunction date."

Microsoft noted that Word 2010, which is scheduled for release early next year, does not contain the technology covered by the injunction.

The U.S. Court of Appeals for the Federal Circuit affirmed an August 2009 ruling by a Texas jury that found Microsoft in violation of a patent held by Toronto-based document collaboration firm i4i payday loans for people with bad credit. After the jury ruled in favor of i4i, a U.S. District Court judge fined Microsoft $290 million and said that Microsoft could no longer sell Word 2003 or Word 2007, with the disputed feature that allows users to edit XML — a computer code that instructs the computer how to display content in a document.

Microsoft had appealed the lower court’s ruling, saying the i4i patent was invalid. The appeals court rejected Microsoft’s claim on Tuesday, upholding the validity i4i’s patent and the lower court’s ruling that Microsoft willfully violated it.

"We couldn’t be more pleased with the ruling," said i4i chairman Loudon Owen in a statement. "This is both a vindication for i4i and a war cry for talented inventors whose patents are infringed."

The injunction does not affect copies of Word that have already been sold, and Microsoft will be allowed to support those previous versions.

Shares of Microsoft (MSFT, Fortune 500) rose 1% Tuesday. 

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AMSTERDAM–Sweden said a last-ditch bid by Spyker Cars for Saab offered a thread of hope the iconic brand would survive, as talks between the Dutch luxury automaker and General Motors extended into the evening.

Russia-backed Spyker said on Sunday it had lodged a renewed fast-track offer to buy Saab from General Motors just two days after talks with GM over a rescue of the loss-making Swedish manufacturer collapsed.

The surprise new offer from Spyker – which made 43 luxury cars last year against Saab’s sales of 93,295 – was set to expire at 5 p.m. EST, but Spyker said it has extended that deadline until further notice.

"We hope, naturally, that even if it is a very, very slim thread of hope, there is a chance of finding some kind of solution to the question of Saab," Swedish Enterprise Minister Maud Olofsson told a news conference.

"It is very late, there is a very tight timetable and that means the situation is very difficult," she said after meeting with representatives of Saab and local authorities.

Spyker Cars said on Sunday it had submitted a new offer to GM, including an 11-point plan addressing issues that arose during the due diligence process for its old bid.

"We’ve had various discussions with them (Monday)," Spyker Cars chief executive Victor Muller told Reuters, adding that talks were "definitely" ongoing, but there was nothing new to report.

The Swedish government said it would allot 542 million Swedish crowns ($79 million Canadian) to measures, mainly for education and job schemes, to help deal with the thousands of jobs set to disappear if Saab was shut down.

Abandoning the 60-year-old Swedish auto brand would eliminate 3,400 jobs in Sweden and hit 1,100 Saab dealers, but General Motors raised hopes on Sunday when it said it would evaluate several new expressions of interest for Saab.

"We should be careful about fuelling new hopes in a situation where the people in Trollhattan, and at Saab and their subcontractors are thrown between hope and despair," Swedish Prime Minister Fredrik Reinfeldt told journalists.

Shares in Spyker Cars closed up 19.9 per cent in Amsterdam as its renewed approach to Saab sparked talk the Dutch firm – which had a market capitalization of just 26.6 million euros ($40.37 million) at Friday’s close – may exponentially expand operations and perhaps become profitable.

"The stock’s value is close to nothing but if they succeed to buy Saab, invest, and turn the company around then the shares can become valuable," said a Dutch analyst who declined to be named.

Swedish daily Svenska Dagbladet, citing unidentified sources, said the ownership structure backing the Spyker bid had been altered and that Russian parties were no longer involved. "That which was considered a problem has been solved," it quoted a source as saying.

Russian banking tycoon Vladimir Antonov holds an almost 30 per cent stake in Spyker Cars.

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The largest stimulus program in the nation’s history is starting to move into a new phase: Out with the rescue, in with new spending to create jobs.

Top White House advisers said Wednesday that most of the economic stimulus spent so far has helped prop up the states, paying for food stamps, Medicaid and filling budget gaps that kept police officers, firefighters and teachers employed.

In 2010, most of the remaining recovery spending will be funneled into projects that build roads, lay high speed rail, install broadband in rural areas and fund research at health institutions.

White House economist Jared Bernstein acknowledged that most of the jobs created or saved so far have been public sector jobs. One of the largest areas of jobs saved so far included some 300,000 teachers that kept their jobs.

Private sector jobs are next

Bernstein said he is confident that new spending will create more jobs in the private sector.

"The private sector US economy will begin generating robust employment at some point in the near future," Bernstein said. "Precisely when that is no one can say. But what we can say is that point is a lot closer because of the Recovery Act."

In the past few weeks, the White House ramped up its message that it’s tackling the top economic worry on Americans’ minds: jobs.

U.S. unemployment dropped slightly to 10% in November from 10.2% the month before with 11,000 jobs lost.

The $787 billion stimulus package was passed in February, along party lines, in part to help stem job losses low interest personal loan. But it remains a political flash point on Capitol Hill, with Republicans criticizing its impact.

Slow road to growth

On Wednesday, top White House advisors briefed reporters on the progress and future of the stimulus package. They maintain that stimulus is working to curb job losses, although they acknowledge it still has a ways to go.

"Is it fully offsetting the job market impact of the deepest recession since the Great Depression? Bernstein asked. "Of course the answer is no. But the Recovery Act is helping to offset some of that pain."

As of Dec. 4, the federal government had either spent or was on the verge of spending $301.7 billion of the stimulus package, in addition to $93 billion paid in tax relief, said Edward DeSeve, a special White House adviser on the economic stimulus package. That leaves about $392 billion remaining.

When asked why President Obama was pushing for more infrastructure spending to create jobs, when the impact of the upcoming year of infrastructure spending has yet take place, Press Secretary Robert Gibbs said more spending would compliment those existing stimulus programs that have proved popular and have drawn too many applications.

He denied the call for more spending is a second stimulus proposal and called the new push for spending on infrastructure and programs to help homeowners make homes conserve less energy "targeted." 

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European Central Bank council member Ewald Nowotny indicated he sees no need to raise interest rates in the first half of 2010 as inflation pressures stay muted.

“Our interest rate decisions are to be seen in connection with our price stability goal and in this context I do not see major threats for price stability in the near future,” Nowotny, 65, said in an interview in Vienna. The comment was in reply to a question whether economists were correct to assume no increases in the first half. There is no “strong need” to shift policy in the absence of inflation pressures, he said.

The Frankfurt-based central bank is starting to withdraw emergency measures designed to fight the financial crisis as the euro-region economy recovers from its worst recession since World War II. While President Jean-Claude Trichet says the ECB has no immediate plan to raise its benchmark rate from the current 1 percent, officials have given themselves room to do so next year if necessary.

The ECB on Dec. 3 tightened the terms of its final tender of 12-month funds to take account of any rate increase next year and Executive Board Member Juergen Stark said five days later that rates that are left too low for too long may fuel more bubbles.

‘Steady Hand’

At the same time, the aftershocks from the recession are keeping a lid on prices. The ECB projects inflation to average 1.3 percent next year and 1.4 percent in 2011, below its 2 percent ceiling.

“If there’s no infringement with regard to these goals then I wouldn’t see strong pressure or a strong need to change the policy that we have, that means a policy of steady hand,” said Nowotny, who joined the ECB in September 2008. He said the ECB never “precommits” to any specific policy.

Nowotny “validates expectations that it’ll take a bit more than six months for the ECB to change its monetary policy stance,” said Laurent Bilke, an economist at Nomura International in London. “I assume the ECB needs to see some further signs of consolidation of economic momentum before they act. We’ve really only seen one quarter of positive GDP growth.”

The ECB is pulling back some of the flagship policies introduced at the depth of the crisis to encourage banks to lend again. In addition to stopping the 12-month tender, it will discontinue its six-month loans after March and only guaranteed unlimited funding in its other refinancing operations until April 13.

Survey

The ECB will probably lend banks 75 billion euros ($122 billion) in the 12-month tender, according to the median of 23 forecasts in a Bloomberg News survey. That compares with a forecast of 150 billion euros in a survey conducted before the ECB announced that the rate would be indexed. The results will be announced at 9:30 a.m. in Frankfurt.

Nowotny, an economist and former chief executive officer of Vienna-based Bawag PSK Bank, said he expects no changes on terms of the three-month operation as “tenders that we didn’t mention will go on for the time being as they are now payday loan.”

When the first year-long operation expires next summer, the ECB “will take all measures necessary to prevent a liquidity shortage” by providing funds with a shorter maturity, he said.

“What the markets see — and I think this message has been taken very well — is that with the decisions that we took in December, the ECB is signaling a cautious policy of exiting,” Nowotny said. “Our intention clearly was not to send a signal on rates.”

Recovery

The economic recovery is giving the ECB room to embark on exit strategies. Europe’s economy resumed expansion in the third quarter as governments stepped up spending and exports rose. A slump in industrial output eased in October and manufacturing expanded for a second month in November.

The pace of the recovery may be restrained by the euro’s 16 percent appreciation against the dollar since mid-February. The current level of the euro “is bearable,” Nowotny said. “But it’s quite obvious that a prolonged and strong revaluation of the euro would have a negative effect on the export performance of the euro area.”

The euro was little changed at $1.4550 today after falling 0.8 percent yesterday.

The ECB this month raised its economic outlook, forecasting growth of 0.8 percent next year and 1.2 percent in 2011 after a 4 percent contraction this year. Nowotny said it’s a ‘positive outlook but a very cautious one,”

Collateral Rules

The central banker also said that the ECB won’t consider the situation of individual euro-region member countries when normalizing its collateral rules. Greek government bonds, which were cut to BBB+ by Fitch Ratings last week, may not be eligible as collateral if the ECB reverts to pre-crisis rules in 2011.

“The policy with regard to collateral is part of monetary policy and it is only monetary policy considerations that are relevant in this case,” Nowotny said. “We’re not looking at particular countries.”

The ECB currently accepts bonds rated BBB- as collateral for loans after relaxing its rules in response to the financial crisis last year. It may revert to the old rules at the end of 2010, under which A- is the minimum required rating.

Soaring government bond-yield spreads in countries with excessive deficits “can serve as a wake-up call,” Nowotny said. Rising deficits are “a matter of substantial concern both for the ECB and the European Union.”

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American Water Works Co., the largest investor-owned U.S. water utility, purchased O’Fallon, Mo.-based Environmental Management Corp. Terms weren’t disclosed.

Environmental Management, which manages water and sewer projects in the United States and Canada. The company has about 300 employees, including 84 in the St payday loans. Louis area, and recorded 2008 revenue of $50 million.

The company, founded in 1980, was owned by the Linde Group, a German conglomerate.

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Finance Minister Dwight Duncan’s plan to avoid controversy with the first part of his pension reform legislation has not been a total success.

Some say his proposals to protect all workers laid off by companies go too far. After all, many pension plans are poorly funded and many companies are struggling. But others say he did not go far enough.

Duncan’s proposal in legislation tabled Wednesday would require enhanced payments starting in 2012 to anyone whose age and years of service total 55, but who has yet to qualify for early-retirement benefits. Until then, only those laid off in significant numbers would continue to enjoy such protection.

One former oil company executive argued in an email that the expansion of protection is out of step with the rest of the world and a danger to benefits of those already fired.

He noted Duncan is to meet other finance ministers in Whitehorse next Thursday to talk about expanding and standardizing pension coverage, not hastening the elimination of generous, traditional pension plans enjoyed by less than a fifth of private-sector workers.

But benefit consultants and actuaries support Duncan’s proposal, because he partly offset the cost of widening protection for laid-off workers by removing a costly, controversial and ill-defined requirement to partially wind up pension plans and divide surplus funds at the time of a significant layoff.

They think it is fair that Ontario (along with Nova Scotia) requires special treatment for long-service and older workers laid off from companies that promised qualifying employees a pension from an earlier age than 65.

"It is a very perverse thing when you fire someone at 54 to deny them what they were going to get at 55," says actuary Malcolm Hamilton of Mercer, the international benefits consulting firm. "You hold out a big promise, then you snatch it away from them."

Companies would still be able to deny workers the substantial value of an early-retirement benefit if they quit voluntarily or were fired for cause.

Multi-employer plans, and jointly sponsored plans in the public sector, could opt out of enhancing payments to those whose age and service total 55 easy payday loans.

Some benefits consultants argue limiting enhanced payments to laid-off workers is unfair to those laid off at an earlier age, and those who voluntarily leave.

James Pierrot, a lawyer with Towers Perrin, says "what we recommended to the Ministry of Finance is, if you are going to broaden entitlement to early retirement benefits, what is magical about having 55 points?

"Why not have employees earn early-retirement subsidies in proportion to their years of service? That would be much more fair than having a cut-off. Why should a person with 54.9 points not get it? It’s silly."

That said, Pierrot says it’s also odd to entrench rights under pension legislation that would more properly be included with minimum severance requirements in employment standards legislation.

Ian Edelist, an actuary with Eckler Ltd. and member of a task force on pensions formed by actuaries, said the cost of requiring that laid-off workers with 55 points be allowed to qualify for early retirement benefits would vary from plan to plan.

The cost would not be as large in plans where a high percentage of members has already retired as those with few retirees.

But he agreed with Hamilton and Pierrot that Ontario’s special requirements for laid off workers are not a primary reason for employers halting or phasing out traditional defined-benefit plans. Nor, say the consultants, will Ontario’s reforms be a big impediment to harmonization of pension legislation on more important issues.

The big issue for existing pension plans – on which Ottawa recently took the lead with proposed legislative changes – is giving employers an incentive to build a rainy-day buffer without facing demands to share surplus funds with plan members.

A much bigger issue for Ottawa and the provinces will be agreeing on how to ensure more workers get included in a low-cost, professionally managed pension plans.

jdaw@thestar.ca

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EDWARDSVILLE — Construction of a four-story office building in downtown Edwardsville is expected to begin early next month.

Scott Plocher, speaking for the developers, said construction would be completed in about a year. He said the entire building would be leased to a single tenant — a business already located in Edwardsville — and would help keep at least 50 or 60 well-paid jobs in the city.

He said that business would announce its plans in coming weeks.

Plocher is president of Highland-based Plocher Construction, a partner in the development group, North Main Street Plaza LLC, and will build and manage the $6 million, 30,800-square-foot structure.

"We believe it is a good project at the right time," he said.

The building will be in the 100 block of North Main Street, near the Madison County Courthouse and Administration buildings. It will replace existing buildings at 130 North Main Street, between Erato on Main, a wine bar-restaurant, and Big Daddy’s Patio Bar & Grill.

The project will include a public walkway from Main Street to parking lots at the rear of the building. New construction will also make it possible for Erato to add an outdoor dining area. Chris Byron, part owner of Erato, is among a group of lawyers who are investors in North Main Street Plaza.

In August, about 30 people demonstrated against demolition of the existing structures — parts of which are a century old — but Plocher said it would be "virtually impossible" to renovate them under today’s codes. He said the developers do not consider them historic, though they are in the city’s Downtown Historic District. The Historic Preservation Commission later approved demolition.

Plocher said the commission wanted a design that complemented the look of older downtown buildings, and that the exterior design will resemble the century-old Wildey Theatre down the street. The city owns the long-closed theater and recently decided to undertake its renovation.

Other opposition to the North Main Street Plaza project focused on the developers’ request for $125,000 in assistance for asbestos abatement and demolition from the city’s existing downtown TIF fund no fax payday loans. Plocher said the request was reasonable because of the need for asbestos abatement, the difficulty of demolition due to the buildings’ age and proximity to other buildings, and the additional expense of building a structure in keeping with the historic look of the business district.

Plocher said the redevelopment is expected to boost property taxes to about $133,000 from about $8,000. A development agreement provides that 60 percent of the projected $125,000 annual tax increment would go to the developer and 40 percent to the city. The TIF district will expire in 2020.

The City Council voted 4-2 last week to approve the agreement, which included the money for abatement and demolition.

Alderman Rich Walker, one of the dissenters, said he thought the project would be good for the city but objected to providing money to developers before increased tax revenues started coming in. He said it would be inconsistent with what the city had done in two previous TIF projects.

City Administrator Ben Dickmann said Mayor Gary Niebur and his administration were pleased by the outcome.

Dickmann said the developers did what they were asked and "put forward a design that was a better fit for downtown than a lot of new construction. We believe it will help us retain professional offices downtown. It will add office space so we will be positioned to take advantage when this recession ends."

Dickmann said Edwardsville is lucky for a city of its size to have two major downtown development projects planned or under way.

Work continues on Plaza on the Park, a combined retail and residential development on two corners of the intersection of Vandalia and Buchanan streets. Dickmann said total investment in that project will be about $14 million. Its developer is Joseph E. Meyer & Associates of Edwardsville.

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After a 44-year run serving one of the poorer neighborhoods in St. Louis, Gateway Bank collapsed last month under a pile of bad loans.

Now, a small bank from Kansas City thinks it can build a profitable enterprise on the wreckage of Gateway. Central Bank of Kansas City bought Gateway from the Federal Deposit Insurance Corp., which took over the bank a month ago.

So, why would Central Bank think it can make a go of it in a north St. Louis city neighborhood where another bank failed?

A cheap price is part of the equation. Central Bank paid 70 cents for each $1 in face value of Gateway’s assets. Of course, many of those assets aren’t worth face value. When it failed, 7 percent of Gateway’s loans were seriously behind in payments. Central Bank will also inherit 70 foreclosed properties, most of them houses and apartment buildings.

The FDIC will pay $9.2 million to cover Gateway’s losses.

Central’s executives didn’t have long to mull the decision. The FDIC opened Gateway’s books to prospective bidders on a Thursday in late October. Central Bank made its bid the next Monday, and took over the bank that Friday, Nov. 6.

William Dana, Central Bank CEO, says it will succeed because it knows how to serve poor neighborhoods. That’s its forte in Kansas City, he says.

Most banks want to go where the money is. They want "high net worth, low transaction, low-touch customers," says Dana. They’re people who have big bank accounts, borrow much and deal with the bank by computer.

"Our customers are the antithesis of that," says Dana. They have lower credit scores and small bank accounts. "Many people have trouble coming up with the minimum deposit, $50, to open an account," said Dana. "It’s just tougher."

Serving them requires a bigger staff. But Central’s customers are more willing than the well-off to keep their money in checking and savings accounts paying low interest. That low cost of deposits allows the bank to make a wider profit margin on its loans, Dana said.

Serving low-income neighborhoods qualifies the bank to dole out federal largess under the federal New Markets Tax Credit program. It can give those credits to business borrowers who qualify.

"They work in these challenged neighborhoods where access to capital is limited or difficult," said Ruben Alonso, who runs the New Markets program for the Kansas City municipal government. He cites a loan the bank made to an engineering firm that is going to anchor a redevelopment planned for an area near downtown.

"They bring a lot of expertise in how to bring capital to low-income areas," he added.

The lack of banking services in poor, minority neighborhoods has been a vexing issue for federal regulators. In a study released last week, the FDIC reported that 21.7 percent of U.S. black households have no checking or savings accounts, while 19.3 percent of Hispanic households are "unbanked." Roughly 3.5 percent of Asian and white households have no checking or savings accounts.

The same study found the disparity is even greater in St. Louis: 31 percent of the area’s black households are unbanked, while only 1.1 percent of white, non-Hispanic households have no accounts.

St. Louis’ unbanked percentage among black households was the highest among 20 most populated metro areas studied by the FDIC, though seven areas didn’t report a breakdown for black households. Detroit was the second-highest at 30 percent, followed by Chicago’s 25.5 percent.

BIG BUSINESSES HELP

In Kansas City, Central Bank gets a helping hand from big businesses. A local electric utility and Microsoft deposit money at low interest to encourage Central’s lending. "We guarantee them that we’ll make loans into the community," said Dana.

Central’s strategy seems to be working. The bank earned $1.6 million in the first nine months of the year. That gave it a return on assets — a standard measure of bank profitability — of 1.26 percent, far above the 0.17 percent of peer banks. It’s been profitable for at least the last four years.

Central has $169 million in assets, ranking it as tiny by banking standards. Gateway had a mere $30 million.

Gateway Bank’s single branch is on Union Boulevard near Natural Bridge Road. Median income in the bank’s ZIP code was 58 percent of the national average, according to 2000 census figures. That matches the income around Central Bank’s headquarters, east of downtown Kansas City.

Central Bank’s neighborhood is a Kansas City melting pot — 50 percent white, 16 percent black, 7 percent Asian and 18 percent "some other race." The Census lists 30 percent as Hispanic, who can be of any race. By contrast, Gateway’s ZIP code is 98 percent black, according to the 2000 census.

Gateway was born in the civil rights movement. It was founded in 1965 by black businesspeople and professionals who wanted a bank to serve the minority population. For its last two decades, it was the only black-owned bank in St. Louis.

Central Bank’s ownership is white, the family of Lucille Tutera. Will that affect customer loyalty?

"We have to convince our depositors that our products and services will be better than before," said Dana.

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SEATTLE — The date for the 787 Dreamliner’s first flight has inched closer, and Boeing hopes to fly not one but two 787s by year’s end.

According to a person close to the jet program, Boeing has set a new target date of Friday, Dec. 18, for the initial flight — four days earlier than its previous plan.

And a second Dreamliner is set to take to the air just 10 days after the first one, the person said.

After more than two years of delays, excitement is growing among those working on the new airplane, who now anticipate a pre-Christmas flight and look forward to a New Year test-flight program that could erase the memory of 2009’s embarrassing glitches payday loans for self employed.

The schedule’s acceleration follows the successful retesting of the wing last week, which validated the fix for a structural flaw that caused a test failure last May and the consequent suspension of the planned June first flight.

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A growing chorus of Democratic lawmakers and liberal economists are pushing hard for a tax on stock trades to pay for job creation.

By levying a small fee when stocks, futures, swaps, options and other securities are bought and sold, supporters of the tax believe the government can take in between $120 billion and $240 billion annually. That money could be used to fund additional government stimulus to help put the nearly 16 million unemployed Americans to work.

"Financial transactions number in the many trillions of dollars every year, so if you take a small fraction of that, you are going to be raising a lot of money," said Ann Lee, economics professor at New York University. "That can be used for things like paying down debt or creating jobs."

But the idea faces staunch opposition among Republicans and even from some Democratic lawmakers. Treasury Secretary Tim Geithner has also voiced his disapproval of the idea.

There are handful of different proposals in play, and the first bill surfaced in mid-November from a group of seven House Democrats, led by Rep. Peter DeFazio, D-Ore. The legislation is called "Let Wall Street Pay for the Restoration of Main Street Act."

The bill, which is still in the draft stages, would tax each stock transaction at 0.25% and futures, swaps and credit-default swaps at 0.02%. The bill’s sponsors estimate that it can raise about $150 billion per year, half of which could be set aside in a "job creation reserve" for Congress to allocate in the future.

"We know Main Street is suffering and a restored Wall Street should now share in its recovery with everyone else," Rep. DeFazio said in a letter to colleagues.

To ensure that the law targets speculators and not pension funds or retirement investors, the tax would be refunded for tax-favored retirement accounts such as 401(k) plans and education and health savings accounts. Additionally, the tax would not apply to the first $100,000 of a trader’s annual transactions.

House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., have both said they are open to discussing such a plan, though neither said whether they support the DeFazio bill.

Support growing

Such a tax is not unprecedented. The United States used to tax all stock sales and transfers at 0.2% to 0.4% from 1914 to 1966.

England currently levies a tax on stock sales and transfers at 0.5%, which brings in about $40 billion a year. But the U.K.’s top financial services regulator Adair Turner said in September that Britain should also tax "socially useless" transactions like derivatives and swaps. Prime Minister Gordon Brown supports Turner’s proposal and presented it at last month’s G-20 meeting.

In the United States, a financial transactions tax has also gained support in recent weeks from Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz. Krugman, who is attending Thursday’s "jobs summit" at the White House, argued in a recent New York Times op-ed that the tax would curb the excessive market speculation that led to last fall’s credit crisis, and the fees would not have any noticeable effect on long-term investors payday loan.

The left-leaning Economic Policy Institute on Monday announced its own plan to create 4.6 million jobs in a year by levying a tax on stocks and other financial items. The EPI said the government should spend an additional $400 billion on stimulus aimed at job creation, and estimated that those funds could be repaid within 10 years from the proceeds of a financial transactions tax.

"The tax has serious revenue potential," said Josh Bivens, economist at EPI. "No one likes taxes, but on the menu of taxes, this one makes the most sense."

Unlike Krugman, Bivens argued that the tax would have very little impact on trading because the proposed fee is so negligible. But if it does have an impact, Bivens said it would be beneficial, reducing short-term speculative trades that lead to excess market volatility.

Bill faces tough opposition

If the DeFazio bill advances to a vote, it will face an uphill battle. A letter to colleagues by Democratic Representatives Michael McMahon, D-N.Y., Carolyn Maloney, D-N.Y., and Debbie Halvorson, D-Ill., urged Congress to oppose the legislation. They argued the tax would raise credit costs, depress stock prices and force investors to flock to overseas markets. It would ultimately hurt the middle class as well "by punishing more than 90 million American investors."

Republicans and conservative economists agree with the assessment that the bill would inadvertently tax everyday Americans, arguing that banks would simply transfer the transaction fees to their customers. They also say targeting stock transactions means targeting the middle class, especially if a proposal is adopted that does not exclude retirement funds from the tax.

"People who support it see this as a way to hit evil banks and rich people, but the problem is that most stocks and bonds are not bought by rich people but by pension funds," said David John, senior research fellow at the right-leaning Heritage Fund. "To say the tax would be counterproductive would be putting it mildly."

Even some of those that support the tax conceded that it could put a stranglehold on the financial sector.

"Part of the reason why Geithner isn’t supporting it is that it will hurt folks in the financial industry in the short-term," said NYU’s Lee. "Anyone engaged in heavy trading isn’t going to like this proposal, and it could mean more job losses in that sector."

As a result, supporters like Lee and Bivens say the tax won’t likely pass through Congress while the economy is still struggling to rebound.

"I agree that the next two years are no time to do any serious tax increases," said Bivens. "We will need the revenue in the long run, but it will be hard to see it pass in the short term." 

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