Yesterday, at about 2:45 p.m., the stock market abruptly fell by more than 900 points, the largest intraday plunge on record. The fall lasted only 16 minutes, with the Dow closing down by about 350 points, but as the New York Times put it, the quick plunge “left Wall Street experts and ordinary investors alike struggling to come to grips with what had happened — and fearful of where the markets might go from here.”

The reason for the fall, and quick rebound, is still being parsed, but it seems to be some combination of serious jitters over the situation in Greece, as well as the unfortunate simultaneous firing of computers programmed to sell stock in response to events and market levels. “We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,” said James Angel, a professor of finance at Georgetown University.

The computerization of stock trading has significantly increased the flow of stock trading, but by leaving so much up to pre-set formulas, the sort of volatility that occurred yesterday can snowball out of control. But as Reuters’ Felix Salmon explained, “a simple way to deal with nearly all of these problems, at a single stroke, would be to implement a tiny tax on financial transactions”:

Historically, people have complained that such a tax harms liquidity, which is true. But the fact is that it harms the bad kind of liquidity — the liquidity which dries up to zero just when you need it most. Liquidity, if it’s spread across multiple electronic exchanges and can disappear in a microsecond, does very little actual good, and in fact does harm during tail events like this. Let’s tax it, and raise some money for the public fisc at the same time as slowing down markets and making them think before doing a trade.

Mother Jones’ Kevin Drum added, “our financial system really needs a little bit of sand in the gears to bring it back down to human speeds. [A transactions tax] would be a good way to do it, and would probably have other benefits too (quite aside from the money it raises). Count me as a fan.” You can count me as a fan too.

Capitol Hill has had an on-again, off-again relationship with the financial transactions tax recently, while the Obama administration has been staunchly opposed. But such a tax would serve a plethora of sound economic causes. It will help temper trading for trading’s sake and excessive speculation, particularly in the form of high-frequency trading, which only major Wall Street players have the infrastructure to engage in and which will become far more expensive. And it could be a serious revenue raiser in an era of unsustainable deficits, as even a tiny transactions tax has the potential to raise $150 billion annually.

As Center for Economic and Policy Research Director Dean Baker wrote, “if a financial transactions tax reduces the volume of trading, and therefore the resources used by [the financial] sector, without harming the sector’s ability to allocate capital, then it will be making the sector more efficient and freeing up resources for more productive uses.” Baker estimates that a transactions tax will free up $60 billion a year in capital for productive uses.

It’s a favorite pastime for conservatives to blame the financial woes of the last two years on Fannie Mae and Freddie Mac — the two government sponsored mortgage giants — no matter how many times such claims are debunked. So Republicans in Congress have been making a lot of noise about how the financial regulatory reform bill currently being debated in the Senate doesn’t include an attempt at reforming the two GSE’s, particularly after the company received another $10 billion in federal funds this week.

To that end, Sen. John McCain (R-AZ) has introduced an amendment, along with six co-sponsors, that sets a date certain for unwinding Fannie and Freddie and eventually dissolving them. The amendment limits the assets that the GSE’s can hold, increases their capital standards, and puts a cap on the amount of federal funding they can receive. “Fannie Mae and Freddie Mac are synonymous with mismanagement and waste and have become the face of ‘too big to fail’,” McCain said.

First, I would argue that the giant banks and insurance company that the government had to rescue are the face of too big to fail. But far more importantly, McCain’s amendment would wreak havoc with the economy by arbitrarily setting a date certain for removing the GSE’s support for the housing market, resulting in a massive withdrawal of credit, and by not laying out a way to replace the legitimate purposes that the housing giants do serve. As one of my colleagues suggested, you might as well call this amendment “The Credit Crunch Restoration Act of 2010.”

Now, there is an undeniable need to reform housing policy in the U.S., and to achieve our affordable housing goals without the behemoth GSE’s operating with a federal backstop. As CAP’s Sarah Rosen Wartell told Congress in March, “the current situation, in which the federal government, through the GSEs or FHA-insured loans in Ginnie Mae guaranteed MBS, backstops almost 90 percent of the market for home mortgages, is not desirable or sustainable.”

But it’s precisely because so much of the mortgage market depends on the government that we can’t haphazardly disassemble Fannie and Freddie like McCain suggests. Adopting McCain’s plan would chase investors away from mortgage-backed securities, causing a large drop in liquidity when the housing market is still weak and fragile. As the Center for American Progress Action Fund economic team explained:

Some 95 percent of mortgage originations are currently being backed by the federal government, with the vast majority of this coming through the GSEs. The McCain amendment would cause significant uncertainty among the investors in GSE-issued mortgage-backed securities, threatening the primary source of mortgage credit we have at this time, without offering any alternative sources of liquidity. Such a large drop in mortgage liquidity could strongly threaten the prospects of economic recovery.

As Rep. Barney Frank (D-MA) said, to abolish Fannie and Freddie “and not do anything to replace the functions they are now performing with a conservatorship, would be a disaster for housing, and therefore for the economy as a whole.” We definitely need to rethink the role, if any, the GSE’s will play in the housing market — and make our housing subsidies explicit, if we still want them — but McCain’s plan would result in short-term turmoil while punting on the long-term implications of a world without Fannie and Freddie.

Today, the Bureau of Labor Statistics announced that the U.S. economy added a better than expected 290,000 jobs last month. The BLS also revised the jobs number for both February and March upwards, putting both of those months into the black in terms of job creation. (Due to 805,00 discouraged workers “feeling better about their prospects” and resuming their search for work, the unemployment rate actually ticked up to 9.9 percent.)

The continued turnaround of the labor market is a strong sign that the economic stimulus package passed last year is doing what it is supposed to. But today’s report also refutes one of the favorite Republican talking points about the stimulus, which is that it only preserved government jobs:

– Gov. Tim Pawlenty (R-MN): These are mostly government jobs, you know…The idea that government grows the economy when all they really do is extract money from taxpayers, bring it into the bureaucracy and put it back out into the economy on a political agenda is not growth.

– Sen. Mitch McConnell (R-KY): The stimulus bill has done “little or nothing” to stimulate the private sector. “It probably did save a lot of state government jobs.”

– Gov. Haley Barbour (R-MS): State government has benefited by the stimulus package, because it’s poured in billions of dollars. The problem is we need private sector jobs.

– Rep. John Boehner (R-OH): Most of the so-called jobs that have been saved or created are government jobs, even though the President promised that 90 percent of these jobs would be private sector jobs.

– Rep. Eric Cantor (R-VA): We’ve got to begin focusing not just on jobs, but on private sector jobs.

So the GOP should be pleased to note that, of the 290,000 jobs created in April, 231,000 of them were in the private sector. The private sector has actually added 523,000 new jobs in 2010.

This includes 44,000 manufacturing jobs, which is the most manufacturing jobs added to the U.S. economy since August, 1998. Overall, April was the strongest month for jobs growth since March, 2006. For the sake of comparison, here’s the change in monthly job loss or gain since December, 2007: