Taking on the Speculators: What Would a European Tobin Tax Really Mean?

Der Spiegel ^ | 01/11/2012 | Stefan Kaiser

[Olog-hai]

The idea is age-old, but its time may soon be coming. A tax on financial transactions could help to stem short-term speculation on the markets. French President Nicolas Sarkozy wants to push the tax through in Europe—if necessary even without Britian, which has doggedly resisted such measures. Sarkozy picked up a new ally for the plan this week as well: German Chancellor Angela Merkel is also willing to venture going it alone to implement the tax exclusively within the 17 members of the euro zone. It would not directly apply to London, Europe's most important financial center.

Ironically, it was a Briton who first came up with the idea for such a tax. In 1936, economist John Maynard Keynes suggested using the tax in order to curb speculation. In the 1970s, American economist James Tobin's work on the issue brought the proposed tax to the attention of the left and critics of globalization. The so-called "Tobin tax" was a founding demand of the Paris-based, globalization-critical network Attac, whose acronym stands in French for "Association for the Taxation of Financial Transactions and for Citizens' Action." …

The tax has two aims. First and foremost, it is hoped that it will slow down overwrought financial markets. …

The second aim is that of forcing the financial world to share in the costs created by the crisis. The European Commission estimates that an EU-wide tax would generate up to €57 billion per year. Without Britain's participation, however, revenues would be much lower. …

[Olog-hai]

This is a long article consisting of six pages. Seems to me to bounce towards advocating the tax.

[NVDave]

Some of the problems they hope to “cure” with a Tobin tax could be addressed other ways.

For example: We could simply ban HFT. There’s no need for it. There’s no investor or market purpose served by HFT firms.

Another would be to force CDS contracts onto open exchanges, and to require a buyer of a CDS contract to have a debt position they’re seeking to hedge with the swap - ie, no naked betting on the failure of a debt issuer.

But countries seem to be unable or unwilling to tell bankers “You can’t do X” where “X” is something that serves only the bankers’ interests.

So instead, we get such proposals as this, which won’t really work, and attract political attention because they might generate some revenue.

[jjm2111]

To me, more taxes won’t address Europe’s fundamental issues: a cradle to grave welfare state combined with a shrinking population. No amount of taxes will solve this and create more problems than it solves.

[pfony1]

No tax is needed.

Just pass a law that makes naked speculation contracts “un-enforcable”.

Then, whichever party is the “loser” in the speculation will not have alegal obligation to pay the “winner”.

Game over. Problem solved.

[1010RD]

Transparency in CDS is critical, but I don’t think you’ll dent HFT. I cannot see the coalition to go along with that.

[BfloGuy]

When prices rise because of government currency inflation and when bond prices fall because of government overspending, government will always blame "speculators."

Always have, always will.