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To: Licensed-To-Carry
Top Quark is spot on, but his commentary doesn't go NEARLY far enough.

The author of this proposed plan doesn't understand the mkt mechanism at all. He says blithely that ''day trading and ... will decrease'', and to that extent only, he is correct. However, even notwithstanding the relative idiocy of the tactic of day trading, this tactic and others (arbitrage, conversions, reversals, etc.) perform an enormously valuable service to the mktplace as a whole: they increase overall liquidity, which is absolutely essential in mkts traded on a worldwide basis, as most stock mkts and many futures mkts now are.

Tax the day trader, the floor specialist, the market-maker -- even to his putative ''fair'' rate of 0.6%, and some considerable fraction of these folks will pick up their marbles and go home...and everyone else in the mkts, save only the huge institutions, will be adversely affected, beginning with the very next trade.

The OTHER huge error in this notion is that the ''value'' of a financial transaction is necessarily a known quantity. This is outright rubbish. What's the taxable value of my purchasing one contract of September crude on NYMEX, say, at the close of yesterday's mkt? The mkt settled at $46.58/bbl, the contract size is 1000 bbls. Does this mean that he proposes that the entire contract value of $46,580 be taxed at 0.6%? Good luck, Jack; that turns out to be $279.48. He wants buyer and seller to each pay half that, 139.74? Won't happen. EVER!.

Why? When one adds in normal brokerage commissions (are THESE to be taxed, too, btw??), the bid-ask spread in the mkt, and assorted floor and clearing charges, this total cost will work out to something like $160.00/contract just to enter the position, with ANOTHER $160 or so payable when the position is closed out. $320.00 in crude is 32 points, so therefore the trader will be required to be correct in his mkt view to the extent of 32 points BEFORE making any profit. Congratulations, you academic jackass, you just shut down every futures mkt in the world. NO TRADER WILL PLAY under these terms, dorkasaurus...and the futures mkts will close.

Now, I think I can guess what yon bozo will say here: ''No, no -- the trader only puts up $2200 or so per contract in order to trade, so THAT figure is the taxable one.'' Traders MIGHT live with that extra cost, about $13.20 per trade, but I'll tell you who won't -- and their presence is every bit as necessary to liquid mkts as is the presence of the trader: the floor traders (''locals'') and some number of market-makers. The mkt-makers many times operate on far LESS than $13.20 per contract as a profit margin, and some considerable number of locals will say: ''Screw this, I'll just trade electronically.'' Others, of course, will find some more profitable way to spend their time. In either case (and I've nothing against e-trading at all, btw), liquidity will further suffer. These problems are exacerbated to one or another extent in the spot forex mkts, too, btw. Traders outside large institutions are already unhappy with the quoted spreads -- and this ding-a-ling proposes to expand them? Sheesh.

There are dozens of other problems with this loony-tune scheme, too. Show me, Mr. Professor Putznagel, how you propose to tax option transactions. Is the taxable amount the gross value of the option? The net after commissions and costs? The amount of SPAN margin required?

As (maybe not even) a final insult, this thief proposes (read the article again if you don't believe it) to levy this tax ANY TIME one adds funds to or removes funds from a brokerage account. No ''transaction'' here, just taking out of one pocket and putting into another.

Bah! Go shoot an elephant, you thieving redistributionist nimrod, so you'll have some raw material with which to repair your ivory tower after the traders of the world blow it to bits with a nice surplus howitzer.

31 posted on 08/14/2004 4:09:37 PM PDT by SAJ (Buy 1 NGH05 7.75 call, Sell 3 NGH05 11.00 calls against, for $600-800 net credit OB. Stone lock.)
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To: SAJ

Sigh. The problem is, so many people see "transaction" and they think that means "retail sales transaction". So this proposal becomes "instant tiny sales tax - what could be wrong with that?"

It's hard to explain that "transaction" also means, say, "Swiss Re transfers $41 million to a bank account in Dallas for 24 hours" or something like that. And it's even harder to explain that it's now more important to the American economy that this kind of transaction take place smoothly, than that anybody in America makes tires or steel or textiles.


38 posted on 08/14/2004 5:32:40 PM PDT by SedVictaCatoni
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