Posted on 03/03/2010 5:07:43 PM PST by SmokingJoe
The reckless behavior of a severely bloated financial sector has given us the worst downturn in 70 years. Let's do something about it. Let's put a tax on hyperactive traders.
A financial transactions tax can be an effective tool for downsizing the sector and restoring it to its proper role in the economy so this sort of calamity does not happen again. The idea is to place a small tax on financial transactions to discourage speculation without hampering productive investment. Bills recently introduced in the House by Peter Defazio and in the Senate by Tom Harkin call for a 0.125% tax on each side of a stock purchase, with comparable rates on trades of other financial instruments like options and credit default swaps.
Computerization has brought transaction costs down sharply over the last three decades. Therefore this tax would be pushing trading costs only back to where they were in the 1980s and early 1990s. Both bills have exemptions for trades carried through by pension funds and other tax-sheltered accounts, ensuring that the overwhelming majority of small investors and people saving for retirement will be virtually unaffected by the tax.
Such a tax could raise close to $100 billion a year, depending on the extent to which trading declines in response to higher transaction costs. This money could be used to rebuild infrastructure, reduce other taxes and/or reduce the deficit. The revenue would come largely at the expense of excessive trading in the financial sector. This would yield two benefits: The tax would raise revenue and reduce the volume of speculative trading, which serves no productive purpose. Does rapid-fire trading create jobs or build the nation's capital? I doubt it.
(Excerpt) Read more at forbes.com ...
What does it matter what the purpose is? There is a willing buyer and a willing seller and they come to an agreement.
You begin to regulate these voluntary transactions and then what?
Another tax another regulation for transactions that “don’t have a purpose?” I am sure the progressives and Demorats can find thousands, no millions of voluntary transactions that “don’t have a useful purpose” and tax and/or regulate them out of existence.
And, cost somebody else the same amount of money...while making money for the house out of the transaction. In other words, buyer and seller basically net out and house picks up some money.
Does it do anything for the country? I would submit that if most transactions are “gambling” motivated rather than “investment” oriented, you end up screwing up the market. For gamblers. And for gambling.
And one of the biggest gamblers is management, who might be tempted to go for short term gains and the heck with the future. In fact, that is one of the charges laid to Wall Street.
Back it off Wall Street and make it Bob’s Widget Factory. This morning it is owned by Ted and Nancy. At noon, they sell, to John and Alice. That afternoon to Carol and Joe.
Now, what kind of connection do the owners of Bob’s have to either the company or the management? How likely is management to feel they have a duty to the owners, when the owners are being switched in and out all the time.
How do you have meaningful stockholder’s meetings?
The result is you usually have a minority of owners who end up controlling the company and everybody else are transients.
parsy, who doubts this is good
Yes, but has Wall Street worked right? Isn’t there something in the air that we all feel, like things are getting out of control?
Maybe the problem is partially structural. Wasn’t it 1907 when states passed a lot of the “bucket shop” laws? I submit there is a difference between investing and gambling.
Suppose you hire Bob as your investment guy. You put money into his account. He heads to Las Vegas and puts it all on “red”.
He wins, are you happy? Will you send him back to Vegas with more money? Maybe with your 401K? Do you think what he did should be legal?
parsy, who can’t answer this for anyone else
Guy buys fishing reels for $10.00 from the manufacturer and sells them to fisherman for $10.20.
Every time he sells one he buys another from the manufacturer. He knows a lot of fishermen interested in buying the reel.
Manufacturer pays taxes, guy pays taxes, fisherman enjoys vacation. Everyone is happy.
yitbos
But that’s wholesale-retail thing. Retailer provides a “utility” or “value” for his markup.
With stocks, it is usually all “retail”. Bob buys for $10 from Jack. Bob sells to John for $10.20. John sells tomorrow for $10.30 to Joe. Joe sells to Jack at noon for $10.10.
At each stage, house takes a cut. what is the benefit to society? Liquidity? Price discovery? Wasn’t it Karl Denniger who noted after Chilean earthquake, copper futures went up, even no disruption to the mines. Speculation—what good is it?
parsy, who would prefer boring markets
But that’s wholesale-retail thing. Retailer provides a “utility” or “value” for his markup.
With stocks, it is usually all “retail”. Bob buys for $10 from Jack. Bob sells to John for $10.20. John sells tomorrow for $10.30 to Joe. Joe sells to Jack at noon for $10.10.
At each stage, house takes a cut. what is the benefit to society? Liquidity? Price discovery? Wasn’t it Karl Denniger who noted after Chilean earthquake, copper futures went up, even no disruption to the mines. Speculation—what good is it?
parsy, who would prefer boring markets
But that’s wholesale-retail thing. Retailer provides a “utility” or “value” for his markup.
With stocks, it is usually all “retail”. Bob buys for $10 from Jack. Bob sells to John for $10.20. John sells tomorrow for $10.30 to Joe. Joe sells to Jack at noon for $10.10.
At each stage, house takes a cut. what is the benefit to society? Liquidity? Price discovery? Wasn’t it Karl Denniger who noted after Chilean earthquake, copper futures went up, even no disruption to the mines. Speculation—what good is it?
parsy, who would prefer boring markets
Sorry it triple posted. ???
Okay, when Bob head to Vegas and gamble my money without my consent he has committed fraud. I don’t remember much about bucket shops but I believe there was fraud involved there as well. That is different then speculation.
Suppose I hire Bob to speculate with my money and he buys and sells stocks every hour then I believe what he is doing is legal.
this whole piece is hilarious ! how many thousands of Forbes subscribers were the “finanical mafia” who’ve cost the global economy trillions with the fancy-@ss derivatives ?
How about, instead of taxing the trades, just limit the amount of trading that can be done on margin. In other words, you pay up front, and the risk is all yours. I’m guessing that would put an end to the kind of insane speculation that led to the current meltdown.
My understanding is they put buckets out in front of barber shops for example, and you bet on whether market went up or down, or sugar up or down, or particular stock up or down. I understand, the CMA had to specifically pre-empt state laws against bucket shops so that derivatives could be used.
I think what it boils down to is what is the function of the markets? Another example. say A group of 20 people own the Dallas Cowboys. Every week, 2 or 3 of them sell out and 2 or 3 different ones buy in.
Is that good for keeping control over management or the coaches? I would suggest you start to get a disconnect thing going on and the effect is, 2 or 3 stable owners end up running whole shebang. Is that good for the organization or will the 2or 3 kinda run t for themselves.
If they do, the 2 or 3 might like the price to fall so they can buy up shares cheaper...
parsy
But it also comes down to the property rights of the owners. If an owner want to buy an interest in the Dallas Cowboys on Monday and sell it on Tuesday, he or she should be able to do so unless there is a clause in his sales contract that says he must hold on to the investment for several weeks.
T.Rowe Price put a sliding scale or backend load on its High Yield Bond fund some years ago. The interest rates were high compared to money market accouts and people were using this mutual fund as a highy yield checking accout.
But it was done by a private firm not a government tax.
Funny you should ask that. I am one of those Forbes subscribers, and I do trade stcocks quite a bit. Does stock trading actually contribute anything tangible to the economy? That is open to question. Am I going to be happy about a tax on every trade? Naturally not.
My copy of the March 25 issue, which I just got today
I agree. I am trying to get a grasp on all this financial stuff because I have the feeling that if this isn’t the end, it the last stop before the end. Been reading Market Ticker, an Naked Capitalism with its numerous links. So,I am confused as heck. One minute it looks like Glass Steagall repeal was bad, and then it looks good on the next article.
Anyway, I figure maybe the problem is structural. The corporate model has a reason why it developed and at first, no one contemplated the constant in and out of shareholders. I think there was a more long term view.
Lehman might be a good example. I have read it never would have gotten leveraged at 30 to 1 if not a corporation. That if a partnership, management would not have gambled their money. Here, mgt. gambled. There seemed to be no control. I am curious how diffuse ownership was...
parsy
Birdman prefers The Obammunist cut taxes.
yitbos
Jurisdiction became blurred with the increasingly international nature, of corporations, finance and investing. That much money, apparently coming in no matter what, with murky legalities and even murkier accountability, led to the place we're at now, aided in no small part by government irresponsibility.
Thankyou, you may have bought and sold some stocks I bought and sold to you. Pretty nice system.
If you bought some stock of mine, thanks for buying it. I saw the price on the ticker, didn't you? We agreed on the price? So what if some schmuck sold it to me two years ago at half the price I sold it to you. In that case I will pay The Obammunist 15% on the gain.
yitbos
You have raised questions that will keep financial economists and economic historians business for the next 30-50 years. Well, at least one group of professionals will have job security.
I read somewhere that pensions funds are rolling into energy every month, then back out, then back in.
parsy, who says this is too difficult for him
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