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Cliff Asness Voices In On The Transaction Tax
HR 4191: Probably Dangerous and Destructive, But Perhaps Merely Useless
Clifford Asness
Aaron Brown
Michael Mendelson
AQR Capital Management, LLC
Preliminary Draft, comments welcome: mmendelson@aqr.com
Oregon Representative Peter DeFazio and others have introduced HR 4191, Let Wall Street Pay for the Restoration of Main Street Act of 2009. This bill seeks to fund spending programs by taxing securities and derivatives transactions. As a claimed side benefit in addition to raising revenue, the tax would massively raise the costs of trading, thus curbing “speculation.” But alas, passage of this Act would likely hit the superfecta of unintended consequences as little tax is actually collected, stock prices fall, systemic risks increase, liquidity dries up, and, ironically, credit costs to businesses and individuals rise as banks’ balance sheet capacity gets consumed with favorably taxed-transactions.
The Act, a 0.25% transactions tax, states that it “has a negligible impact on the average investor ” and its sponsors claim that it “will ensure Wall Street pay for needed investment.” Both assertions are false. The sponsors believe that their tax would raise as much as $150 billion per year. Instead, it would raise only a small fraction of that as trading volume diminishes or alters form to reduce the burden. While that drizzle of revenue might ultimately prove to be embarrassing to the sponsors who promised a downpour of cash, the economic costs will be a tsunami to investors saving for the future, businesses raising capital to expand and create jobs, and to banks working to prevent a further contraction in lending.
Once imposed, the tax either “works” and becomes more aptly titled the Let Main Street Pay For the Restoration of Main Street Act of 2009 or, more likely, doesn’t work and becomes the Let No One Pay for the Restoration of Main Street Act of 2009. Which way it goes will be determined by the precise language of the final Bill, but either direction is a wrong turn for taxpayers and investors.
The UK has had a similar tax for some time. In contrast to the DeFazio proposal, the 0.50% UK Stamp Duty Reserve Tax exempts dealers. This exemption leads to a simple device that miraculously eliminates most of the potential for tax collection and its adverse consequences; investors, both large and small, purchase economic exposure to stock through derivatives trades with dealers. The dealers retain the actual legal ownership of the shares and investors buy the returns from them. To anyone interested in the democratization of corporate governance, forget about it in this case as the investors owning the returns no longer own the shares.
An unfortunate side-effect is it moves a huge volume of assets onto dealer balance sheets, something we won’t be too happy about when the next financial crisis arrives. As bad as 2008 was, imagine if one of the few well-functioning markets at the time, the stock market, all of a sudden also came to crisis because so many customer positions were actually carried on the books of a handful of troubled firms.
All of that seems pretty unwelcome and not at all what the Bill’s sponsors intend, so maybe they will not and add a UK-style dealer exemption. Perhaps they also will close off other ways to avoid paying the tax. In that case, investors either pay it or substantially stop trading. If, for some reason, investors are willing to keep on trading a lot and pay a lot of tax, then one thing has to happen – stock prices will fall, a lot. Why? Because the transaction tax imposes a tax on the value of the assets, it gets paid out of the cash flows from the underlying securities. One simple result is that stock prices adjust downward to reflect much of the expected present value of the future stream of taxes. If such a tax were really to generate $150 billion per year, and that cost was evenly distributed amongst investors (it’s hard to predict that but it has to come from somewhere), that value destruction might be in excess of $1 trillion in the $13 trillion US equity market. It is doubtful that the bill’s supporters intend to drive down stock prices, particularly nowadays, though that’s why the consequences are called “unintended.” In fact, their discussion implies they think Wall Street will bear all the costs and this is simply false.
The transaction tax is a tax on investors, not bankers. Even if some investors (e.g. mutual funds, and tax-advantaged savings accounts) are exempted from paying the tax, all investors will pay in the form of lower share prices. Notice that nowhere in this process are bank profits taxed, and banker compensation is only hurt by hurting their business, probably not the objective of any of HR 4191’s sponsors. Instead, Main Street will see lower pension fund values, both in their own retirement savings and in the public employee pension plans they will now have to top off with new taxes on their homes and incomes.
It's highly likely that far less than $150 billion per year in tax actually will be paid as trading volumes decline sharply. So the Bill becomes ineffective at raising revenue, but the good news in this case is that share prices will decline less. Trades still will happen, some tax will be paid, and share prices still will fall some. However, the bad news is that a host of side effects will be significant and all dangerous. Trading costs will soar as market making activity is taxed to near extinction. Bid/ask spreads will widen substantially. When an investor wants to sell, there will be fewer market makers to intermediate between him and a future buyer of the same stock. Instead, sellers will have to coax buyers into trading immediately by offering a healthy discount. We will turn our very liquid stock market into an illiquid or at least far less liquid one, to our collective regret. Anyone remember 2008 and the destructive power of illiquid markets?
The problems above are symptoms of a market getting less efficient. Here is another one, volatility will rise, too. How could it not? Without liquidity providers, buyers and sellers have to act more aggressively to find trading partners, so we will see prices jump around more than we do today. And the speculators? Well, they aren’t the ones who trade a lot, it’s the liquidity providers who do. Will the 0.25% tax prevent a speculator from buying the $50 stock that the Internet chat room says will soon trade at $100? No, but serious investors will be deterred and market prices will become less efficient. We will be paying for that either in the next bubble or the crash that follows it as Mom and Pop buy grossly overpriced shares then sell them at the bottom in an implosion that should never have happened.
The sponsors and some commentators like the tax as a means to eliminate “high-volume short –term speculative trading.” And, yes, the tax would likely put high frequency traders out of business. The problem is that these are today’s market makers, our liquidity providers now that the older, traditional (and ironically more expensive) ones on Wall Street are largely gone. High frequency traders run relatively low risk businesses that serve a needed role in our markets, but they aren’t speculators.
Others like the tax because they hope it will reduce trading done by what academics call “noise traders” and who you might call traditional money managers. A transactions tax would presumably reduce the trading of those who aren’t very good, but it also would reduce the trading of those who are and whose trades are necessary to make prices reflect economic reality. In fact, if noise traders exist it’s highly likely they are “overconfident” and one could easily imagine their trading falling considerably less than their better informed cousins.
Should Congress and the President find enough appeal in HR 4191 to enact it, there are three possible outcomes. The first is that there are enough loopholes that the tax raises little money but has unfortunate side effects like driving jobs and tax revenues overseas or inflating the balance sheets of banks. The second is that there are no meaningful loopholes but, surprisingly, people still trade a lot and enormous taxes are paid, in which case we expect stock prices to fall dramatically. The third, and most likely, is that there aren’t enough exemptions and investors react by sharply reducing trading activity, so there is little revenue but great harm to the market and the economy. Whichever of these occurs, the sponsors of the Bill will face a hard time explaining how, when aiming to shoot the banks, they shot their constituents who will then pay for the next Wall Street bailout.
h/t Stumblingontruth
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if he's against it, I'm for it
I agree with his analyze on the taxes transaction tax.
All taxes are passed down to the middle class and poor. It isn’t my opinion it’s a fact of life. Almost everything the government does make life harder for the average person. If you want a better life promote less government and less taxes.
If you want to punish someone either sends them to jail or to the chair.
If taxes are always passed down to the middle class and the poor why does big business always fight to have their taxes reduced. We all lived better under a higher tax for the UBER's. And the vast majority pay a sales tax, wall street is not special and should not be exempt. If you are worried about the small investor, he can have an exemption.
Because they want to complete with other business in other countries. If less taxes the cost saving will be passed down to the consumers. If they can’t get a tax break then they will pass it down to the consumers and sooner or latter those business will either go out of business or move to another country like you know China.
Which would you buy?
1. A hammer that cost $10 due to high taxes and regulations?
Or
2. A hammer that cost $1 that is made in China that doesn’t have high taxes and low regulations. The American version might last long and better looking,, but overall both do the same thing at the end of the day. BTW they also have to ship it to the USA.
98% will pick 2 because they get more for their money. This translates to loss of jobs in the USA because we can’t complete.
We don’t live better then we did 50 years ago. We make less, work more and a lot poor then 50 years ago. What you see is an illusion.
We all paid sale tax and the people that work at Wall Street paid sale taxes when they buy like you know a hotdog for lunch. Business don’t paid sell taxes. Business collect sale taxes. Consumers paid sell taxes. Government waste your sales taxes.
Think before making judgment. Use the brain that God gave you.
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Ditto. I opposed the tax until I read this piece. If he's bitching that much it means it will clearly have the intended effect.
Asness is great. As a market maker, I can tell you the first thing I'll do if this tax is passed is close shop in the United States and expand our business abroad.
I don't think it'll pass. This moron Defuzzyhead has had a hard-on for this tax since he crawled out of some hippy's womb. He brings it up every couple of years and even Nancy Pelosi understands that she everyone has to sign on for it to have the intended effect of making everyone who trades a slave to it.
You are correct. All taxes hurt Americans especially the middle class and the poor. It does nothing other then gives other countries jobs. A lot of Americans doesn’t realize this because mostly they are stupid.
Less regulation, less government, fewer taxes equal better living standard, more freedom, better economy, more jobs, and less waste.
Hear there's plenty of vacant office space in Dubai.
And please, don't let the door hit you on the way out.
withdraw liquidity, increase interest rates and re-instate Glass-steagal act...BINGO
Anyone who thinks the current financial mess is due to excess liquidity in the stock market has no idea what they're talking about.
I mean...come on...really?
In the case above in which the tax is effective, I do NOT believe it will the severe deletirious effect Mr. Asness thinks it will, particularly on many (maybe "most") individual and institutional investors. These investors tend to invest strategically, that is, longer term investments based on some search research on prospects and risks. The impact of a transactions tax at any reasonable rate would be nominal.
OTOH, the good news is that the tax would probably make hyper-HTF trading--as has dominated some 40% of market trades this year--unprofitable. Since these trades create no value, but rather suck the value out of legitimate investment trades, their unprofitability would be a very good consequence. Indeed, it might lead to stop of this parasitic trading behavior.
these high frequency trades provide liquidity and liquidity is of very high value to those institutional investors you're talking about if they aim to get in and out of meaningful positions without moving the market around all over the place.
Less liquidity means more risk and more risk means lower stock prices and higher volatility.
So what happened prior to HFT?
People paid much high spreads (measured in fractions) to human market makers that colluded on pricing.
http://www.justice.gov/opa/pr/1996/July96/343-at.html
There has never been a cheaper time in the history of trading to transact (frequently 1 penny spreads and retail commissions available at 1/2 penny per share), and any reversal of that through taxation or other legistlation will result in lower share prices as the cost of transacting must be accounted for in any valuation model (as a reduction in income - and hence reduced by whatever multiple you think appropriate for the equity in question).
Two near crashes in ten years. Yeah, this liquidity thing is just awesome.
Maybe there should be a lot less liquidity so some of these traders would quit playing their keno games and use those brains God gave them to GET REAL JOBS and provide something to humanity of VALUE. Maybe they'd become doctors or engineers or physicists or anything else but the LEECHES they are.
Matching natural buyers and sellers over different time horizons may not be your cup of tea, but if you think it is not a useful function for society, than you have never given much thought to the structure of functioning capital markets, and certainly do not frequently trade any financial instruments.
As for the 2 crashes in ten years - there is ample evidence of markets bubbling up and crashing down not only preceeding the use of computers in trading, but several hundreds of years prior to their invention. Pick up a copy http://www.amazon.com/Devil-Take-Hindmost-Financial-Speculation/dp/0452281806
I know it must feel great to use the caps lock key every now and then and refer to other folks as leeches, but you might actually learn something if you read the full letter Cliff Asness wrote and gave it thought, rather than just react to it in the most juvenile way possible.
Well said, Peter.
I get your point that the spreads are smaller but if the computers are driving up the share price (as many articles I have read claim they do) how does it help the little guy who ends up paying an artificially high price for the security?
I'm not a trader and I generally don't despise gov't interference and taxation but I haven't been sold this HFT thing benefits anybody except those who have the power to exploit it.
That's just populist ramblings coming from people who don't understand HFT - like much of what's being thrown around. HFTs can't push markets around in any significant way with their small capital base, mostly market-neutral strategies, and no leverage. They also wouldn't want to if they could, as moving the market is actually extremely expensive, with huge slippage costs. This is not at all how HFTs operate or how they make their money.
Before HFT there were market makers. Market maker margins are very slim and HFT has a lower cost basis. The idea is the same.
Is his name pronounced like "ass-ness," as in, having the quality of "ass," which in this case, by sheer coincidence, seems quite likely? If true, also consider the school yard jeering he must have endured as a child, as explaining and perhaps even excusing his current stance on what I will agree is a ridiculous, ill-conceived scheme of taxation, but for completely different reasons not supportive of his particular industry's niche.
So, Cliff is basically saying ..Let us continue to steal or we blow you up. What an asshole. How is he any different from any two-bit protection racketeer?
What are you smoking?
The kind that destroy brain cells.
I want some of what Cliff is smokin.. I mean, what is it that makes your balls bigger than your brain? mo balls man..that's it, gimme yo shit sucker, and smile while you're doing it and smile wide cause I'm helping you with liquidity. Really bitch, I'm helping you so gimme your stuff.
"Whichever of these occurs, the sponsors of the Bill will face a hard time explaining how, when aiming to shoot the banks, they shot their constituents who will then pay for the next Wall Street bailout."
So, basically, let us keep fucking the taxpayers, or else we'll make it look like it's your fault next time. Protip: if your business model is dependent on churning a stopped toilet, you are not adding value to the real economy. Unless, of course, you're a plumber.
His Assness is promoting liqidity like it it is essential to a free market. Free and efficient markets do not require crutches to function. If there is no market for your asset maybe it's not really an asset. Of course the only ones that benefit from the liquidity crutch are TBTF failures and ass hats pretending to provide liquidity while front running every dog shit asset they can.
But please, by all means give me more liquidity, I need another bubble.
you need liquidity providers because asinine SEC rules dictate who can trade and when. That interference sucks liquidity out. So, the role of market maker must be created. The more liquid the market and the less restrictions on shorting, the less likely it is to become bubbly. But, please don't let a little thing like logic interfere with your spewing.
You want to be a market maker, step up and be a market maker, don't put a few hundred or thousand transactions per millisecond in front of my order and call yourself a market maker. You are not providing liquidity, you are a parasite. You are also a criminal currently enjoying blind (to you) justice.
I'm not a parasite, but you are clearly a moron. No market maker nor HFT, unless exempt, will survive what amounts to a several thousand percent increase in their trading commission costs. You clearly know nothing about how the capital markets work but you're just stupid enough to think you are qualified to decide how it should work. Are you by any chance a politician? Barney? Chris? Chucky Cheese Schumer? Which one are you?
HFTs can't actually jump in front of peoples' orders as though they have knowledge that an order is coming ahead of time - they have latencies of a few milliseconds, not negative milliseconds. They reason HFTs have to be fast is because they respond quickly to market events, and they have to respond faster than other HFTs - all of this competition leads to tighter spreads and deeper books.
I would be far more interested in the opinions of Cliff's butler, maid, limo driver, and cook.
They told me he's created 4 more jobs than you. Just talked to them yesterday.
Assuming no change in behavior (a stretch) how are any new or additional taxes collected? If gains in the stock market are taxed won't this tax reduce overall profits by an equal amount?
If the tax is enacted it will simply be a pass through. Consider this a .5% tax on transactions is really a 1% tax on all future holdings. Real equity returns are around 6-7% on average. This means the tax will eat up almost 15% of annual returns with annual turnover.
Spreads will widen even more unless market-makers are exempted. How often does a market-marker's book turn? 5x a year? 12x a year? Very quickly the business is uneconomic. So let's assume market-markers are exempt and continue.
My forward equity returns are now 5-6%. Worse than high yield but lower in the cap structure? You gotta be kidding me, get this junk outta my book. Equities drop until they one again have earnings yield of around 9-10% nominal or 6-7% real - quite a ways from where we are now given CAPE's, Tobin's Q and ROA normalized multiples.
Companies have a hard time raising money and their cost of equity will increase in proportion to the size of the tax. ROIC / WACC spreads are on average only 250bps so a 1% increase in their cost of capital will eliminate a serious number of projects and with them jobs. Bravo Mrs. Speaker, once again, you have no idea what you are doing. Ride that populist wave until there is nothing left. Bravo...
If the tax is enacted it will simply be a pass through. Consider this a .5% tax on transactions is really a 1% tax on all future holdings. Real equity returns are around 6-7% on average. This means the tax will eat up almost 15% of annual returns with annual turnover.
Spreads will widen even more unless market-makers are exempted. How often does a market-marker's book turn? 5x a year? 12x a year? Very quickly the business is uneconomic. So let's assume market-markers are exempt and continue.
My forward equity returns are now 5-6%. Worse than high yield but lower in the cap structure? You gotta be kidding me, get this junk outta my book. Equities drop until they one again have earnings yield of around 9-10% nominal or 6-7% real - quite a ways from where we are now given CAPE's, Tobin's Q and ROA normalized multiples.
Companies have a hard time raising money and their cost of equity will increase in proportion to the size of the tax. ROIC / WACC spreads are on average only 250bps so a 1% increase in their cost of capital will eliminate a serious number of projects and with them jobs. Bravo Mrs. Speaker, once again, you have no idea what you are doing. Ride that populist wave until there is nothing left. Bravo...
If the tax is enacted it will simply be a pass through. Consider this a .5% tax on transactions is really a 1% tax on all future holdings. Real equity returns are around 6-7% on average. This means the tax will eat up almost 15% of annual returns with annual turnover.
Spreads will widen even more unless market-makers are exempted. How often does a market-marker's book turn? 5x a year? 12x a year? Very quickly the business is uneconomic. So let's assume market-markers are exempt and continue.
My forward equity returns are now 5-6%. Worse than high yield but lower in the cap structure? You gotta be kidding me, get this junk outta my book. Equities drop until they one again have earnings yield of around 9-10% nominal or 6-7% real - quite a ways from where we are now given CAPE's, Tobin's Q and ROA normalized multiples.
Companies have a hard time raising money and their cost of equity will increase in proportion to the size of the tax. ROIC / WACC spreads are on average only 250bps so a 1% increase in their cost of capital will eliminate a serious number of projects and with them jobs. Bravo Mrs. Speaker, once again, you have no idea what you are doing. Ride that populist wave until there is nothing left. Bravo...
deja topic
what's "wrong" with an approach like this, instead of another TAX?
As far as I can tell, we are debating a mechanism that would reduce some negative aspects of our equities markets. Thus far, this “negative” behavior has been described as HFT. And, moreover, all HFT has been described as “negative” (in respect to the so called “fairness” of our public markets). On the opposite side of the debate, we have claims that market participants engaging in HFT, also, and at the same time, provide the service of liquidity as well as trading costs reduction, in the form of (relatively speaking) narrower spreads. Lastly, the 3rd side is against any (and all, especially new) taxes to be paid to the government.
Each side has thus far refused to accept the other’s claims. I will take a completely different approach - I will assume that all sides of this argument are making valid arguments, and that each of these arguments is worth being addressed by any change worth pursuing. Therefore, I will attempt to describe an approach to simultaneously address all of the above 3 main arguments.
Before I continue, let me make some basic statements/assumptions I will use as the foundation for my approach:
1. (buy-and-hold) Investors are the most important market participants. Market structure should discourage (and not necessarily eliminate) any behavior which would tend to drive away Investors.
2. Any “negative” consequences of HF TRADING, is about trading and not about attempts to trade – you can not “steal” profit from another trader (investor), unless there has been a trade.
3. Therefore, HFT should be described in terms of position turnover (and not in terms of orders). Once we decide to use such a distinction, we can attempt to distinguish trades made as a result of Investor behavior vs. those trades made as a result of a Speculator behavior, for trades made in each instrument and the same account.
4. Moreover, if we “assume” all HFT trading to be 100% speculative only, and entirely detrimental to Investors, then the extent of such a detriment can be only the amount of profit made on the profitable side (of this zero sum game).
Long story short, here is my “proposal”:
a) Define HFT as “trading of individual securities in an individual (brokerage) account where the total nominal amount traded in one fiscal day exceeds X pct (e.g. 500%) of the maximum nominal position of the security in that account, held at any one moment during that fiscal day”.
b) Once the total nominal turnover pct ratio has been reached, all “profit” made in that security/account/day is designated as HFT profit (net of all other fees and commissions) and is subject to Y % (e.g. 20%) fee to be collected by the broker and remitted to DTCC. In other words, if you have a 10k shares position, you could basically trade in-n-out 100share trades all day long and keep all your profits. And If you started with 0 shares in that same stock, once you hit your 3rd round trip, all the money you made that day in that stock/account would be levied the HFT pct fee.
c) DTCC is the holder of all these cumulative fees per security, to be distributed quarterly, based on the ratio of each title holder of record pct of shares outstanding and number of trading days held over the previous quarter. In other words, if you held 10% of all shares outstanding of some stock during the entire quarter, you get 10% off all HFT profit made in that stock during that quarter.
d) For the purpose of 401k, mutual funds, ETFs etc, make these DTCC “distributions” the same as dividend payments.
e) Pct X and Y are to be “negotiated” periodically and their implementation to be monitored by whomever is regulating the exchanges (perhaps the 2nd smartest person on ZH can invent a process for this “negotiation”).
Basically, we should let the speculators still continue to inadvertently keep providing liquidity while making money, and use the profits they extract from their “victims” to encourage the victims’ continued participation in the marketplace. Meanwhile, the gov. does not get another opportunity to squander more of our money – the printing press is more than sufficient.
How long might an approach like this, continue serving its original purpose? Certainly not forever – just like today’s traffic regulations might require modification to address changes in behavior once we start flying our cars.
You make some reasonable points, and, yes, although the goal of speculators is to make money (as is investors), the end result of the added competition is generally to add liquidity. The point that you, and many opponents of HFT miss, however, is that anyone who trades with a long horizon has always paid some costs to execute and these costs have fallen over time, and especially as a result of HFT. Measured 3 different ways:
1) Specialists used to make more than HFT makes now - there have been studies on this, let alone how much broker-dealers and pit traders used to make
2) Banks still continue to make many times more from institutional execution businesses than HFT - for example, Goldman makes about 10X from the REDI platform than actual prop HFT
3) Directly measuring institutional investors execution fees According to Elkins McSherry, which specializes in trade cost analysis for institutions and publishes an annual survey in Institutional Investor found that transaction costs (commissions, fees, and market impact) have plummeted in the HFT era - over the last 8-10 years. Overall, they have dropped 35% and dropped the most in markets that have the highest HFT prevalence (50-60% in us equities) and the least in markets that have the least HFT prevalence (~10% in asian equities, where HFT only represents 5-10% of volume).
If they want the banks to pay more tax why not increase the banks tax rates directly?
Put that blonde on.
duh. the reason for the collapses had nothing to do with high frequency trading. they had to do with too much leveraging up, parcelling up loans (housing) and CDS.
fix those, you solve most of the problems from before.
the transaction tax solves none of those, but makes individual traders like me go out of business, or look to offshore.
Tobin himself abandoned the idea so why is the EU even debating this tax?
Published: December 15 2009 02:00 | Last updated: December 15 2009 02:00
From Mr David Beddington.
Sir, Gordon Brown is wrong when he says European Union leaders are “trying to make a global supervisory system that makes sense for all the financial centres in the world” (“European leaders push case for Tobin tax”, December 12).
A financial transaction tax does not attempt to address the cause of the recent crisis and would be a destabilising action. Not all financial market participants would contribute equally. Different types of investors trade at different frequencies and would therefore be affected differently by the tax. Equity market-makers trade more often than traders of collateralised debt obligations or mortgage derivatives. The latter contributed more to this crisis, yet his proposal would tax the former more.
The liquidity impact from this tax is extremely hard to judge. Liquidity does not respond in a linear fashion and is one of the most difficult aspects of markets to model, although a tax would obviously be very negative. While the illiquid and low trading frequency credit markets (at the heart of the recent trouble) froze last year, the more liquid equity markets had fewer issues clearing and the highly liquid, rapidly trading Group of Seven government bond and forex markets cleared consistently. So the tax would hit the source of the problem the least and directly diminish the liquidity, therefore increasing the risk, in the markets that did continue to function because these markets have a higher average trading turnover.
The economist James Tobin floated the proposal to deliberately make finance less efficient. But it seems bizarre that to repair a damaged industry the politicians want to make it less efficient. Even Tobin himself abandoned the idea.
The problem with finance is with an implicit or explicit guarantee of banks by governments and taxpayer-subsidised lending through central bank facilities. The long-term solution to this might be to have banks hold more capital so they are more stable and pay an appropriate fee directly connected with the size of the obligations that governments are insuring. This has nothing to do with transaction taxes, or banker bonuses for that matter. As for using the tax to pay for environmental damage why not try taxing polluters instead? That might actually raise money and provide incentives to reduce emissions. The transaction tax does not “make sense”, so why is the EU debating this side show?
David Beddington,
London EC3,
Let's just make it simple here....
Here is what the Transaction Tax WILL DO...
The Big Banks will become the market makers once again....
thereby controlling the spreads in stocks....
The Big Banks will be exempt from any transaction tax....
Without market making....THERE IS NO MARKET....
The difference between the bid and ask which will widen dramatically.....just becomes another multi-billion guaranteed revenue stream
for the Big Banks...
Only the RETAIL segment would pay this tax....
The politicians that have proposed this tax have told the public that it would be a way to directly tax the banks....when in fact it guarantees a new profit windfall....and more control of securities prices....and simply dramatically increases the costs to RETAIL ....
The Big Banks will never pay a dime with this type of tax....
..............................
A direct tax on Big Bank profitability is the only way to provide for an effective tax that the BIG Banks would actually pay....
Furthermore....Big Banks should be separated from the securities business via Glass Steagall...
As far as correcting HFT or other harmful algos....
the solution is very simple....All orders must be made good for 1 sec minimum....
http://www.ft.com/cms/s/0/1513400e-e8cf-11de-a756-00144feab49a.html?nclick_check=1
Don't forget the host of global exchanges salivating at the prospect that the drive our exchange volume into their warm tax free arms. I hope they are able to laugh under their breath and not outloud when they tell us check mate.
We drove our manufacturing base to Asia, only the naive and foolish do not see that this will do the same thing with our markets.... which are the envey of the world.
It's the perceived lack of corruption that makes our markets the envy of the world, allowing the cabal of front running insiders to rape and pillage investors at ever increasing rates will indeed send investors fleeing elsewhere. Somewhere along the line it seems like Wall Street snugly fitted their collective thinking cap on backwards.