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White House Vows Not To Water Down Volcker Rule, As European Commission Is About To Endorse Tobin Tax

Tyler Durden's picture




 

Just headlines for now. Headlines will turn to headaches for Goldman longs shortly. And what will really set off the migraine is the just released announcement that the European Commission will back a Tobin Tax on financial institutions. We are fairly confident that this would not be proposed without at least a preliminary nod from their counteparts across the Atlantic. We believe that the slow but certain conversion of the banking sector into a utility industry is now reality. And yes, bonuses in utilities max out at 25% of the base, not 2,500%.

Reports Dow Jones:

European Commission policymakers will endorse the idea of a "Tobin tax" on financial transactions to help European governments boost revenue, in a report due out next week." New tax bases, e.g., financial transactions, should be explored, in a coordinated way, as potential sources of government revenues," says the commission's "2020" outlook. AFP was able to see a copy of the report to be released March 3.

The idea of taxing the financial industry, in the wake of the economic crisis, still divide European Union leaders. Efforts to coordinate such a tax on a pan-European basis would face huge obstacles as taxation is a reserved power at the national level.

The new European Commissioner for financial services, Michel Barnier, has endorsed the idea. Barnier said in a recent AFP interview that such contributions from banks, insurers and markets could be used to lessen the budgetary load on states weighed down with post-crisis deficits and debts. The taxes could also provide funding for challenges such as climate change or food security.

U.K. Chancellor Alistair Darling, whom Barnier will visit in the City of London next month, has said that E.U. finance ministers had a "constructive discussion" on proposals by Sweden for "a levy on systemically important financial institutions," which will be debated in Madrid in April.

Time to short the XLF

 

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Tue, 02/23/2010 - 15:15 | 241968 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Tobin tax yes.  will it be too late......

Tue, 02/23/2010 - 15:36 | 241974 velobabe
velobabe's picture

The doomsday cycle Peter Boone, Simon Johnson, VoxEU

  • Shiela Bair Rejected by Vogue Over Her Looks, but Geithner Gets the Nod - 02/23/2010 - Yves Smith
  • Tue, 02/23/2010 - 15:37 | 242015 Mr Lennon Hendrix
    Mr Lennon Hendrix's picture

    The downward spiral is sinching.

    Tue, 02/23/2010 - 16:33 | 242136 cougar_w
    cougar_w's picture

    [doomsday cycle]

    Must Read!

    This was really brilliant. Nothing new, but very well synthesized.

    "Once shareholders have a serious amount of funds at risk, relative to the winnings they would make from gambling, they will be less likely to gamble."

    How can anyone not agree with this premise? 15% capital requirement seems perfectly sane to me.

    Tue, 02/23/2010 - 17:34 | 242261 velobabe
    velobabe's picture

    To some, suicide attack on IRS made pilot a hero (washingtonpost.com)

    while the rest of this country is getting ready to open up a can of joe stack. h/t crab cake

    Tue, 02/23/2010 - 22:28 | 242637 Anonymous
    Anonymous's picture

    Joe Stack was a murderer/suicide. Period.

    Tue, 02/23/2010 - 15:19 | 241979 Going Down
    Going Down's picture

     

    US Treasury Secretaries of the last 40 years.

    John Connally DEAD
    George P. Shultz ENDORSES VOLCKER RULE
    William E. Simon DEAD
    W. Michael Blumenthal ENDORSES VOLCKER RULE
    G. William Miller DEAD
    Donald Regan DEAD
    James Baker
    Nicholas F. Brady ENDORSES VOLCKER RULE
    Lloyd Bentsen DEAD
    Robert Rubin
    Lawrence Summers

    Paul O'Neill ENDORSES VOLCKER RULE
    John W. Snow ENDORSES VOLCKER RULE
    Henry Paulson

     

    http://jessescafeamericain.blogspot.com

     

    Tue, 02/23/2010 - 15:28 | 242002 Oracle of Kypseli
    Oracle of Kypseli's picture

    Utter nonsense.

    Break the bloody banks you frigging cowards, they should be performing a public function not operating casinos.  

    Tue, 02/23/2010 - 16:06 | 242089 Assetman
    Assetman's picture

    Love and kisses,

    Steve Wynn

    Tue, 02/23/2010 - 16:29 | 242127 carbonmutant
    carbonmutant's picture

    +1

    Tue, 02/23/2010 - 15:33 | 242011 Anonymous
    Anonymous's picture

    and now the cat is out of the bag, the last great bull market in stocks was 2009

    we will now always be at 10k, for appearance sake

    hmmmmmmmmmmm

    Tue, 02/23/2010 - 15:40 | 242026 Anonymous
    Anonymous's picture

    How is this tobin tax a good thing? Ok, so any investors of intermediate or short term get out of stocks in part or completely as its like paying $200 commissions to buy or sell stocks.
    As liquidity from those players dries up, and as market makers and traders still left in the business need to make more, spreads widen, commissions are raised.

    So, liquidity vanishes, and the risk reward of owning financial instruments encourages lower valuations.

    Volume dramatically declines and therefore taxes hoped to be made come in far under expectations. When the next wave of economic bad news comes in, only 20% of the trading firms are left, and therefore there is far less liquidity to support the system. Therefore, the PPT steps in again.

    In the end, the PPT/Fed buy even more, the taxpayers - mom and pop - pay for it, and Wall St is simply vacant.

    This is retarded. Start by making the people who took to much risk to stop taking that risk - - separate banks from trading and punish bondholders and equitiy holders of bailed out entities.

    Tue, 02/23/2010 - 17:04 | 242204 Anonymous
    Anonymous's picture

    The point is that the more you trade the more you are speculating rather than investing, we want to tax speculation not investment. What use is liquidity when most of it is just swapping hands every 5 minutes, its this that leads to stupid p-e's. I'd happily have a wide spread if there was a sensible valuation against earnings which could actually underpin an annuity. Tobin will mean less speculation, less warrants skimming profits and companies more accountable to shareholders because more shareholders won't just be treating them as a racehorse but as an actual investment.

    Tue, 02/23/2010 - 17:05 | 242205 Anonymous
    Anonymous's picture

    The point is that the more you trade the more you are speculating rather than investing, we want to tax speculation not investment. What use is liquidity when most of it is just swapping hands every 5 minutes, its this that leads to stupid p-e's. I'd happily have a wide spread if there was a sensible valuation against earnings which could actually underpin an annuity. Tobin will mean less speculation, less warrants skimming profits and companies more accountable to shareholders because more shareholders won't just be treating them as a racehorse but as an actual investment.

    Tue, 02/23/2010 - 15:44 | 242038 Anonymous
    Anonymous's picture

    The utterly gutless and spineless Harper government in Canada has declared they don't support a bank tax. But then again, they just 'jumped the shark' and might not be around much longer anyway. The usual neo-con shell game 'we will slash spending, we will not raise taxes'...and people still believe this nonsense.

    Tue, 02/23/2010 - 17:51 | 242289 Anonymous
    Anonymous's picture

    Wow Harper bashing on ZH. I never thought I'd see the day.

    You must of crawled over from the CBC website.

    Wed, 02/24/2010 - 11:00 | 243089 Anonymous
    Anonymous's picture

    National Post actually. Sorry to bust your overt simplifications.

    Tue, 02/23/2010 - 15:49 | 242051 Anonymous
    Anonymous's picture

    Blah Blah Blah fucking Blah Blah. Fucking Blah Blah , Blah Blah Blah.

    Tue, 02/23/2010 - 15:49 | 242053 ArkansasAngie
    ArkansasAngie's picture

    they are a monopoly.  Goldman et al have a tollroad

    Tue, 02/23/2010 - 15:51 | 242055 crosey
    crosey's picture

    Would we need a Tobin Tax if we simply reintroduced the gold standard?  Can we put the serpent genie back in the bottle? 

    Tue, 02/23/2010 - 15:51 | 242056 Anonymous
    Anonymous's picture

    " We believe that the slow but certain conversion of the banking sector into a utility industry is now reality"

    and if enacted it only took two great depressions to figure it out

    Tue, 02/23/2010 - 16:05 | 242088 Anonymous
    Anonymous's picture

    It has become clearer and clearer that the Europeans just want to implode....

    All exchanges will be housed in Switzerland, Singapore, and Hong Kong.....

    The exchange is just software....ready and waiting to move to the correct domicile....

    And it WILL....

    Tue, 02/23/2010 - 16:11 | 242096 Anonymous
    Anonymous's picture

    letter I wrote to the FT:
    Sir,
    I find it disturbing that in the arguments on HFT there is no philosophical discussion of what purpose a "market" should serve. Many months ago I stipulated to your paper that a section should be devoted to technical analysis. It is no surprise to me this hasn't happened, but I find the continued devotion to a single method of analysis to be disturbing.

    The establishment promulgated the idea of an efficient market for much longer than the data would support. In effect your continued reliance on a written narrative does just the same. There is always a rational reason why the market moved. We know markets are irrational, yet you continue with this folly. If markets actually functioned in even close to the methods you describe there would be much less correlation between items. This does not imply there isn't a rational reason, but that is less frequent than you would stipulate.

    Markets function the way they are traded. Hence with the rise of algo trading markets do not function as you stipulate. As there are more hft computer algo trading there is less and less rationality to the market. I hate to appear men, but the fact that with regularity I can draw trend lines and get the exact entry point on a trade within a few cents proves this. The game becomes a matter of figuring out who has the dominant trading platform and determining in a graphical manner how they are trading. The rewards of doing so are so large multiple people follow this, and as I have mentioned before this leads to resonance. Your letter section describes this today as soldiers walking over a bridge. when they move together there are larger waves. Hence instability and the volatility you have seen. (fastest fall and rise ever in the markets).

    Part of the net effect of this is that "analysis" no longer matters. (it does matter but to much less of an extent). Valuation, cash flow, etc play less of a role in market movements. The computers trade along trend lines.

    what then happens is the market no longer functions as a good pricing mechanism, it no longer functions as even a semi efficient mechanism of capital allocation. The function of the market is to max profits for trading houses. This is a disaster.

    In just the manner that I can laugh at Bernanke when his models don't count for the "financial" sector, the degree of leverage in the system, and asset price valuations, I laugh at those who do not clearly see the flaws of HFT and computer algos. when one designs a market one must ask:what purpose does the market serve? When I think of an efficient market I do not think of bid/offer spreads. In think of how far from true valuation is the market. Because the computers don't take this into account as much, you get more marked deviations from valuation as determined by accepted norms.

    One must also realize that traders like volatility. It increases profits. Therefore it should be no surprise that those who practice HFT and computer trading endorse it highly and don't want it taken away. There are just some things that are so clear they don't deserve debate. the efficient market hypothesis should have been tossed out a long time ago. But it allowed and promoted the profits of many people so there was a huge vested interest in keeping it in place. I.e you could use it to justify lower capital reserves, etc. I'm afraid the same applies to HFT and computer trading. I know what it does, it takes about 15 minutes of real thought to figure it out, but there is a lot of money to be made by the very people who want to keep it. So, we have endless debates and people make up reasons like "liquidity" , bid offer spreads, etc to justify it. The real reason is it makes excessive profits, if it didn't people wouldn't use it. All other reasons are just a bunch of crap. Why we continue to engage in this public theater and avoid talking about the "real issue" I don't know. But for God's sake, lets at least be honest enough to tell it like it is instead of engaging in industry fictions.

    If we want to fix the markets we need to alter the market dynamics to incorporate what we want. For instance, a transaction tax means these algo platforms will make less money. If trading as often is less profitable/ unprofitable then you will have to spend more time taking into account cash flow, debt levels, accounting, valuation, etc. The markets will then more resemble the purpose they are supposed to serve. ie more rational!!!! This should be our goal

    Tue, 02/23/2010 - 23:15 | 242687 Jesse
    Jesse's picture

     

    Great points, nicely said.

    Tue, 02/23/2010 - 16:22 | 242110 Anonymouse
    Anonymouse's picture

    Just a matter of time before, "for ease of coordination and to ensure fairness so there are no free riders", the Tobin Tax will be administered by the UN or one of its surrogates (like the IMF).  They have been in a turgid state over getting an independent source of funding since Tobin came up with the idea back in 1972

    Tue, 02/23/2010 - 16:34 | 242139 carbonmutant
    carbonmutant's picture

    And what international agency is going to mange this charge on foreign-exchange transactions?

    Tue, 02/23/2010 - 16:52 | 242179 Anonymous
    Anonymous's picture

    Tyler:

    Canada Plans to Officially Oppose Bank Tax, National Post Says

    By Kevin Bell

    Feb. 19 (Bloomberg) -- Canada will officially oppose efforts to impose a global bank tax in the world’s major economies, the National Post reported.

    Canadian officials will release a public response soon, the Toronto-based Post said today, citing unidentified government officials. The Canadian statement will be partly in response to recent comments from British Prime Minister Gordon Brown, who indicated that G-20 countries were close to an agreement on a financial services tax, also known as the “Tobin” tax, the newspaper said.

    Canadian Prime Minister Stephen Harper and Finance Minister Jim Flaherty want to use their influence as hosts of the G-20 meeting in Toronto in June to stop such a tax, the Post said.

    Tue, 02/23/2010 - 17:01 | 242196 Anonymous
    Anonymous's picture

    it's not the tobin tax bs, it's what do governemtns do with a runaway casino, do they admit its all fucked, or let the casino run wild, or try and control and have the world yell FOUL, no more free markets, which puts them in a vicious circle

    tobin tax is just another government band-aid that doesn't mean jack shit in the big scheme

    Tue, 02/23/2010 - 17:52 | 242290 Anonymous
    Anonymous's picture

    Raising taxes on the richest banks/hedge funds makes some sense, as they can afford to increase bonuses they can afford
    higher taxes. Taxing capital gains also makes sense, to some extent, as you are taxing profits. But taxing every transaction, especially those of individual investors, is unethical IMO. Individuals taking the risk to invest their own money should not pay for the mistakes of governments and private institutions. We are already risking our money by investing, and then to be taxed on losses as well as profits is ridiculous. It would discourage investment and an efficient market. But I also agree with the previous comment that 'tobin tax is just another gov't band-aid that doesn't mean jack shit in the big scheme'. They could try to do this but traders will find another way around it, I'm sure.

    Tue, 02/23/2010 - 17:54 | 242295 Anonymous
    Anonymous's picture

    I am sure this will get passed along to the consumers ie lower returns, there are no vegetarian tigers. Well if you are not getting returns on savings may as well spend, good for the economy.

    Tue, 02/23/2010 - 18:10 | 242322 pak
    pak's picture

    Tobin tax, Glass–Steagall and a "single capacity" rule. No compromise.

    It looks ridiculous to me that for the last 30 years every momma in the developed world wanted her kids to become investment bankers.

    Tue, 02/23/2010 - 18:46 | 242374 Anonymous
    Anonymous's picture

    Q: how will this tobin tax be applied? would the banks need to take a cut (or allocate a percentage) on the transaction and pay that to the government? or would the exchange do this?

    also how would an international firm be affected? would trades happening in london be charged to UK government and paris to the French? Could the trades not be routed through a place that doesn't have this tax? - I guess getting the exchange to tax could fix that.

    What about the dark pools? since they don't hit the exchange wouldn't banks keep speculating with each other and no one knows about it.

    Any additional info / documents, would learn to read about it.

    Tue, 02/23/2010 - 20:16 | 242500 Anonymous
    Anonymous's picture

    http://www.europeanvoice.com/article/imported/fiscal-stimulus-withdrawal...

    Merkel openly backed the idea of an EU version of a ‘Tobin tax'. “We also need a transaction tax”, she said. Meanwhile, the European Commission and Swedish presidency of the EU announced that the EU is to explore setting up a financial transaction tax not just to provide for any future bail-outs of the banking sector, but also to support developing countries in their efforts to limit and adapt to climate change.

    F'ing socialists! They want to tax all transactions up to .005% on an assortment of transactions, including stocks. Think about this for a second: to purchase 1000 $shares of a $50 stock, the commission will be $250 one way, not including brokers fees. This will cripple liquidity. And who do you think gets shafted? The retail guy of course. He will be forced to pay wild spreads and experience crazy slippage. 401k participation will be decimated as well as the mom & pops traders who seek a modest sum in which to live off.

    The worst part about this is the tax will be implemented because the damn global socialist want to prepare developing countries for non-existant (man made) climate change. Words cannot describe how I loathe these people.

    Tue, 02/23/2010 - 23:20 | 242698 Jesse
    Jesse's picture

     

    I don't see the value of a Tobin tax that is that high, except to force the retail guys into a buy and hold strategy, and allow anyone who can finagle an exemption to dominate the trade.

    I would have thought a much more nominal 'flat tax' would do the job of discouraging HFT without knocking the small spec out of the game.

    Wed, 02/24/2010 - 09:33 | 242991 pak
    pak's picture

    $1000 x 50 x 0.005% = $2.50

    It's "0.005%", not "0.005".

    Which does the job of discouraginng HFT (somewhat), and that's all.

    Tue, 02/23/2010 - 22:16 | 242628 Anonymous
    Anonymous's picture

    HMMM-let's think about this beyond the obvious socialist bs and all the freaking greenies out there. I am a self employed trader whom has busterd my arse just for several years to just learn to become profitable and merely make a very middle class living. I am not rich and definitely middle class. I am not even a good trader(it's just that my will exceeded my skill if you will) but I am able to make a living trading. I used to be a so called "advisor" -boy what a joke as I didn't know crap back then and still learn new things everyday. Being a middle class self employed trader without big wads of cash I am dependent on the prop trading model in order to leverage up to attempt to take gains from the market. I know the risk and I accept that risk for better or worse. I have been doing this profitably for approximately five years now so if the tobin tax is installed that would kill my whole business model. BTW-there are not a lot of available jobs out there. Can we call this the law of unintended consequences or shall I just be deemed another unimportant cog in the wheel. Need I mention, although trading start up cost can be low for a self employed trader but the monthly software fees, commissions, etc. add up. I put my own risk capital up to start my own trading business on which I had already paid taxes on the money I brought to the table. Now I have commissions, software fees, etc. etc. and will pay a capital gains on any profits and now a tobin tax on all transactions that would kill my highly leveraged business model. Again I gladly bear the risk of this model as it only impacts me with my own risk capital so it is a risk I accept. Seeing I have been doing this for years, it's not like I would be eligible for unemployment, etc. etc. I guess I will have to reinvent myself into a new career at mid life and hopefully hopefully hopefully find meaningful gainful employment which I enjoy. It is what it is. Extremely frustrating.

    Tue, 02/23/2010 - 22:37 | 242647 Anonymous
    Anonymous's picture

    All investing is speculation. Some just prefer smaller time frames. The transaction tax is a monstrous and stupid idea. Fortunately, it has no chance of passing in the U.S.

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