Thursday, October 27, 2011

Knowledge@Wharton: "Is It Time for a Trading Tax?"

What with #OccupyWallStreet marching for a Financial Transaction Tax on Saturday* this seems timely.
From Knowledge@Wharton:
To its advocates, the idea is a no-brainer: Charge a tiny tax on each stock, bond or derivative trade to raise badly needed revenue, discourage dangerous short-term speculation and make Wall Street help clean up its own mess.
"It seems like an idea whose time has come," says Jack Bogle, founder and retired CEO of The Vanguard Group, the mutual fund firm, who argues that a transaction tax would help curb speculative trading. "Speculation has triumphed over investment, and the implications of that are very bad."
The concept has been around for decades. In 1972, Princeton economist James Tobin, a Nobel laureate, proposed a transaction tax to calm the currency markets. The idea has since been suggested for stock, bond and derivatives markets as well. "It's an old question in finance -- whether you want to throw some sand in the wheels of the financial markets," notes Wharton finance professor Itay Goldstein. "I can certainly see the benefit in having [a] tax, because in some cases I do think that speculation might be getting out of control."
Recently, the idea has gained momentum. In September, the European Union's executive body recommended a 0.1% tax on stock and bond trades, and a 0.01% tax on derivatives trades. In the United States, where members of Congress have introduced transaction tax bills several times, only to see them stall in committee, the issue is getting renewed attention.
What has changed? Following the financial crisis, many want to make Wall Street pay. And, of course, governments are eager to find new revenue. Also, the soaring growth of computerized "high-frequency trading" has triggered concerns that too much speculation is roiling the markets and hurting ordinary investors. The "flash crash" of May 2010 -- when stocks inexplicably plunged 700 points, then quickly rebounded -- raised concerns about the potentially damaging effects of high-frequency trading. A very small tax could curb the practice by wiping out the tiny profits produced on individual trades, millions of which are conducted daily.
"I think we're in an environment where people are looking for someone to blame," says Gus Sauter, managing director and chief investment officer at Vanguard, who opposes transaction taxes. "If it's not Goldman Sachs, it's high-frequency traders."

'Casino-style Trading'
Transaction tax proposals have a number of critics, ranging from those who are against tax increases in general, to those who say that such a tax would actually make the financial markets less efficient, hurting ordinary investors by raising costs.

"This is one of the worst ideas of a truly great economist [Tobin] who seldom had a bad idea," notes Wharton finance professor Richard J. Herring, who feels the tax could create more problems than it would solve. "It is an idea that will not die because it has enormous appeal to politicians, who are generally suspicious about markets and who are often desperate to raise money without appearing to tax the middle class."...MUCH MORE
The United Nations org really likes the idea.
They have been searching for a revenue stream not subject to oversight by the member states for years.
They got close with a harmonized carbon tax a few years ago but then the zeitgeist changed.
Don't mention the oil-for-food scam, that was supposed to be on the down-low.
Here's #OccupyWallStreet:

NEWS: Occupy Announces #Robinhood Global March
OccupyWallSt and AdBusters have announced the #Robinhood Global March for October 29th. They are proposing for the world to rise up and demand for the 1% #Robinhood tax, which is essentially a tax on stocks, commodities, currencies, derivatives, and other trading investments.
Here's the announcement:
On October 29, on the eve of the G20 Leaders Summit in France, let's the people of the world rise up and demand that our G20 leaders immediately impose a 1% #ROBINHOOD tax on all financial transactions and currency trades. Let's send them a clear message: We want you to slow down some of that $1.3-trillion easy money that's sloshing around the global casino each day – enough cash to fund every social program and environmental initiative in the world....
#OccupyWallStreet to March in Solidarity With the NWO For A Financial Transaction Tax
Well now, this is a bit more concrete than some of the demands.

I don't actually know if the New World Order folks are going to lace up their Manolo Blahniks for the march.
I would like to see the two Georges (Bush, Soros) arm-in-arm at the head of the parade.
From Adbusters (the folks who organized the first protest):

Oct. 29 #RobinHood Global March
We take from the rich and give to the poor.


Alright you redeemers, rebels and radicals out there,
We're living through a magical moment … #OCCUPYWALLSTREET has catalyzed into an international insurgency for democracy … the mood at our assemblies is electric … people who go there are drawn into a Gandhian spirit of camaraderie...