Posted on 11/02/2011 8:18:00 AM PDT by libertarian neocon
Senator Tom Harkin (D-Iowa) and Representative Peter DeFazio (D-Oregon) are set to propose a tax on financial transactions similar to what is being proposed in Europe (as if that lends them any support). It is being marketed by the folks behind it as very small, so small that Tom Harkin bets that "nobody would even feel it". Statements like that further convince me that he has absolutely zero knowledge of the financial world, not surprising given that he has had a total of 2 years of private sector experience (practicing law 37 years ago after he lost a Congressional election) in the last 49 years.
The tax they are proposing seems small at first glance, only 0.03% on trades of stocks and bonds but you don't have to dig too deep to see how this could have a huge impact. Most firms right now are paying a penny a share to trade a stock, sometimes less than half a penny but let's assume they pay a penny for illustrative purposes. If you have a $50 stock, in percentage terms, that commission amounts to 0.02%. So if you have to add the financial transactions tax on top of that, you are suddenly paying 0.05% in taxes plus commission for the trade, increasing your costs by 150%. Changes of that magnitude add up quickly especially if you do any short term trading. At a hedge fund, even if you have long term core positions it is easy to get up to 10,000% annual turnover (you might have short term trades after a stock got killed because of bad earnings or you might be taking index etf hedges on and off a few times a year). With turnover like that, the 0.03% tax ends up costing your investors an additional 3% on the year. And when you add that 3% to the 2% in management fees and then 2% in commissions you usually charge that means your stocks need to appreciate 7% before your investors start to even make any money!
Now let's not forget the high frequency trading shops. They do a massive number of trades at low cost to them trying to eek out pennies or fractions of pennies and accounted for 73% of all US equity trading volume in 2009. That would completely destroy that business model as it relies on almost zero transaction costs and all those PhD's will be out looking for work when there is none. While I am sure there are lots of people who want those firms to go out of business, there will be one major negative impact of this, the liquidity in the markets will dry up, especially if run of the mill funds also stop much of their short term trading. Less liquidity means that you will have to pay more to buy a stock and get less when you want to sell it, which will hurt all investors, both big and small. And to top it all off, with so much of the volume on the markets gone, this tax will raise a small fraction of what Harkin and DeFazio wanted to in the first place.
It really is mind boggling that anyone would even propose such a travisty which will have so many unintended consequences.
Some countries have their banks under control , why should they have to pay for the dolts that let their banks run wild
...Now let’s not forget the high frequency trading shops. They do a massive number of trades at low cost to them trying to eek out pennies or fractions of pennies and accounted for 73% of all US equity trading volume in 2009. That would completely destroy that business model as it relies on almost zero transaction costs and all those PhD’s will be out looking for work when there is none.....
Liquidity my foot they are crooks. Outlaw them. Make them have sufficient margin for each offer and trade they make before they can make another. Why are they allowed to game the system?
“That would completely destroy that business model as it relies on almost zero transaction costs”...
To destroy the business model...just one of these whack nuts goals...
“Liquidity my foot they are crooks. Outlaw them. Make them have sufficient margin for each offer and trade they make before they can make another. Why are they allowed to game the system?”
Well without the quants then you are 100% reliant on the market makers who you know are crooks. And you end up paying them more due to wider bid-ask spreads.
Aside from the tax, compliance costs of financial institutions would be passed along to consumers. I am really losing patience with these libtard thieves.
And what is the proper collective noun for a group of baboons?
Believe it or not ....... a Congress!
Government...get out!
“I am really losing patience with these libtard thieves.”
I’m with you. I wish we can just separate the red states from the blue states (though I would have to move) with the red states having a constitutional republic and the blue states doing whatever they want (a high tax politically correct welfare state). My guess is that NYC would quickly cease to be center of the financial world as firms will move to a more dependable regulatory environment.
IMHO, they know exactly what they are doing. Collapse the economy, the stock market, and the Dollar. They then come in with the "solution" to "failed capitalism" which is socialism. Without firing a shot. In fact, many will beg them for it.
Would that be comparable in acceptability to, say, a $5/month charge for using a debit card? Maybe these geniuses should consult with Bank of America to see how something like this worked out for them.
This horrible proposal would erase nearly an entire profession that employs a large number of brilliant mathematicians and scientists who apply advanced knowledge to making money in market trades. The money made per trade is tiny but using technology and speed, the earnings gradually build up to a level that can pay wages and sustain a business. That is good old American ingenuity—using your brains to make a living. It also adds liquidity and trading volume to the markets. Taxing on a per-trade basis would wipe out the potential for gains below the tax amount — a tiny tax is actually gargantuan when compared with the size of the return earned per trade. However, that is probably over the heads of many of the consituents of these two congressmen (which they count on). Dems representing Wall Street know it too and may simply be allowing this proposal knowing it won’t be passed but that it can be used in campaigning. Everything happening in congress at this time should be viewed through the lens of the campaign.
What part of cut spending do these two idiots not understand. Any revenues they raise in destroying the liquidity business model and brokerage sector service jobs they eliminate will be spent to purchase votes from their constituents.
Yeah, sure. Starts out small to get the foot in the door, and then ramp it up over time. Just like the original income tax. It was sworn that it would never exceed 1% of an individual's earnings.... right, that worked out well.
The Government needs to go on a diet. Rather than looking for sources of new 'revenue' (aka, confiscation of the peasant's livelihood), they need to cut their revenue stream and drastically cut their expenses.
We could tax all litigation related events too.
John Adams in the movie “1776”
Inside Congress:
I have come to the conclusion that one useless man is called a disgrace;
that two are called a law firm,
and that three or more become a Congress!
And outside, talking to God
A second flood, a simple famine, plagues of locusts everywhere,
or a cataclysmic earthquake, I'd accept with some despair.
But no, You sent us Congress! Good God, Sir, was that fair?
However, the fix isn't a tax, just require each bid to stay long enough to be acted on.
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