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November 08, 2009

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Diversity

Humanity has spent the last two or three centuries slowly realising that taxes on moving goods and services from town to town and country to country are very costly constraints on economic growth. The proposed transactions tax is probably only workable in the sense that a square wheeled car might be called workable (though similar problems have not stopped Mr Brown introducing some of his tax credits). If a way was found to introduce it effectively, all it would offer us is time wasted in learning that taxes on each movement of money are not a good idea either. As Chris and those he quotes despairingly note, it will do damn all to fix the problems in finance.

If the objectives are to make finance work more smoothly and more to the common good; as well as to raise revenue, a far better route is to address directly making finance pay, in full, for the explicit and implicit public guarantees it now receives.

jameshigham

In this, left and right are at one.

Dipper

the good news is that he is being utterly cynical not utterly stupid. He said that this would only be introduced by international agreement,so there's not a snowball's chance in hell of it being implemented, and he's just doing it to look tough.

reason

Why do you think foreign exchange markets were not involved. I think mispricing of currencies over a long period of time, was a significant factor. But then, yes the tax would have nothing about that. It was the mispricing not the volatility that was the problem.

Dipper

reason - "I think mispricing of currencies over a long period of time, was a significant factor"

presumably the fact that the Chinese currency was pegged against the dollar? If the currency had been allowed to float then the markets may have acted to prevent the massive imbalances that stoked the credit crisis.

But then again, markets being random, they may not...

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Richard H. Serlin

"However, these trades are often stabilizing trades - those done by arbitrageurs hovering up pennies."

Yeah, but if all the tax stops is the tiny hoovering of pennies be arbitrageurs, then how much will that affect volatility?

You just add a little penny level volatility, the arbitrageurs will still have an incentive to swoop in if prices get more out of line than pennies.

A positive you're missing, though, is in one of my areas of expertise. A transactions tax may substantially discourage laypeople from doing dangerous and costly speculating in the market, rather than just what's best for them when they invest in stocks, buy and hold in funds like the Wilshire 5000, except when it reaches extreme P/E levels.

That transactions tax could also raise a lot of money to fund things that help small investor laypeople, like more college aid, less college debt, and better subsidies for health insurance.

Richard H. Serlin

I think also that the tax, as I've seen it proposed, is very small, insignificant for someone who's cashing in retirement savings accumulated over decades, or even just years. What it is to discourage, as I've heard it, is things of little or negative social value like high frequency trading and market manipulation. It appears as though it would be too small to a have much effect on positive market activities.

Empirical research of this tax is easy in at least one way. For most of the market history transactions costs were as expensive, or much more, than with the tax, just due to the higher costs of not having the computerized high tech.

Richard H. Serlin

With regard to liquidity effects, small retirement investors should not even think of trading something illiquid enough that this small tax could have much effect. Clearly this small tax would have no significant effect on the liquidity of something like a Wilshire 5000 tracking Fidelity mutual fund.

Again, look at stocks and funds 20 years ago or more, when transactions costs were higher than they would be today even with this tax. Was there much liquidity problem for major funds? No, not at all, not even for any major exchange traded single stocks for all but the largest investors.

Martin Meenagh

Surely the problem is that, if we have a globalised economy, it is the economy of France in 1785; lots of little units maintaining distortions in their trade and payments through manipulation of exchange rates. It's all very well going all Necker and Calonne on it and saying that there should be some sort of tax on the money or salt flowing over it, but the bigger issue is the lack of any fair or transparent currency across it...

If you don't believe that a SDR/Bancor would do the job, then the market should. I find it hard to believe that a revamped SDR would work.

Governments that don't like Hedge funds (like the Europeans who blame them wrongly for the present difficulties) or derivatives should use surveillance, secret police, and unified oversight bodies. The derivatives crash did't happen because there was something inherently wrong with derivatives--it happened because banks ignored risk and secretly covered that extra exposure up, claiming commercial and client confidentiality, and governments let them get away with it, especially in London.

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Alex

A day-by-day financial transaction tax is not something they are prepared to support," Geithner http://hotwallpapers4u.com said in an interview with Sky News. In his concluding press conference, Geithner was asked repeatedly to say why they opposed such a tax on banks & indicated they doubted its effectiveness.

Lance

It's all very well going all Necker and Calonne on it and saying that there should be some sort of tax on the money or salt flowing over it, but the bigger issue is the lack of any fair or transparent currency across it. http://www.rapidsloth.com

anne

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