I was proposing a rather stiff tax of 0.5% on all financial exchange transactions as a means to limit what seemed to me to be the baleful effects of proprietary desk trading via High Frequency Trading algorithms which combined the benefits of co-located access to market monitor programs and an ongoing "market making" HFT program and provided the prop desk with a multi-millisecond period of exclusive access during which it could execute multiple trades before the information became available to others.  The US Securities Exchange Commission was forced to declare this sort of activity illegal, as all of the traders who didn't have such programs and didn't rent some degree of advantage would have been forced to boycott the exchange. At least people have said that they are stopping the practice.

Given that up to and possibly in excess of 60% of the trade volume on any given day in NYC exchanges is generated by HFT algos by a few trading organizations and given that this process seemed to be the most likely source of much of Goldman Sachs $22 billion 2nd quarter '09 profit, back of the envelope calculations indicated that even a relatively small transaction tax could generate tens of billions per year.  After all, Goldman was extracting over $10 billion in a quarter.

Of course the companies would howl that the entire market would dry up if the government took some of this money rather than leaving it all to them, but this is unlikely.  Perhaps the best way to determine the proper value of such a tax is to slowly but steadily raise it until the take from the tax began to decline or until the average position was held for some significant time, say a month or a year. Another possibility would be to rebate all or part of the tax if the investment is held for a certain time.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

Shareholder failure to police risky management activities was largely due to the very short holding periods for equities. A suitably high transaction tax would force investors to hold shares for much longer periods and to engage management to control risk. This would reduce the need for governments to police risk-taking in corporations.

I will give the author credit for the observation that changed economic circumstances will potentially pit those with responsibility for governing against those with responsibility for managing other people's money, or at least give the appearance of so doing.  However, the functional capture of governments in the USA and the UK by the financial sectors will inhibit efforts to protect what those in government see as the national interest.

Any move to control capital flows would have to be prepared under conditions of secrecy that are unlikely to hold, given the current directions of loyalty and patronage, and at the first hint of such action the government would be reeling from dealing with massive capital flight. Perhaps international coordination that left capital only such destinations as Burma or the Central African Republic would help, but what is to be done with capital that is already out of the country?  

My guess would be that an international crisis where a nuclear exchange is in the offing, especially were old superpower rivalries bruited to be involved, would be the best way to get the money home. Else, Iranian terrorists threaten to detonate a weapon in the harbor at Monaco, Cuba sends troops to Grand Turk, narcotraficantes threaten coup in Panama, US military paralyzed, etc.  What can I say?  Laughs are hard to come by these days.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."