European Salon de News, Discussion et Klatsch - 20 September | 69 comments (69 topical, editorial, 0 hidden)

Nicolas Sarkozy Joins AFL-CIO In Demanding Tobin Tax For All Financial Institutions

According to the BBC, the issue of the Tobin Tax, which as we reported previously, had garnered some vocal proponents recently, but was never expected to be anything than mere discussion points, has gotten a firm G-20 supporter in the face of French president Nicolas Sasrkozy. And while the opposition of the US is a certainty, the recent overtures by FSA Chairman Adair Turner in which he announced he would consider a Tobin tax implementation, means the US could be all alone in its disapproval of this form of taxation.
Recently many talking heads have come out and discussed how much of an adverse impact a Tobin Tax would have on the US economy, yet the simple fact is that the majority of retail investors already pay substantial transaction fees to their brokers and would not notice a theoretical 0.1% transaction tax increase in fees. Furthermore, brokerages which are now enjoying record speculative mania, could easily lower their fees to compesnate for any new trade taxation. This leaves only big institutions, and specifically those that traffic in either HFT, churning, painting the tape, or all three, as adversely impacted by a tax. Yet it is these very same entities that are benefitting from a record steep yield curve: an ongoing boon compliments of the US taxpayer. In essence: when firms get a gift from the Federal Reserve, they will take it no questions asked, yet when there is even the slightest hint of a proposition introduced that could take away even some of these profits generated courtesy of taxing the general population, which is what QE is, everyone screams bloody murder.
One (and by one, one, of course, means Goldman Sachs and other HFT titans) can only hope that the AFL-CIO and US democrats do not get much more involved in this issue. As we reported previously, the Tobin tax issue could quickly turn ugly as instead of a purely economic issue, it would start having political overtones. It is a well known feature of government that it will sniff out any segment of the economy that is abnormally profitable, and quickly seek to tax this excess profitability out of it - if you throw in the ethical considerations against HFT, and the purported strong opposition of the US against Tobin Tax could quickly dissolve.

Optimist! The only way a Tobin Tax could pass is if the White House and the Senate could convincingly plead to Wall Street that they had no choice.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 19th, 2009 at 10:29:48 PM EST
[ Parent ]

Re: Economy and Finance (none / 1)

For a contrarian opinion...

Willem Buiter: Forget Tobin tax: there is a better way to curb finance (September 1 2009)

What problem would a Tobin tax on financial transactions solve? Lord Turner asserts, in an interview with Prospect magazine, that the UK financial sector has grown too big; that some financial sector activity is worthless from a social perspective; that the sector is destabilising the British economy; and that new taxes may be required to curb excessive profits and pay in the sector. "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he says. Even if all these assertions are correct, they do not imply the need for a Tobin tax.
...
The financial sector is too big throughout the overdeveloped world in part because much of it enjoys a free state guarantee against default on its unsecured debt. Retail deposits are explicitly insured, but at premiums that imply a taxpayer subsidy. Other counterparties of banks and other systemically important financial institutions also benefit from implicit default guarantees. The cost of capital to the banking sector is subsidised, causing the sector to be too large.
The solution is clear, and it is not a tax on financial transactions: bring default risk back into the calculations of unsecured creditors and other counterparties of the financial sector. This would eliminate the capital subsidy to the industry. The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions. This would permit their unsecured creditors and other counterparties to be forcibly and swiftly converted into shareholders, until the institutions are adequately capitalised. It must be possible to achieve such a mandatory recapitalisation by unsecured creditors and counterparties for any institution overnight, and without interrupting normal business. A regularly updated "will" for each systemically important financial institution would eliminate any remaining "too big, too interconnected, too complex and too international to fail" obstacles to the Darwinian discipline of the market, which has been sorely missed in the financial sector.

But when he says

The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions.

Don't the banking regulators already have the power to do just that when a bank is about to fail? Maybe the problem is that there are other "systemically important financial institutions" which are not banks?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Carrie (migeru at eurotrib dot com) on Sun Sep 20th, 2009 at 09:50:41 AM EST
[ Parent ]

Re: Economy and Finance (none / 1)

The problem is lack of will to implement either solution. I think both approaches are needed. Impose a healthy Tobin Tax, say .5% of transaction amount for all transactions. That will cause everyone to consider whether and for how long each "investment" should be made. Then direct the proceeds to a public election finance fund! Last, take a meat-ax to all "To Big To Fail" financial organizations. Then all of the top management of these firms could be CEOs of their very own firms--at least those who don't end up in jail after the affairs of each organization are thoroughly scrutinized by prosecutors as part of the break-up. But I dream.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 20th, 2009 at 11:16:22 AM EST
[ Parent ]

Re: Economy and Finance (none / 1)

Impose a healthy Tobin Tax, say .5% of transaction amount for all transactions. That will cause everyone to consider whether and for how long each "investment" should be made. Then direct the proceeds to a public election finance fund!

It sounds like you are ready for a Tobin Tax for all transactions, not just international currency transactions. Deardorff's Glossary of International Economics

OK; Big trader me has no objection to $50 on every $10,000 going in, and hopefully coming out.

But I think that you are going to have to start defining exactly what you mean. There are trillions in the currency exchange market weekly...much by government to government...is that exempt? what about bank to bank?

Commodities...I suppose I pay the tax on the entire contract, even if I am buying on margin? should I pay more if I don't have any intention of taking any delivery (Good idea on both, says I~!)

I see from NASDAQ Daily Summary that there was an daily average of 45 billion in trading just on that floor last week. That would put a daily 225 million into the public election coffers.

It will take a long time to find and figure all the stats for what you are talking about...but it appears that the definition needs to get refined.

Not that I am against it at all.

Never underestimate their intelligence, always underestimate their knowledge.

Frank Delaney ~ Ireland

by siegestate (siegestate or beyondwarispeace.com) on Sun Sep 20th, 2009 at 12:38:35 PM EST
[ Parent ]

Re: Economy and Finance (none / 0)

Thanks for starting on the math. I was lazy. :-)

By my rough estimate from your numbers NASDAQ would generate ~$58 Billion a year on existing volume, but the point of the Tobin Tax is to calm things down and extend horizons beyond the minute, hour and day. My own disederata also include creating longer investment horizons and putting a stop to nonsense like HFT trading alogs, even if the SEC allegedly is banning them, and in general to pour salt on the Wall Street leaches that are attached to the economy.

A 0.5% Tobin Tax on financial transactions, probably excluding those between individuals and corporations and their bank checking and savings accounts, but including all other transactions between individuals and corporations and all other bank or financial service entities, including precious metals, Forex, stocks, bonds, mutual funds, hedge funds, etc., would likely cut the transaction frequency by a factor of at least three. HFT by prop desks and to create bogus "liquidity", etc. is thought to comprise >60% of the volume on a typical day currently. It should be madness to execute transactions that last less than a minute with that kind of tax. It would also reduce the amount of day trading.

Even if it divided volume by five, then NASDAQ would generate about $1.17 billion a year. With all US exchanges included the annual yield would likely be over $10 billion. Put the extra $8 billion or so/year into publicly funded news gathering. Between publicly financed elections and publicly financed news coverage we might be able to start making democracy of the people, by the people and for the people more than the joke it is today.

Accomplishing those two goals would drive a stake through the heart of the current system of vampire economics. So, accomplishing it would be comparably resisted. It would have to be done at high noon on the longest day of the year and under a cloudless desert sky. But such a reform would probably give our children and grandchildren at least another hundred years to piss away such liberties as they were born with, whereas the way things stand, they are truly screwed. Perhaps then they could effectively attempt to stave off the looming environmental catastrophy. That is something worth fighting for.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 20th, 2009 at 08:59:26 PM EST
[ Parent ]

European Salon de News, Discussion et Klatsch - 20 September | 69 comments (69 topical, 0 editorial, 0 hidden)

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