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Financial Transactions Tax is another example of EU regulatory suicide


patslatt

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The EU seems determined to regulate itself into permanent economic decline with poorly thought out policies like the euro currency, Germany's closure of all nuclear power plants,UK's impending closure of numerous coal plants and EU reliance on unreliable wind farm energy that shuts down when the wind dies down. The latest move on the road to regulatory suicide is the planned introduction of Financial Transaction Tax, FTT,by many members of the Eurozone. See Wider euro ‘Tobin tax’ will net €35bn - FT.com

This tax could only work efficiently if the entire world accepted it. But some countries will always try to gain advantage by trading FTT tax free in the securities of the countries levying the tax. This could lead to large transfers of trading activities out of the EU into the US,Canada,Hong Kong and Singapore.

The EU countries will probably respond in a regulatory arms race by imposing penalties on their own issuers of securities for uncollected taxes. This would restrict trading of those securities to countries collecting the tax,causing substantial financial liquidity problems. The tax would also put an end to frequent trading in the market for very short term loans between governments, financial institutions and big corporates and would shut down computerised high frequency trading,HFT.As a result, financial traders and insider fixers would demand much higher spreads between bid and ask in compensation for holding inventories of securities in market making.

Before computerised trading became big,market making traders often took spreads of roughly 20% in shares of companies in their inventories other than the actively traded small group of blue chips. A big institutional investor that wanted to make a major investment buy,say 1% of the shares of a company, would find that its own big buying power would drive up the price of the shares. So it would break up the buy order into a series of trades to prevent the share price from soaring but by the time the trades were completed,the price paid for the shares could still average 20% higher than the initial starting price. In selling 1% of the shares,the market price would fall about 20%,so a round trip of buying and selling a share could prove very expensive at 40%. These trading costs make a good case for allowing HFT to continue without FTT tax.

PS Message to trolls from Barry Ritholz's Big Picture blog:
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
 
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SPN

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Not really.

The speculators get to make easy profits with the current system, and the quest for easy profits becomes the be-all and end-all.

There is no upside for society though.

At least with the FTT there is some upside for society.

That is to be welcomed.
 

gijoe

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I was reading in one of the UK papers this morning that the UK government are taking it to the European Court.
 

patslatt

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Not really.

The speculators get to make easy profits with the current system, and the quest for easy profits becomes the be-all and end-all.

There is no upside for society though.

At least with the FTT there is some upside for society.

That is to be welcomed.
The disruption to government bond markets alone from FTT could be huge,with lots of downside for society.

If you think it's easy to make money trading,try it as a day trader on your computer. Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
 

ManUnited

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The disruption to government bond markets alone from FTT could be huge,with lots of downside for society.

If you think it's easy to make money trading,try it as a day trader on your computer. Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
How will it disrupt bond markets?
If the last part is true, then how will a miniscule tax make any difference?
 

dancl2000

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The experts of the financial industry *always* claim any attempt to regulate anything will be self defeating, result in business going elsewhere, loss of jobs etc etc

The experts of the financial industry have shown time and again they cant be trusted. They would much rather make money than care about the potential harm that can come from risky practices; especially when that harm will manifest far in the future when they have already banked their bonuses and it's somebody elses watch. As a result they pollute the media with scare stories to protect their self interest and maintain the status quo.

The fact is that the financial industry has caused major social problems through their excessive lending, speculation, other shoddy business practices. Just look at the impact of austerity in greece and ireland for confirmation of this. An industry with the potential to cause such serious social problems needs to be regulated to ensure the risk of these problems is properly managed.

And as for the threat that finance will move to unregulated jurisdictions; well the financial industry needs to be where the money is so they cant do that. Regulation can be such that transactions involving eu underlying assets need to happen in exchanges in the EU. We can close any loopholes which allow financial companies to take risks in other jurisdictions that can impact out society
 

CarnivalOfAction

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The disruption to government bond markets alone from FTT could be huge,with lots of downside for society.

If you think it's easy to make money trading,try it as a day trader on your computer. Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
Without the inside info? That would be like taking a racing bet from a genius like A$$hole Aherne. Why we need FTT:

[video=youtube;AUxGWc-jUC4]https://www.youtube.com/watch?v=AUxGWc-jUC4&feature=player_embedded[/video]
 

McDave

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The disruption to government bond markets alone from FTT could be huge,with lots of downside for society.

If you think it's easy to make money trading,try it as a day trader on your computer. Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
It's a relatively small tax with the potential to disincentivise needless transactions. Bond activity would I suspect be marginally affected. The effect is more likely to be felt in share trading.

And who says you have a right to make easy money day trading? Pointlessly adding to the volatility of share prices. Maybe increasing transaction costs is actually a good thing.
 

SPN

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The disruption to government bond markets alone from FTT could be huge,with lots of downside for society.
I wouldn't think so.




If you think it's easy to make money trading,try it as a day trader on your computer. Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
Should we be encouraging useful activities or should we be encouraging useless speculation?

Every penny of profit made by a speculator is a penny of loss suffered by someone else.
 

Ren84

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The FTT has been one of the better policies out of Brussels. All states should sign up to it and the Tories should quit trying to wreck any chance of recovery in Europe.
 

IvoShandor

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Twitter
yes
The FTT has been one of the better policies out of Brussels. All states should sign up to it and the Tories should quit trying to wreck any chance of recovery in Europe.
Correct.

Transaction costs are now so low in the US online accounts,a day trader can operate as efficiently as a large financial institution.
How wonderful! Its no wonder we are living in such good times, since the dreary practises of you know,"making stuff" and "selling stuff" and "inventing stuff" were replaced as the engines of economic growh by shuffling shares,debts,and all kinds of exotic financial products around the world. It really turned out well, didn't it. ..............Well,.....didn't it?

I was reading in one of the UK papers this morning that the UK government are taking it to the European Court.
*@~# it! Let it try.
 
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Ren84

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Correct.



How wonderful! Its no wonder we are living in such good times, since the dreary practises of you know,"making stuff" and "selling stuff" and "inventing stuff" were replaced as the engines of economic growh by shuffling shares,debts,and all kinds of exotic financial products around the world. It really turned out well, didn't. ..............Well,.....didn't it?



*@~# it! Let it try.
Tragic really. Paper shuffling is now considered more of an asset to an economy instead of manufacturing. No wonder India and China are racing ahead of us.
 

CarnivalOfAction

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Tragic really. Paper shuffling is now considered more of an asset to an economy instead of manufacturing. No wonder India and China are racing ahead of us.
And many European states.

Some in the US are beginning to see the light:

U.S. Rep Introduces 'Robin Hood Tax' to Fight Austerity-Agenda | Common Dreams

"The Robin Hood Tax is a micro-tax on Wall Street transactions such as the trading of stocks, bonds, derivatives and other financial instruments that would, according to Erich Pica of Friends of the Earth U.S., "curb harmful speculation and raise hundreds of billions of dollars of new revenue to pay for urgently-needed public goods and services, like helping the poor cope with the threats to public health and food shortages caused by our changing climate."

The act would generate up to of $300 billion per year in tax revenues, according to University of Massachusetts-Amherst economist Robert Pollin. "These funds would enable us to fight against the austerity-agenda cuts to Social Security, Medicare, public education and other vital social programs," he stated.

HR 1579 has the backing of more than 140 organizations representing millions of members in labor unions, religious groups, health advocates, consumers, housing activists, environmentalists, small businesses and others, according to the Robin Hood Tax Campaign.

Forty countries have implemented financial transactions taxes, more than one thousand economists have endorsed the FTT and 11 European nations are in the process of implementing a regional FTT."
 

patslatt

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How will it disrupt bond markets?
If the last part is true, then how will a miniscule tax make any difference?
HFT computerised programme trades occur in milliseconds. Thousands of trades in a security in the space of an hour generate unsustainable FTT taxes. In short term bond trading,profit margins of 0.06 of a percent on large volumes on many trades would be wiped out after a while by the 0.01% tax,especially after trading losses.
 

patslatt

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Joined
Apr 11, 2007
Messages
13,693
The experts of the financial industry *always* claim any attempt to regulate anything will be self defeating, result in business going elsewhere, loss of jobs etc etc

The experts of the financial industry have shown time and again they cant be trusted. They would much rather make money than care about the potential harm that can come from risky practices; especially when that harm will manifest far in the future when they have already banked their bonuses and it's somebody elses watch. As a result they pollute the media with scare stories to protect their self interest and maintain the status quo.

The fact is that the financial industry has caused major social problems through their excessive lending, speculation, other shoddy business practices. Just look at the impact of austerity in greece and ireland for confirmation of this. An industry with the potential to cause such serious social problems needs to be regulated to ensure the risk of these problems is properly managed.

And as for the threat that finance will move to unregulated jurisdictions; well the financial industry needs to be where the money is so they cant do that. Regulation can be such that transactions involving eu underlying assets need to happen in exchanges in the EU. We can close any loopholes which allow financial companies to take risks in other jurisdictions that can impact out society
When Sweden imposed FTT years ago,most of the affected financial trading moved to London,an inconvenient fact for the stupid Eurocrats and parliamentarians seeking revenge on banks for bailouts. They will wreck their own financial trading in a regulatory tsunami.
 

patslatt

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Without the inside info? That would be like taking a racing bet from a genius like A$$hole Aherne. Why we need FTT:

[video=youtube;AUxGWc-jUC4]https://www.youtube.com/watch?v=AUxGWc-jUC4&feature=player_embedded[/video]
The video is about the Dublin tax haven,a different issue to FTT.
 

patslatt

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It's a relatively small tax with the potential to disincentivise needless transactions. Bond activity would I suspect be marginally affected. The effect is more likely to be felt in share trading.

And who says you have a right to make easy money day trading? Pointlessly adding to the volatility of share prices. Maybe increasing transaction costs is actually a good thing.
You are glibly ignoring the negatives of FTT.I recommend Economics and Finance 101.
 

SilverSpurs

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Same old leftist moonshine. A tax on someone else.
 

Nermal

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You are glibly ignoring the negatives of FTT.I recommend Economics and Finance 101.
I recommend you continue after economics and finance 101, preferably in a school where neoclassicism is not the only research programme. Even if you don't change your mind, you'll at least open it somewhat.
 

patslatt

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And many European states.

Some in the US are beginning to see the light:

U.S. Rep Introduces 'Robin Hood Tax' to Fight Austerity-Agenda | Common Dreams

"The Robin Hood Tax is a micro-tax on Wall Street transactions such as the trading of stocks, bonds, derivatives and other financial instruments that would, according to Erich Pica of Friends of the Earth U.S., "curb harmful speculation and raise hundreds of billions of dollars of new revenue to pay for urgently-needed public goods and services, like helping the poor cope with the threats to public health and food shortages caused by our changing climate."

The act would generate up to of $300 billion per year in tax revenues, according to University of Massachusetts-Amherst economist Robert Pollin. "These funds would enable us to fight against the austerity-agenda cuts to Social Security, Medicare, public education and other vital social programs," he stated.

HR 1579 has the backing of more than 140 organizations representing millions of members in labor unions, religious groups, health advocates, consumers, housing activists, environmentalists, small businesses and others, according to the Robin Hood Tax Campaign.

Forty countries have implemented financial transactions taxes, more than one thousand economists have endorsed the FTT and 11 European nations are in the process of implementing a regional FTT."
FTT WET DREAM
FTT is a lefty wet dream because some countries will always be prepared to evade it to capture most of the trading. Attempts to stop them would need a regulatory arms race that would greatly hamper international capital raising,including government bonds. France,Ireland and most of Southern Europe desperately need to keep the bond market friendly to finance their nearly bankrupt governments.
 
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