It’s time to tax financial transactions | Hacker News Reader

It’s time to tax financial transactions

washingtonpost.com

25 pointsklochner15 comments

Offtopic: I can't really read those articles form New York Times and Washington Post. They have 1% of substance over 99% of bouillon of words. Maybe I'm alone here, but I just want articles to say what's going on in one sentence at the beginning and then maybe explain why is this happening and what are possible repercussions. But these kinds of texts are an insult to any thinking individual who values his time.

I agree with niggler, I guess this tax would eliminate >95% of all trades. Therefore the expected tax income of 352 billion would be significantly lower (~ 20 billion) over 10 years. Still I do believe the tax would have a significant positive impact on the economy.

The tax would most effect arbitrage trades. Arbitrageurs get between buyers and sellers. When a seller offers a stock for $95 and a buyer is willing to pay $105 the arbitrageurs buy the stock for $95 and sell it to the buyer for a premium (~ $102.5). Arbitrageurs have trading algorithms which can do this millions of times per second, that's how they can buy faster than the "real" buyer. They behave like vultures fighting for the scraps (so to speak) and getting in the way of "real" market participants.

The act of arbitrage trades is taxing market participants already. The proposed tax of ¢3 might make buying stock cheaper on average. (I don't know the real numbers, this is just a guess) Further more I would rather see the money in the hand of the government, as there is a chance that some of the money is spend on better streets & health care. The alternative is to fund hoards of highly skilled engineers to improve algorithm that pick up the scraps. I personally know engineers at broker firms who feel their extremely well paid job provides absolutely no good to society.

EDIT: The main argument for the existence of arbitrageurs is that they provide liquidity to the market when there are not enough buyers & sellers. My personal believe is, they liquidity they provide today comes with a to high of a price. 20 years ago when it was a few guys yelling on the trading floor you could always count on one guy yelling (the arbitrageur). Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely.

I think you are misinformed about arbitrage. Arbitrage involves taking advantage of a price difference between two different markets. In the US for equities, there is a national best bid and offer which means that the prices stay in line. (Also see: http://en.wikipedia.org/wiki/National_best_bid_and_offer)

If someone in the US first wants to sell a stock for as low as $95 (places a resting ask order at $95), and then someone else comes in and is willing to buy the stock for up to $105 (places a bid at $105), their orders will match, and the transaction will occur at $95. They won't just sit around waiting for some arbitrageur to come around.

Let's say there is an arbitrage between an index fund etf and its component companies such that you can buy all the components for $99, and sell the etf for $100. In this case who is the poor real market participant who gets screwed by the arbitraguer? If the "real market participant" got his order filled, he will be happy.

"Today the number of market participants & electronic transactions make trades near perfect; The utility of arbitrage trades vanished almost completely."

I think you are confusing cause and effect. The reason why the markets are indeed much more efficient these days is because of the existants of many more people engaged in arbitrage. This is something you should be happy about. Those algoritms that pick up the scraps significantly decrease the cost of investing for everyday people huge amounts of invested pension and retirement fund wealth.

One of the best ways to reform the current financial system. All traders will complain. Some professors will say it will grind the financial world to a halt. However, if the trading does not have any underlying meaning with respect to what something is "worth", what's the point? It should be some representation of underlying value. Non-transparent derivative products that do not have any intrinsic value or of which their value is incredibly hard to grasp, can just not be the way to go. But yeah, I'm an engineer, so perhaps I'm thinking too mechanical about the entire thing.

"three pennies on every $100 traded."

That's enough to wipe out 95% of traders.

This tax is both "too small to notice", "rounding errors", etc, but will also raise $352 billion over ten years‽ When you hear someone make rationalizations like that, run for the hills.

Further the worst part about "small" taxes is that they usually come with administration and enforcement costs far outweighing the benefits.

Wouldn't this cause spreads on stocks to get very wide? Liquid stocks are a penny wide now, I could see that going up to five or ten cents with such a tax. While the average investor isn't going to get hit much, in aggregate it seems like it could cost average investors billions. I'm not saying that's worse than what HFT allegedly costs, but just a point of comparison. Not that I'd expect this tax to get enacted anyway.

I like how they freak out about the services government did cut, but fail to notice that things like air force one, white house chefs, and other luxuries that cost millions of dollars, enjoyed by a few elite, are still in full swing.

The services they do cut, are the things they feel will extort the most people through emotional response, nothing close to the first things that could have been cut.

Even at a mere three cents that's unfair to a working class person buying their first stock for their IRA vs. a billionaire who does multiple transactions. Also while it may be just three cents today it will rise over time. And not for nothing this is also a good way to offshore even more financial sector jobs which really does impact places like New York City.

Don't we want to offshore finacial sector jobs? As I understand it, personnel costs are huge in the financial sector, with multi-million dollar year-end bonuses & etc.

If we can keep personnel costs down, won't that benefit the consumers of financial services, as the cost to the consumer will also either go down, or not go up so much?

That's already happened: In most of those firms everything that can be outsourced has been outsourced, so the next step would be the firm leaving NYC. And as someone in NYC I think that's a bad idea. Other cities like London are in the same boat in terms of how they treat their financial industry as well. By the way I say this not because I love that industry, but because it adds to the diversity of the local economy and really helps the tax base.

but they won't be kept down. Chances are they'll go up, since banks will pay for their talent to move to London/Tokyo/Hong Kong and work there.

The proposal is not 3 cents / transaction, it's 3 cents/$100 worth of transaction, ie, a .03% transaction tax.

That has been tried in certain countries (e.g. Brazil), beyond the fact that it's yet another tax and solves little, it is debatable, even though it has its qualities.

But here's a proposal then. Abolish all other taxes and keep only this tax (at a higher rate). No more IRS enforcement al well since collecting will be automatic.

Idiots

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