Jesse’s Café Américain: Time for a Financial Transaction Tax Designed to Fund Financial Industry Regulation

Jesse proves that common sense solutions are the best and easiest way to enact real reform and change. Unfortunately, to enact these common sense solutions we need to win our country back from the criminal Wall St/Washington axis of power. It will happen, but it won’t be because the criminals give up. They need to be run over and flattened by the American people. Keep that in mind at the ballot box people.

 

06 October 2011

Time for a Financial Transaction Tax Designed to Fund Financial Industry Regulation

I would like to see a flat financial transaction tax enacted, applicable to any exchange. The tax would be $1 (or £1 or €1 or ¥100 for example) for any trade on any exchange public or private, for any registered security including derivatives, without regard to the size of the trade. I would even consider a lesser amount, say $.25 for example, based on better tax revenue estimates.

The real economy is being slowly strangled by an outsized financial sector that has purchased a political franchise for outsized fees and subsidies.

The financial transactions tax would be paid on the buy side. No exemptions. None. Zip. Not even for ‘wholesale’ traders or banks, or those who own ‘seats’ on the exchange. It is a cost of doing business. You buy, you pay $1 for each purchase.

The purpose of the tax would be to fund the regulation of the financial industry and the Consumer Protection in the financial industry.

The tax ‘burden’ would fall most heavily on those engaged in High Frequency Trading. It would not halt the phony ‘bid stuffing’ phenomenon which would have to be dealt with in other ways. But it would help.

The money would be ‘earmarked’ for the Regulatory bodies. The government would not be able to divert it to other uses. This is similar in concept to the gasoline tax in the US which is a flat rate per gallon of gasoline, which is used to expand and maintain their Interstate Highway System.

The most common objection is that it would make the domestic exchanges less competitive, and that people would find ways to ‘cheat.’

If this rule were to drive more fruitless speculation out of country, then perhaps one might add some incentives for these speculative companies to leave, and take more of their white collar con men with them. Let them see how they fare in Asian countries when they are caught in a fraud. Perhaps their could be a pay per view for the punishments.

Liquidity objections are a red herring, a joke. HFT adds no liquidity, it amplifies short term movements. It is not the same as the specialist system, not at all.

As for cheating, with a more fully funded set of regulatory bodies with professional career employees with an in depth understanding of the industry and continuity in position, not these revolving door suits who can’t wait to work again for the industry companies they regulate, the cheating might become more manageable.

By the way, and in an somewhat unrelated discussion, I would use these funds to immediate tighten the regulations and enforcement against naked short selling, especially in the US and Canada.

Next up, reform of the transfer pricing abuses that allow international corporations to realize revenues in the country of their choice.

As for personal taxes, significantly raising the income triggers a flat 25% AMT to let’s say $400,000 but tightening the exemptions until they include any ‘income’ of any sort from any source would be a good place to start. That is quickly achievable. We might also consider a modest AMT for corporations based not on ‘income’ but on reported revenues from whatever sources.

Businesses do not ‘create jobs’ like benificent gods. They respond to market opportunity and consumer demand for products and services. Incenting business in the face of failing demand cause by stagnant median wages and high unemployment is just a variation of the trickle down economic theory.

Create sustainable demand, and independent businesses will rush to fill it. The problem lies with the inefficient businesses, the zombie cartels, monopolies, and rentiers who have ‘purchased’ public franchises to take fees by buying politicians and favorable legislation.

These reforms would be fairly easy to achieve, given a functioning political system responsive to the voters, compared to the biggest problem facing the US, which is campaign finance reform and the crowding out of the individual from the political process.

Never happen you say? Well, all right then, but do not expect there to be any sustainable economic recovery.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

As Hermann Hesse oberved, “When the suffering become acute enough, one moves forward.”

Posted by Jesse at 3:16 PM

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