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Wall Street is Unethical

2&2 Slider To Leyritz said:
Right, but that type of tax would also hit the pension and hedge and mutual funds that "legitimately" play the markets on a daily basis, and who you are purportedly trying to protect from HFTs. I'm sure they would gladly give up the fraction of a cent that the HFTs are "taking" from them in lieu of paying an additional 2% or 3% trading tax. That would have a huge negative impact on people's portfolios relative to the money lost through the HFT transactions.

You would have to somehow tie the tax to the actual timing of ownership - like taxing positions that are held for less than a minute. But I don't know how the IRS would keep up with that at all, they are still running computer systems from the 90s.
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My understanding is that there is a very large difference in scale between ratio of trades to portfolio size between an HFT and a mutual fund, such that a tax on each trade would represent a very large portion of the income of an HFT and a comparatively small portion of the income of a mutual fund. Clearly nobody in the financial industry wants a transaction tax, full stop, because it would definitely cut into everyone's profits. There are plenty of profits on Wall Street to go around though, and apparently Wall Street gets bailed out by huge infusions of taxpayer cash when they screw up (and they all keep their giant bonuses afterwards). So, a financial transaction tax is a sort of a Pigouvian sin tax that both deters harmful behavior (HFT) and provides the taxpayer with an income stream that bears some relationship to the implicit guarantee that the taxpayer is extending to the industry.

I've pretty much reached the limits of my knowledge on this, maybe other posters have some more in depth knowledge of other possible policy responses to HFT.
 
So how about instituting a financial transaction tax that goes into a bailout fund? The longer Wall Street banks go without needing a bailout, the lower the tax.
 
Deacon923 said:
My understanding is that there is a very large difference in scale between ratio of trades to portfolio size between an HFT and a mutual fund, such that a tax on each trade would represent a very large portion of the income of an HFT and a comparatively small portion of the income of a mutual fund. Clearly nobody in the financial industry wants a transaction tax, full stop, because it would definitely cut into everyone's profits. There are plenty of profits on Wall Street to go around though, and apparently Wall Street gets bailed out by huge infusions of taxpayer cash when they screw up (and they all keep their giant bonuses afterwards). So, a financial transaction tax is a sort of a Pigouvian sin tax that both deters harmful behavior (HFT) and provides the taxpayer with an income stream that bears some relationship to the implicit guarantee that the taxpayer is extending to the industry.

I've pretty much reached the limits of my knowledge on this, maybe other posters have some more in depth knowledge of other possible policy responses to HFT.
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So do you mean don't tax the income from the trade on a percentage basis, but instead basically charge a flat per-transaction fee labeled as a tax? Like a $2 per trade fee that goes to the IRS, or in Ph's model a central bailout fund? That would piss a lot of people off, but I guess could be done.
 
There's got to be some way for the big banks to bail themselves out and you can't trust them to just manage their own bailout fund and save it for a rainy day. And it wouldn't stop them from going to the taxpayers anyway.
 
2&2 Slider To Leyritz said:
So do you mean don't tax the income from the trade on a percentage basis, but instead basically charge a flat per-transaction fee labeled as a tax? Like a $2 per trade fee that goes to the IRS, or in Ph's model a central bailout fund? That would piss a lot of people off, but I guess could be done.
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That's what would make sense to me, a flat, per transaction fee. If you buy a billion in stock in one transaction, you pay $1. If you send your sneaky computers fishing around all day making a billion trades for a fraction of a cent each, you pay $1 billion. I think in reality it is envisioned as less than a dollar. That said it appears that the politicians who are on this are going with a percentage tax. The proposed EU financial transaction tax (which has not been enacted) is a percentage.http://en.wikipedia.org/wiki/European_Union_financial_transaction_tax and so is the proposal from the Democrats here. http://www.washingtonpost.com/business/economy/democrats-in-a-stark-shift-in-messaging-to-make-big-tax-break-pitch-for-middle-class/2015/01/11/d4438468-9999-11e4-a7ee-526210d665b4_story.html

I just found these by googling this a few minutes ago so I don't claim to know many details. ETA: The WaPo article makes the point that a financial transaction tax is a market based approach to curtailing speculation. Not sure I totally agree with that, but it seems to me that it's a lot simpler and creates a lot less drag on the economy than trying to regulate every aspect of banking through convoluted stuff like Dodd-Frank. The guys on Wall Street are always going to outsmart the regulators, so instead of tying up the banks in red tape just put a tax on the risky behavior and let it sort itself out. Like cigarettes.
 
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PhDeac said:
So how about instituting a financial transaction tax that goes into a bailout fund? The longer Wall Street banks go without needing a bailout, the lower the tax.
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But then those funds are managed by a financial institution and they get a cut back of the profits and then it bottoms out in a recession
 
Speculation adds liquidity to the market
 
buckets said:
But then those funds are managed by a financial institution and they get a cut back of the profits and then it bottoms out in a recession
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Maybe let the Fed maintain it?
 
I like the transaction tax. That should pretty much stop the HFT issue right? My personal ethos simply gets pissed at schemers. It is the people who are always trying to stretch the rules that ruin it for everyone else trying to make an honest living by maximizing their talent and work ethic.
 
Wrangor said:
I like the transaction tax. That should pretty much stop the HFT issue right? My personal ethos simply gets pissed at schemers. It is the people who are always trying to stretch the rules that ruin it for everyone else trying to make an honest living by maximizing their talent and work ethic.
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So salty
 
Work ethic is unrelated to the market. That is somewhat the point of the market, you can make money by not doing anything. Again, it is just legal gambling.
 
PhDeac said:
There's got to be some way for the big banks to bail themselves out and you can't trust them to just manage their own bailout fund and save it for a rainy day. And it wouldn't stop them from going to the taxpayers anyway.
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Wouldn't that just make them take even more risks?
 
Ball State Deac said:
Wouldn't that just make them take even more risks?
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Not if the taxpayer spigot was turned off. Ideally those who take risks and lose would either have to get bailed out for cents on the dollar or get bought out by those who managed their risks better.
 
I don't think turning off the taxpayer spigot = establishing a bailout fund. In fact I think it's exactly the opposite, and the markets would price bank risk as being backstopped by that pot of money. That's essentially what's happening now, markets don't believe that governments (not just the US, across the First World) will let big banks go bankrupt so they price the banks as if they had the full faith and credit of their home country standing behind them.
 
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