You have to love the opening line. "Although the national debate on financial transactions taxes (FTT) has just begun, ..." "just begun"? How about "chewed, spit out, and discarded"?
New FTT campaign coming from Oxfam (www_gaeia.co.uk/modules.php?op=modload&name=News&file=article&sid=237).
What is rather interesting is how similar Baker's mindset is to those of the people on Wall Street he opposes. From Baker's 2008 article: Note how he thinks that a 50% drop is the extreme scenario. Just a quick look at the Swedish experience shows that much more severe situations can easily happen but he does not bother considering them. Talk about being cut off from empirical reality. Baker's problem is that he starts with an ideological viewpoint ("Transaction taxes are a good thing.") and then fails to consider outlier situations that would invalidate his thesis. This is the same mentality that leads to a Wall Street trader getting blown up. Such a trader starts with an ideological viewpoint as well ("I want to make shitloads of money off my infallible models.") and then fails to consider the possibility of outlier situations that would wipe him out ("It's a 20-standard deviation event. It could never happen..."). How is this kind of irresponsible thinking any different from those of people like Baker, Krugman, or Stiglitz who if given the chance would engage in uncontrolled experiments in social engineering on a mass scale? ("It's impossible for market volume to go down 90%. It could never happen...") In either case, the rest of us are the ones who end up paying for this arrogance, in one way or another.
what baker et al is not really taking into account is the cost to the economy. The biggest effect will be in non-directional trading where traders take huge position sizes for relatively certain small profits, ie nofmal hedging , pairs trading, arbitrage, delta-hedged option books etc. This will likely leave us with markets that are "less mature" compared to today, and with higher volatility and where also trends will tend to go further. These effects are probably missed by proponents of the tax. In these times the last thing on earth you could want is a less efficient market. It is not entirely impossible that after the initial chaos for traders some form of trend-trading could become viable in those volatile conditions. Who knows and hope never to find out.
Good news sports! From the left wing Guardian newspaper:- http://www.guardian.co.uk/business/2010/jan/31/bank-levy-scheme-wins-support Bank levy wins global support Leaders at Davos economic summit appeared to be deserting the idea of a Tobin tax on banking industry 40th Annual Meeting of the World Economic Forum The prospects of a global tax on financial transactions were receding fast this weekend amid signs that countries were swinging behind an alternative plan to impose an insurance levy on banks. Both David Cameron and Alistair Darling expressed support for Barack Obama's proposals to force banks to pay into a fund that would provide compensation in the event of the failure of a financial institution. Cameron said at the World Economic Forum summit at Davos that he thought a so-called Tobin tax was unworkable because of a lack of international support, but said he would back an insurance levy if he became prime minister in this spring's election. "We would work for a new international levy on banks â one of the ideas being considered by the IMF â to protect the taxpayer from footing the bill for banking crises," the Conservative leader said. The chancellor said he was working with the US on a permanent insurance levy, an idea the Treasury believes will win more support than a Tobin tax. "We are keen to work on a plan on this with other countries," Darling added. Obama has announced plans to force banks to pay $90bn (£56bn)over the next 10 years, to meet the costs of government bailouts. Global support for a transaction tax appears to be waning just as charities and churches in the UK prepare to launch a major, celebrity-backed campaign to back the idea. Max Lawson, senior policy advisor at Oxfam, insisted a levy would be too modest to fill the gaping hole in the public finances blown by the financial crisis. "The only thing that would raise enough money to prevent cuts to public services and help poor countries is a transaction tax." Gordon Brown has championed the idea of a financial transaction tax, often known as a Tobin tax after the economist who suggested it, but the government now accepts there is a risk that the proposal could fail to win sufficient backing. "We're going to keep both ideas up and running until it becomes clear that one of them is going to get international support behind it," a Number 10 insider said this weekend. John Lipsky, the deputy managing director at the IMF, said there was support for an insurance levy, but a draft report by the fund due out in April would look at a number of proposals. "The mandate is for a menu of options. That's exactly what we are going to provide. We are looking at all plausible options in a fair and objective way." He added that the fund was keen to avoid proposals that would distort financial markets. "One of the bases on which we will be judging the different measures is their potential distortive effects on the financial sector. One of the criteria would be whether a tax would diminish the efficiency and effectiveness of the financial system itself. "This is an area where uncoordinated action could create the conditions for legislative and regulatory arbitrage." Campaigners for a Tobin tax believe the fund will throw its weight behind an insurance levy, which has the advantage of support from the White House. However, with France and Germany openly supportive of a transaction tax, there is likely to be a fierce international argument on the rival proposals over the coming months.
not to mention that it is idiotic and like shooting yourself in the foot to cure a headache. I'm waiting for Mr. Lawson and Oxfam to tell us how it is the financial industry's responsibility alone to take care of poor countries. The idea is preposterous. I think Mr. Lawson and Oxfam specifically need to be taxed to support poor countries. That makes about as much sense.
Looks like Brown is preparing to throw in the towel. Perhaps we'll see global dismissal of the FTT even before the IMF report in April. Excellent news today.
Can you detail some of the constitutional arguments? Are they arguing that the section 31 SEC fee is also unconstitutional?
http://www.businessinsider.com/iphone/index?a=obamas-bank-tax-is-unconstitutional-2010-1 google bank fee unconstitutional and several links. A punishment robin hood tax singling out wall street or traders to give money to another preferred group is a violation of equal protection and a bill of attainder. As we figured for months the G20 IMF would go for an insurance levy on banks paid to a bank rescue fund. That's legal, constitutional in the US, Germany and other countries. A Robin Hood tax - FTT or bank tax - to rob and give Main Street or Global charity is unconstitutional. Bank insurance for bank bailouts is appropriate and it fixes the problem. Barring commercial banks from prop trading and investing is not about what they profess - risk reduction. That is BS. governments are flipping out about lack of lending and worried about a W recession. They have given banks bailouts and zero interest rates and banks have invested the money. Incedible easy money trading gains paid back TARP along with new capital raised to fund that incedible business. Obama is forcing banks to lend to risky borrowers in an activist strong arm way. Think ACORN and Community Investment.
PS a FTT is equally or maybe more unconstitutional than the Obama bank fee as you read through that law link in my last post. http://www.businessinsider.com/iphone/index?a=obamas-bank-tax-is-unconstitutional-2010-1 Congressmen - not judiciary - want to punish speculators who are required for markets with a big enough tax per transaction to put them out of their legal business. Expost facto after the fact and to divert those funds to others they favor. If this isn't a bill of attainder what is? I know progressives love euro law but our founding fathers rejected government overreach with bills of attainder - the link said bills of attainder were legal in England. This issue strikes at the heart of Tea Party and Scott Brown Republicans and Democrats too - like Reagan Democrats. Government can not start dictating commerce based on political preferrences. I know activists have that goal.