Seems we’ve identified some of the things they do that put the rest of us at risk, why not quantify that and tax it to tame it? If the problem is a tendency to have automated programs trigger mass selloffs on the day some government datapoint is announced, like quarterly unemplyment stats, why not tax trades on that day, and then a little less on trades just either side of it.
If bucket shops, just recently legalized after a century of criminality, are not going to be outlawed again, then at least let the government skim the proceeds, and when that sector heats up the rate can automatically rise to dampen the enthusiasm.
Whatever the problem is, design a tax for it. Are LBOs too leveraged? Tax based on the multiple of the lever.
The thing is, if you outlaw things like “risk management” (betting other people’s money behind their backs) they get pushed underground. But if you put the penalties up front, then the players just work it in as part of the game.
Wall Street yearns to be free. Free from regulation. free from taxes, free from morality. They are special people who can make money by creating money. They make billions and don’t have to waste time actually producing a product. They enjoy the biggest gambling casino in the world and you think should not have to be fair too. They are above taxes.
That’s direct manipulation of the market, and I doubt that you’ll find many people on either side of the aisle that’ll embrace it. It has too great a potention to accidentally screw over someone who isn’t trying to game the market, and those who would game the market will find a way around it. Additionally, IIRC, the existing infrastructure and tax code isn’t really set up for that–though I could be wrong–and so we’d need a major tax bill.
Besides, you’re saying to tax whatever the problem is. . .but we don’t always know what the problem is until after the fact.
Realistically, if the market is going to exist, and it’s going to be good for anything, there has to be some reflection of reality in it. Regulation is good, because it forces the companies to play within certain ethical and practical rules while still allowing them the flexibility to act in a way that reflects the general climate and potential for growth and/or loss. But direct manipulation of the market by the government has the potention to cripple the market’s ability to react to anything, even if reaction is needed. If that’s the case, why even have a market to begin with?
(And, no, realistically, doing away with the various markets and what-not isn’t an option. I’m not even going there).
No. No reason not to. In fact, I think we do already. We move the capital gains tax around in an effort to influence Wall St, and adjust interest rates (which I suppose we can look at as a tax on borrowing money if you don’t mind me stretching things a little.) Corporate tax rates, the tax rates of reits, remics, and other conduits, etc etc etc.
I think we clearly have to use the tax code to influence Wall St. It’s a part of good regulation.
I don’t think that’s really the debate. The question is how you do it. It has been done well, and it has been done badly in the past. One such attempt was the changing of the rules regarding the taxation of passive losses which can be effectively argued precipitated the crash of '87. You don’t want to do it like that.
You ever read about the Law of unintended consequences? I suggest you read up on this.
Many, many problems with this idea. Almost too many problems with this idea I barely know where to begin.
How would you, sir, seperate so-called ‘automated programs’ from honest Joe Average Americans who call their broker that day and simply want to sell that day for that or other reasons not related to any reports?
What line in the sand would you draw to differentiate a “datapoint” that would trigger a tax, from the hundreds of other “datapoints” that come out nearly every day? Whom would you put in charge of making these determinations? What will that cost to set up such oversight?
For every “selloff” on the market, there is somebody on the other end “buying” what someone else is selling. Are these buyers left alone or do you intend to manipulate their purchase too? Assume they are already long in that security: Would you intend to forever follow what was previously purchased and what was not? What would you tell CPAs about the cost basis of such shares?
What if the datapoint isn’t negative, but positive? I imagine a “datapoint” that comes in much better than expected, causing the markets to soar on that day. Do you reverse the tax for those whom are taking in capital gains?
This is just the tip of the iceburg in noting the hundreds of problems your suggestion would cause. I just don’t have time to list all of them.
Spoken like a true Liberal. Unfortunately, history has shown time and time again that anytime someone, anyone – individuals, corporations, governments – attempt artificial market manipulation, what you get in return is a whole sh**storm of unintended consequences. That’s not to say that the market can’t crap out on its own from time to time (and it has, and it will), but artificial market manipulation will blow up on you 100% of the time, guaranteed.
Or tax them out of being ticking time bombs of economic mass destruction waiting to go off again. Useless parasites for the most part doing nothing but gambling and leaving us to pick up the tab.
All stock is a gamble. The derivative market was no different than other financial instruments except that it was poorly regulated in respect to the amount of capital required to fully fund it. It’s not like the current rise in the stockmarket is directly related to the worth of the stock but there is a subtantial amount of capital backing most of it up.
What about the majority of the time, when Wall Street is a source of economic mass PRODUCTION?
Average returns in a properly diversified market portfolio – largely based on the investment vehicles found through Wall Street – is somewhere between 8-10% over time. Go all the way back to the history of the market and the market has positive returns for nearly every 3 to 5 year period far more often than it doesn’t. Surely we’re coming out of one where it didn’t, but in the 180+ years of Wall Street positive returns are more common than not.
Therefore, I don’t see the correlation between a healthy 8% positive return over time and this quote-unquote “ticking time bomb” of which you speak.
I’m generally thinking that if some Wall Street broker is formulating a “ticking time bombs of economic mass destruction” then the proper response of the government is to prohibit it, not try to profit off of it.
If we have to design a new tax for each high risk financial maneuver, it seems like it would be easier to design a prohibition for it.
It strikes me that a fairly broad brush is being used for “Wall Street” or “The City” in the case of London, by a large number of people who don’t distinguish between the majority of the financial world that was not a problem, and the small but deadly part that was.
If, as is the conservatove mantra, capital investment is the key to economic growth producing new jobs – then reward that. Investments in companies that revivify moribund locl economies, produce new jobs, etc., are taxed at a lower rate; moving money into offshore accounts, into companies that export jobs overseas, etc., are taxed confiscatorily. This should satisfy everyone except those who are looking to maximize their own money at the expense of everyone else – and they deserve the scorn of liberal and conservative alike, for their greed.
I’m not entirely sure how to look at this, except as the product of complete ignorance of economics and business. Suffice it to say that the mere fact you would endorse this mdisqualifies you from saying anything constructive, as its obvious you understand nothing whatsoever concerning globalization, economic efficiancy, jobs, productivity, growth, and the creation of wealth.
I think the whole thing can be resolved with the tax code. Instead of net income, we should be taxing every time money changes hands. Like the European VAT taxes on goods, we should tax every transfer of money from one person to another, from one company to another.
That would kill off all the wheeler dealers who try to make a fast buck by three card monte shuffles.
Taxation isn’t going to discourage unsafe speculation, only regulation can do that. The simplest thing to do would be to restrict leverage and make sure the financial industry can’t do any fancy off-balance sheet shenanigans to get round the leverage restrictions. Goldman, Lehman and others went to the SEC in 2005 and persuaded them that because they had all these fancy new derivatives products that hedged risk to almost nothing, they should be allowed to crank up their debt:assets ratio from 10:1 to 30 and 40:1. That worked out well, didn’t it? You’ll never be able to prevent reckless speculation in whatever the lastest “innovative” financial products are but you can restrict the amount they have to be bailed out for when they fuck it up.
And when they do fuck it up and they’ve been shown to be bending the rules throw them in prison. The Savings and Loan bailout was only a small fraction of the size of the eventual current one but nearly 2000 bankers went to jail. If you don’t send them to jail this time it’ll only encourage them and the next time they get half a chance the resultant bailout could dwarf this one. But it looks like the American government is now a wholly-owned subsidiary of the banks and we’re not going to get either effective regulation or anybody locked up.