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View Diary: Part 7: Another reason to support The Robin Hood Tax (14 comments)

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  •  I did not address the $350B b/c I'm not an expert. (0+ / 0-)

    I can guess...  The line is "up to $350B", so that most likely assumes no trading will stop.  That seems to me to be a deliberately unrealistic top level number, but one that has to be made based on current trading levels.  The original articles give a range.  Besides, this isn't a tax on the profits-it's a tax on the net value of high frequency trades intended to get those split-second trades to stop distorting the market.

    Your assumption, VClib, goes too far the other way.  Up to half of trades are high frequency, but those are (a)  distorting the true value of stocks by a small amount and (b) damaging the system precisely because of (a).  That distortion costs money to people who actually want to own stocks.  It's skimmed off by HFTraders, who did not exist even a few years ago.  There was no liquidity crisis before HFTs, and we won't miss them or even notice them.  The number of trades has gone up enormously over the past few decades, more than can be accounted for by availability of more companies stock or international trading.  Don't lose sight of the basics:  Liquidity means knowing the "true value" of a company based upon what it will buy/sell for to an owner, not a speculator.  There are more than enough people around who want to invest or speculate versus split-second speculate. You may not believe it, but the stock market even existed prior to electronic computers. ;)

    •  High frequency trading is like coin clipping (0+ / 0-)

      (shaving the edge of a coin).  That's why many coins have milled edges.  The economy didn't collapse when Newton stopped coin shaving.  The stock market will not collapse without HFTs.

      •  Jerry - I never contended that the market (1+ / 0-)
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        would collapse without high speed trading. However, high speed trading is just a high tech form of arbitrage which tends to make markets more precise, rather than distorting them. And the volume high tech trading provides does influence institutional equity holders who do view it as adding to market liquidity.

        I understand that the transaction tax is not an income tax, and we both agree that the $350 billion is fiction, however that additional tax has to come from somewhere and shifts capital out of the investment market to tax revenue. While each tax is small, the aggregate number is large.

        "let's talk about that"

        by VClib on Sat Sep 21, 2013 at 03:14:20 PM PDT

        [ Parent ]

    •  I don't understand "distorting". (0+ / 0-)
      "Up to half of trades are high frequency, but those are...distorting the true value of stocks"
      You can only say the price is "distorted" if you somehow know the "true value" of a stock.

      I respectfully submit that nobody is that smart.

      I'm not one of those Ayn Rand market-worshipers who thinks that market prices are perfect and holy. But there's no evidence that stocks with lots of HFT activity have more price "distortion" than others.

      Unless you can show a clear arbitrage opportunity, such as a stock price being out-of-line with options or bonds, I don't think you can accuse a particular price of being "distorted".

      •  you're not getting what is happening, I think, MM. (0+ / 0-)

        Let's say that you go to the Wall Street grocery store.  Products priced at $5 really sell for between $4.50 and $5.99, depending upon supply and demand.  You have gotten used to this, and you know that some days are higher and some lower, but the prices are fair.  Your average price is somewhere in the middle, about $5.25.  This week, some random guy suddendly starts following you through the check-out line, taking all of your stuff out of your basket at the last second, and making bids on them to the clerk.  Suddenly you have to buy all of your $5 groceries at $5.99, and the guy pockets the difference per item, so your total bill shoots up by $90.  You don't see this as a distortion?

        To VClib, there is a difference between high speed transaction processing, which speeds up the ordering process, and high frequency trading, which skims off your own money out of your transaction into a third party's pockets.  This tax seems to have two goals, taxing traders who make a living off of lots of trades, and slowing down or blocking high frequency trading, which I see as a form of legal theft.

        •  That's what Limit Orders are for. (0+ / 0-)

          I tell the clerk, "$5.25 or nothing".

          If the HF trader bids $5.30, then they pay $5.30 -- and become the owner of the stock.

          Now there may be technical issues such as some people getting better data, faster computers, or even inside data on pending trades. This stuff can be addressed by SEC rules. It doesn't even require Congress. And it certainly doesn't require a Transaction Tax.

          (Also, these HF traders compete with each other. In your analogy, the HF trader selling to me at $5.99 is likely to be undercut by another HF trader selling at $5.98...or $5.97...and so on...)

          But still, I've gotta point out: Your grocery analogy assumes that there is a "fair" price somewhere around $5. If somebody is willing to pay $5.99, then $5.99 is, by definition, the correct price.

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