The AFL-CIO has proposed a tax that will not only help close the budget gap but will rein-in some of the obscene short-term profits made by so-called "high-frequency traders" on Wall Street (hedge funds, day-trading firms, and the big banks like Goldman Sachs).
This is the AFL-CIO’s proposal: Impose a new 1/10th of one percent tax on every stock transaction.
(more below)
The AFL-CIO's proposal has gotten little mainstream coverage but I watch CNBC a lot and they’re going nuts about it. Why? Because it would mainly affect the so-called "high-frequency traders" (hedge funds, day-trading firms, and large banks like Goldman Sachs) who use complex computer programs to execute tens of millions of trades every day. These guys are not "buy and hold" investors like the rest of us: They electronically "flip stocks" all day and, due to the staggering volume, make a boatload of money (one estimate is $20 billion a year profits industry-wide!).
What’s truly outrageous, however, is that it’s becoming increasing clear that these computer programs provide them with an unfair advantage over "regular investors". They can electronically "peak" at other investor’s orders a millisecond before they are executed, jump-in, and make their profits first. This is a NYT article that provides a brief overview of the controversy over high-frequency trading (don’t worry, very little financial jargon and only one page long):
http://www.nytimes.com/...
The NYT article states that, "the SEC is examining certain aspects of the strategy". Well, sheesh, by the time the inept Wall Street-coddlers at the SEC get around to doing anything, we’ll all be dead and buried. The solution is clear and easy: TAX IT!!!
The defenders of high-frequency trading say a reduction in computer trading will harm the financial markets by reducing "liquidity". These crooks always whip-out the word "liquidity" when they want to defend some of their more egregious practices. "Liquidity" to them means the ability to have somebody to dump their stocks on. If there’s no schmuck standing by to take the stock at the price offered, then prices have to go down until they reach the level at which someone is willing to buy. Stocks will go down or up based on fundamentals: Having lots of "liquidity" on Wall Street just means that maybe the drops won’t be so sharp (i.e., the big traders can get out quick so they don’t lose as much money). Nobody can stop the market from going up and down: Is it really in the national interest to enable these short-term traders to make billions on market moves??? Especially when it’s pretty clear they’re CHEATING THE SYSTEM??
To reduce the budget deficit (not to mention fund the costs of a new Health Care program), it’s pretty clear taxes will have to be raised somewhere along the line. This is one tax increase I really like!! We should be taxing the "speculators", not the average hard-working American Joe!!
I am writing to my Senators and my Rep asking them to support this tax and I hope you will, too.
There’s a short article about the AFL-CIO’s proposal at The Hill:
http://thehill.com/...
If you’re interested in the nuts-and-bolts of how high-frequency trading works, here’s a three-page overview (interesting stuff!!):
http://arstechnica.com/...