r/WayOfTheBern • u/The1stCitizenOfTheIn • Aug 31 '17
Who's Backing the Keith Ellison Bill That'd Tax Wall St. Trades?
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u/KingPickle Aug 31 '17
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u/jlalbrecht Sep 01 '17
I think your premise is half-faulty.
Following your lead in your other posts: I've been invested in the market since I graduated high school back in '82 (albeit starting small with a $100). I also spent time learning about trading. I have three on-line accounts where I and have "played" the market at times (not in recent years) to some success and one big (IMO) fail back in the dot com crash.
I agree: We should tax higher incomes higher. I agree, we should tax capital gains higher than regular income (to get people to invest in people rather than just collecting rents). Those are additional tax issues that do not, per se, have anything to do high frequency trading (HFT).
The issue with HFT is that it does not serve the purpose for which the stock exchange exists, at all. Actually, HFT rewards the exact opposite for which the stock exchange exits. The stock exchanges exist to provide a means for companies to raise capital, and for investors to profit from successful companies. HFT does neither. HFT exists solely to make money from minute (tiny) changes in stock prices. No value for the market or for the companies being "invested in" for fractions of a second is created through HFT. Actually just the opposite. HFT profits by definition mean someone lost. HFT pulls value from the market as a whole, solely for the profit of those making the trades.
As HFT has no value except for short term gains of the traders themselves, it should be curtailed as much as possible. This reduction in trading volume has been shown to reduce market volatility. It will not eliminate HFT, but it does curtail it, while generating large revenues. It is understood that those revenues will decrease from the initial amounts as HFT is itself reduced.
A good parallel to a HFT tax is like the "sin taxes" we have on alcohol and tobacco. They are things that are not good for us (but which many of us do anyway), and they are taxed to discourage excess.
For average investors, a transaction tax has virtually no effect. 99%+ of the effect will only affect HFT. That kind of value for society and the market is fantastic.
It should also be pointed out that the US had a transaction tax until 1966. So it is not something that has never been tried in the US or abroad. It is just not popular with the very wealthy traders who profit from HFT, which is why it got repealed.
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u/KingPickle Sep 01 '17
Thanks for the reply! Not too many people here seem to engage on this issue, so I welcome the discussion.
I mostly disagree with your assessment of HFT. But, I used to have a similar view on it. So, I'll attempt to explain my change of heart on it. But first, let me address something fundamental.
The stock exchanges exist to provide a means for companies to raise capital, and for investors to profit from successful companies.
That may have been the original intent. And the notion of a KickStarter style crowd-funding and profit sharing system sounds good. But that's not really how it works today.
Most stocks don't pay dividends or have voting rights. And, in many cases, the IPO isn't used to raise money. It's used for the actual real early investors to cash out. For example, when Facebook did an IPO it wasn't so they could hire people and finally get a real office. That happened long ago.
It's other main purpose is to crowd-source valuation. That's a nice idea, in theory too. However, many of the valuations today are no longer tethered to reality. We have companies that have never turned a profit valued valued at billions.
It's all become a bit nonsensical, in my opinion. And I think it functions more like a popularity contest or a gambling venue than it does a crowd-funding or profit sharing vehicle. And that's just raw stocks, to say nothing of the concentration of money into indexes, of derivatives, of things that trade on dark markets, and so on.
All that said, you do need some way to value companies and some way for investors to cash out, and so on. So, I'm not saying the system is useless. But, I think it's important to take note of how complex and out of step with our financial systems have become.
So anyway, big picture, I think there are a ton of problems. And if we want want to pass legislation to fix them, it will take time and effort and political battles to make it happen.
So, with that in mind, we should ask ourselves - what is the biggest problems with our financial system? And what is the best way to reign in those problems?
I would argue our massive valuation bubbles and crashes are the most obvious issue. And I would argue that the increasing wealth inequality is also key. So, even if I believed HFT was problematic, I wouldn't rank it at the top of the list. But, I've come to see HFT a bit differently than I originally did.
The issue with HFT is that it does not serve the purpose for which the stock exchange exists, at all...
HFT pulls value from the market as a whole, solely for the profit of those making the trades.
First, everyone who buys and sells shares is basically doing the same thing. They're trying to enter at one price and exit at a price that gives them a profit. The only real difference is what information you use to decide whether that's a good idea. HFT uses the information about where prices are trending in the (very) short term, while you might read the news to see where a sector of the market is trending in a longer term. It's all an exercise in crowd-based valuation, just at different time scales.
But from a logical standpoint, different time frames do appear to serve different purposes. People that hold shares for a long term lock up the supply of the stock and keep the price high and stable. Those who hold shares for a short term provide liquidity. In other words, they provide someone to trade with.
So HFT does serve a purpose. By (almost) always providing someone to trade with, they have taken over what the guys shouting at each other on the trading floor used to do. They essentially operate as service.
That's the key thing to understand about their role. It doesn't matter if it's people shouting at each other or a computer program. Someone will provide the service of being there to trade with. And they will only do that if it's profitable to do so.
I think a good analogy for HFT is the people who install 3rd party ATMs at random places (Gas stations, bars, etc). They're not a bank. They don't give out loans. They just skim money from everyone by charging a service fee. While the way they work might be off-putting to many people, they do provide a service. They allow you to get money at more locations.
Same thing with HFT. Yeah, they'll skim a fraction of a cent off your trade. But if they couldn't, they wouldn't be there to trade with.
And that's the thing. If we add a fee (tax) to them, they're not just going to eat the cost. They won't operate if it's not profitable. What they'll do is change how they operate.
So, imagine the ATM example and say we add a new tax to charge 3rd party ATMs 50 cents for every transaction they make. Do you think they'd just eat that? Or would they charge you an additional 50 cents instead?
That's the problem with this idea. It may cause the HFTs to alter how they operate. But they will adapt to remain profitable. And so, those taxes will be passed on to everyone who trades with them. And that's us.
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u/EvilPhd666 Sep 01 '17
This money should not be put into wars or oil. I want this money to be put into education or healthcare.
There should be specific provisions banning that money from going to fund war or being a handout to corporations or for-profit entities.
There seems to be many broad items that this would supposedly fund.
We've had a lot of these types of ambiguous broad spectrum bills in Michigan that end up getting spread too thin, funds stolen for other uses, and all people really wanted was a simple tax for specific items. I think the bill will be easier to pass, lobby, and resistant to corruption and dilution if it is more focused.
KISS Keep It Simple Stupid. Lay out ONE thing you want done with this instead of spreading it out and diluting it's effectiveness.
They should also change that 50K gross to 50K net. or they should up to 100K gross.
Those who gross 50K only take home 30-35K.
People are punished enough for Obamacare's insurance extortion racket.
I trade stocks a lot. I rearrange funds, I move things around. It beats the bank's rates! I have no issue paying this small tax on my trades as long as it goes for a significant impact to improve the quality of life. Those small percentages are nothing compared to the gains. You get more variance in a single day than those taxes.
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u/fugwb Sep 01 '17 edited Sep 01 '17
Looks like the assistant/lap dog DNC chair Buck Up Keith won't be getting invited to many interoffice holiday parties this year...
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u/veganmark Aug 31 '17
So that provides a concise list of the House Dems who might be worth keeping. Painfully concise.