Keep Your Filthy Hands Off My Clients' Money, D.C.

robin-hood

Fightin' The Tax Man Since '73

Oh Boy.  Talk about adding insult to injury.  The same Washington D.C. that brought us the TARP fund and all the lackadaisical oversight that came with it now has a new way of raising the money to pay for it.

It seems there is an academic named Dean Baker, who would like to add a “Transfer Tax” to every buy and sell of a stock or bond, according to an editorial piece in the New York Times.

“The economist Dean Baker is a strong advocate of a financial transactions tax. This would impose a small fee — ranging up to, say, 0.25 percent…According to Mr. Baker, the co-director of the Center for Economic and Policy Research in Washington, the fees would raise a ton of money, perhaps $100 billion or more annually.”

Baker needs to crack a window over at the Think Tank, I’m not sure if there’s enough oxygen getting into the room.

Let me get this straight, we have wall-to-wall depreciation, deflation and illiquidity in almost every single asset class from homes to mortgages to corporate credit…and Taxie McGee now wants to eliminate the traders who provide liquidity to the stock market with a disincentive to operate?  OMG, why not just go down to the floor of the exchange and start ripping electrical cords right out of the sockets?

When Rev Shark first mentioned this Op-Ed on TheStreet.com, I was blown away at how bad the timing of this idea was, until I read the rationale behind it…and then my head almost popped off!  The thinking is, essentially, that Wall Street created the mess we’re in (with some help from the deadbeats on Main Street), so Wall Street should be punished with the tax burden, and while we’re at it, let’s get rid of those evil “speculators” that are ruining the market with volatility and clear the way for only the righteous buy-and-holders.

Buy-and-hold in 2009 is the most discredited strategy since Napoleon marched his under-fed army into Russia in the dead of winter.  How about buy-and-hold the NASDAQ 100, down 70% from where it was 9 YEARS AGO.  Or General Electric, Bank of America, Citigroup, GM, AIG, Merrill Lynch…let’s buy-and hold that stuff, ya know, the Blue Chips.

Best of luck.  Trading is necessary and speculative activity, including shorting, day trading and swing trading, is the grease that keeps the wheels moving.  Taxing this activity is a sure way to make markets even less liquid, turn off the public to investing in general and drive trading activity overseas.  Can we really afford to make ourselves uncompetitive in yet another arena?

My clients have worked hard for their money, so whether they want to buy-and-hold stocks or they want to trade and speculate, neither approach to investing should be foisted on them by a heavier tax burden.  And besides, what starts out as a quarter of a percent can quickly turn into a half of a percent once D.C. gets addicted to that stream of cash coming in, so better not to start the habit at all (like crack-smoking or American Idol).

Thanks, but no thanks, Baker.  Leave the only functioning, liquid asset class in the U.S. alone right now and keep your hands away from my clients money, they’ve suffered enough this year.

Further Reading:

Op-Ed “Where the Money is” in the New York Times by Bob Herbert

Rebuttal “Let’s Not Tax Trading Out of Existence” on TheStreet.com by James “Rev Shark” DePorre

What's been said:

Discussions found on the web
  1. Dinosaur Trader commented on Jan 15

    The upside to this would be that I’d finally have a really great incentive to move to Europe. Best yet, instead of being called a communist for moving, I could argue that I’m doing it in the name of capitalism.

    But this would be a complete and total nightmare for traders and I can’t think of a worse idea.

    Then again, I can’t think of any other ways to raise 100B fast…

    -DT

  2. Dinosaur Trader commented on Jan 15

    The upside to this would be that I’d finally have a really great incentive to move to Europe. Best yet, instead of being called a communist for moving, I could argue that I’m doing it in the name of capitalism.

    But this would be a complete and total nightmare for traders and I can’t think of a worse idea.

    Then again, I can’t think of any other ways to raise 100B fast…

    -DT

  3. Dinosaur Trader commented on Jan 15

    The upside to this would be that I’d finally have a really great incentive to move to Europe. Best yet, instead of being called a communist for moving, I could argue that I’m doing it in the name of capitalism.

    But this would be a complete and total nightmare for traders and I can’t think of a worse idea.

    Then again, I can’t think of any other ways to raise 100B fast…

    -DT

  4. laidoffinsandiego commented on Jan 20

    While I am no trader but a follower of the Efficient Market Hypothesis, liquidity is necessary for markets to work. I agree with your comments wholeheartedly. There is nothing worse than a government discovering a powerful source of income that on the surface appears to not affect people directly. They will use it to ultimately destroy a society. It has been done many times before. For anyone wanting to see just how dangerous this is, I commend, “For Good and Evil: The Impact of Taxes on the Course of Civilization.” It is about 500 pages but very readable and enlightening.

  5. laidoffinsandiego commented on Jan 20

    While I am no trader but a follower of the Efficient Market Hypothesis, liquidity is necessary for markets to work. I agree with your comments wholeheartedly. There is nothing worse than a government discovering a powerful source of income that on the surface appears to not affect people directly. They will use it to ultimately destroy a society. It has been done many times before. For anyone wanting to see just how dangerous this is, I commend, “For Good and Evil: The Impact of Taxes on the Course of Civilization.” It is about 500 pages but very readable and enlightening.

  6. laidoffinsandiego commented on Jan 20

    While I am no trader but a follower of the Efficient Market Hypothesis, liquidity is necessary for markets to work. I agree with your comments wholeheartedly. There is nothing worse than a government discovering a powerful source of income that on the surface appears to not affect people directly. They will use it to ultimately destroy a society. It has been done many times before. For anyone wanting to see just how dangerous this is, I commend, “For Good and Evil: The Impact of Taxes on the Course of Civilization.” It is about 500 pages but very readable and enlightening.

  7. Blue Coaster33 commented on Apr 30

    The Absent Game

    Concerning me and my husband we have owned extra MP3 players over the years than I can count, such as Sansas, iRivers, iPods (traditional & touch), the Ibiza Rhapsody, etc. But, the last few decades I’ve settled down to one line of gamers.