tax the transactions?
Nov. 16th, 2010 12:05 pmReason No. Eleventy Gajillion Why We Need a Transaction Tax : Mike the Mad Biologist:
Reason No. Eleventy Gajillion Why We Need a Transaction Tax : Mike the Mad Biologist:
A while ago, I discussed the observation that seventy percent of stocks are held for eleven seconds (yes, you read that correctly). It's absurd, since there's no way that the status of the underlying companies has changed (and that information has been made public) in an eleven second time span. This is nothing more than speculation which provides no useful purpose. A transaction tax would penalize this behavior and make it unprofitable.Article continues with a story about an energy company in NC that lost 90% of its value in spite of no action or bad news on their part (and a healthy 3.1 million customers) - the "system" simply saw a slight drop in price caused by one sale, and suddenly everybody's system went "SELL" and that was that.
Reason No. Eleventy Gajillion Why We Need a Transaction Tax : Mike the Mad Biologist:
Others are far more blunt. "I am very upset by the flash crash," said George P. Schwartz, who manages the Ave Maria mutual funds. "I am upset by how high-speed traders have taken over the market. They make a mockery out of capitalism."Taxing the transactions would slow this down to a crawl. Another problem in today's "clever software" market is that of the ETFs taking over fresh IPO stocks and turning them into slow-growth mutual funds before they've actually done their traditional job (making the company founders rich), leading to more and more companies avoiding IPOs and just staying private - that way there can be SOME control over the stock price. Under the ETFs, stocks are added or dumped merely at the whim of the software trying to keep the right balance (really, just a stupid rules-based engine), and so prices can drop like a rock when they get dumped in spite of there being no technical or newsworthy reason for a dramatic drop. This is even more complicated by the fact that these ETFs can be short-saled (trans: you don't have any actual money on hand to screw someone else big-time).