Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
As Seigestate pointed out to me, the Tobin Tax was to be levied against cross-border currency trades. The FT article neither specifies the type nor limits the possible incidence of the putative tax on "financial instruments", but it would seem to apply more to CDOs, MBSs, CDSs, etc than to Forex transactions.

I was proposing a rather stiff tax of 0.5% on all financial exchange transactions as a means to limit what seemed to me to be the baleful effects of proprietary desk trading via High Frequency Trading algorithms which combined the benefits of co-located access to market monitor programs and an ongoing "market making" HFT program and provided the prop desk with a multi-millisecond period of exclusive access during which it could execute multiple trades before the information became available to others.  The US Securities Exchange Commission was forced to declare this sort of activity illegal, as all of the traders who didn't have such programs and didn't rent some degree of advantage would have been forced to boycott the exchange. At least people have said that they are stopping the practice.

Given that up to and possibly in excess of 60% of the trade volume on any given day in NYC exchanges is generated by HFT algos by a few trading organizations and given that this process seemed to be the most likely source of much of Goldman Sachs $22 billion 2nd quarter '09 profit, back of the envelope calculations indicated that even a relatively small transaction tax could generate tens of billions per year.  After all, Goldman was extracting over $10 billion in a quarter.

Of course the companies would howl that the entire market would dry up if the government took some of this money rather than leaving it all to them, but this is unlikely.  Perhaps the best way to determine the proper value of such a tax is to slowly but steadily raise it until the take from the tax began to decline or until the average position was held for some significant time, say a month or a year. Another possibility would be to rebate all or part of the tax if the investment is held for a certain time.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 11th, 2009 at 12:00:53 AM EST

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