Following is from: http://www.justiceplus.org/tobin_tax.htm :

“The Tobin Tax is a proposed transaction tax on currency speculation. The concept comes from James Tobin, a Nobel laureate economist at Yale University. Here is how it would work: Currency speculators trade at the rate of over one trillion dollars each day. Speculative transactions would be taxed at a tiny percent of volume (.1%-.5%), once per transaction. Non-speculative transactions would be exempt, about 10-15% of the daily volume. The tax would discourage overnight or short-term currency trades, the most volatile, while leaving longer-term investments barely effected. Dangerous currency volatility would thus be reduced, and national macroeconomic autonomy restored. Billions in revenue, potentially as much as $300 - $600 billion per year, could be generated, according to economic studies. Parts of the revenue would go to international trust funds, other parts to national budgets. Both parts could be used to fund worthy projects.

Here is the Wiki link to it: http://en.wikipedia.org/wiki/Tobin_tax

Following is from: http://www.guardian.co.uk/business/2...conomic-policy

“… "My main objectives for the tax are two", {Tobin} said in the foreword to a 1995 book. "The first is to make exchange rates reflect to a larger degree long-term fundamentals relative to short-range expectations and risk. My second objective is to preserve and promote autonomy of national macroeconomic and monetary policies."

Those operating in financial markets, predictably enough, hated the idea. But so did central bankers. … Nor was the idea of a tax universally supported by the remaining disciples of Keynes, many of whom doubted that a levy of between 0.1% and 0.25% on foreign exchange deals would really "throw sand in the wheels of global finance".

Tobin himself identified many of the main criticisms of his idea. At root, it was opposed by those economists who frowned on any interference in the working of free markets – the majority in the 1970s and 1980s. More specifically, opponents said it would drive financial business offshore, or that it would not prevent currencies from being overvalued, or being at the mercy of speculators. …” {The idea that financial markets and institutions can "self regulate" better than governments can, which was dominate under GWB, is now being questioned by many, so Tobin's suggestion has suddenly become a hot subject again.}

Billy T Notes:
Brazil has recently taken a stronger but similar step: Added a 2% tax on any funds leaving or entering Brazil as the dollar carry trade has made the real overvalued – destroying export capacity. (US’s FED making interest rates very low and Brazil keeping interest high to control inflation is making a flood of hot money dollars into Brazil. As I recall, Brazil’s central bank had to buy up 6.2 billion dollars last month to keep the Real from growing even stronger.)

Here is an important voice calling for things related, if not the Tobin tax by name:

" U.K. Prime Minister Gordon Brown said the Group of 20 nations should consider measures such as taxing financial transactions to penalize excessive risk taking* and limit the burden on taxpayers of bank failures.

“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Brown told G-20 finance ministers and central bankers at a meeting today {7Nov09} in St. Andrews, Scotland. Tighter capital rules and pooled bank resolution funds could also be considered, he said. ..."

From: http://www.bloomberg.com/apps/news?p...LvzaLk04&pos=1

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* And who is to say what is "excessive risk taking"?

That is why I think the Tobin tax is much more practical way to stem the global flow of hot money (by the trillions each day) around the world in seconds. It can do enormous harm as Brown should well know - George Soros "broke the bank of England" destroyed the four dollar pound etc. Fortunately Brazil with 235 billion dollars in reserves and a net creditor nation is not at risk of a speculative attack, but its exports are being damage by the flood of hot "carry trade" dollars. Brazil very recently put a 2% entry and 2% exit tax on those funds - self defense again the economic war the US unintentionally was making against Brazil with it very low interest rates. Brazil has high rates, is responsibly controlling inflation. Etc. (Not blowing up the next bubble which ends with dollar collaps into the worst ever depression in the US and EU.)

How should the authorities whoever they are decide what is speculative and what is not speculative?

The investment into the Dollar and now the Euro and to some degree all 1st world currencies which has caused these currencies to be over valued which drains jobs from these economies is not short term money. Warren Buffet proposed a good solution for the dollar's over valuation in his Squanderville article which I quoted here http://www.sciforums.com/showthread.php?t=46279 in post 10.

The Tobin Tax might have been more appropriate for the Southeast Asian currency crisis but even that investment that inflated the Southeast Asian currencies did not necessarily intend to be short term investment.

I would support a 10th of a percent tax on all transactions not just international transactions because all hot money speculative transactions are a waste of human intelligence. I don't think the day traders add anything of value to our economy and they are wasting their talents in non-productive work. I think a .1% tax would be a high enough tax to end the least productive forms of speculation without creating any barriers to speculations usefulness at keeping assets priced accurately.

Nations could impose the tax unilaterally.

Profit margins depend on tenths of percents. This would bog down the financial system and cause greater risk taking.

No one makes that judgment under Tobin's tax plan. I.e. ALL currency exchanges are very lightly taxed. The longer term desirable FDI as well as the short term hot money speculations, such as the "carry trade." The effect of ~0.2% tax on a productive investment of >10 years will be nil (much less that the uncertainty about the desirability of that investment). But on a two week hot money investment that sure loss of 0.4% (in and out of the foreign country at 0.2% each way) makes the prospect of short term gain definitely less.
Yes, but there are problems if they do - go it alone.

For example the flood of carry trade dollars entering Brazil (>1 billion / week, recently) is effectively economic war against Brazil waged by the USA. - USA has artificially low interest to stimulate recovery and will worry about the inflation that will cause later. Brazil is controlling inflation now with 9.75% basic interest rates or real inflation adjusted return of ~5%.

To keep the Real form growing even stronger the Brazilian central bank supports the dollar - I.e. bought up a record 6.2 billion dollars last month. That is not sustainable, so about 10 days ago Brazil imposed a 2% tax on money entering or leaving Brazil. So what was a sure 5% gain is now only a 1% gain and other investment are more attractive to the hot money speculators.

There is a cost to this because Brazil acted alone: larger Brazilian companies will no longer try to raise capital (via IPOs or issue of bonds in Brazil). The local stocks are ~1/3 owned by foreigners and the market fell ~4% the first day the new tax was in effect. I.e. Brazil is less attractive to a dollar investor now.

Instead of raising needed capital locally, the larger companies will turn to the USA. I.e. Float their new issues there in dollars and use the dollar obtained to import items they need. As you might imagine, the Brazilian stock exchanges are very unhappy about the new 2% which is moving much of their business out of Brazil to the NYSX etc. If this 2% tax were by all governments none would be at a disadvantage compared to the others.

No, it would have exactly the opposite effect. Assume that the Tobin tax were high enough to totally end the carry trade hot money investments, just to clearly show that the effect is the opposite of what you suggest.

Currently approximately 1 trillion dollars of hot money moves in seconds around the world each day and no more than 100 million of long term FDI moves each day. Thus instead of coping with 1.1 trillion dollars moving each day the financial system would need to move only 0.1 trillion - that would not "bog it down" but free it up to focus on producive investments without the distortion the hot money flow makes.

Hot money fluxes can and often have destroyed economies. Even great ones. For example, George Soros "broke the Bank of England" and made a great sum by attacking the English pound when it was worth ~4$. After that the role of England in global affairs and finance especially was significantly reduced. The "Asian crisis" of a few years ago is also an example of how destructive a hot money attack can be (except for the private gain of a few).

Longer term investment of FDI is normally beneficial to most societies - helps them grow and develop, but several times their GDP thrown at them in a few weeks is almost always destructive of their local economy. That is what the Tobin tax is trying to reduce - trying to make the financial world more stable for productive investments.

Trading mass quantities of money on .1% margins is fundamentally the driving force of Americas investment firms.

Investment firms would have to assume around 5% increase of stock value before they would trade for a 2% margin. Currently they'll trade trade probably around .05% risk margins...increase the risk, decrease the total investments. Decrease the total investments, decrease total market volatility...and if you do that you put a WHOLE LOT of people out of work. What you're talking about is the disestablishment of our capitalistic right to invest...do you think you or the government has that right? Pshh...sounds socialist to me...and an indirect revocation of my rights as an individual.

Last time I looked, among your rights as an individual was the right / obligation to pay taxes for items your representatives / congressmen / etc. think is in the best interest of society.

Almost all agree now that more than a trillion dollars per day of hot money sloshing around the world in seconds is NOT in the best interest of any society - only in the interest of a few, the already very wealthy who can profit from destroying economies.

Rethink your economic model.

The type of investment activity that you are talking about is not really investment, it is speculation and speculation is 99% nonproductive in it's effect of the real economies production of goods and services.

When I interject myself as a trader between a long term investor who is selling and a long term investor who is buying if I am successful I am just taking money out of the long term investors pockets.

The only good thing that speculation does in theory is decrease market volatility so you have that part of your statement wrong. Lightly traded companies are more volatile. In theory speculators are pricing experts who take advantage of volatility and by doing so decrease volatility.

The financing for expansion of productive capacity is crucial to a healthy economy but traders don't finance expansions of productive capacity. Only real investors do that.

Sales taxes and Value added taxes are much larger taxes and they don't stop people and companies from buying what they need and what they really want. A tiny tax on transactions will not deter real investments but it will deter speculative trading.

A transaction tax will only create unemployment at the institutions that call themselves investment firms but are really speculation firms. This investment firm speculation business is really just a parasitic business that adds nothing to the economy other than a beneficial decrease in volatility which reduces risk to real investors at the cost of also reducing profits to real investors. A 10th of a percent transaction tax would not stop speculators from jumping on opportunities where it is absolutely clear that the assets are priced wrong so the speculators would still continue to play their beneficial role in reducing volatility.

You might ask what was the tech boom and what was the housing boom if speculators are pricing experts who decrease volatility. The booms and busts have always been with us. Speculators make mistakes but in theory professional speculators don't make mistakes as badly as amateur speculators do. The pros sure did screw up. Excessive use of leverage makes the booms and busts worse. I really don't know why the pros were so incompetent. Maybe they all individually thought that they were so brilliant that they would be able to time the bubble and squeeze every last penny out of the inflation of the bubbles and then jump off just before the bubbles burst. I think the speculation pros conned themselves.

Whether speculation by professionals really does decrease volatility as the investment firms say that it does perhaps should be studied.

"... Brown’s Tobin-tax push broke with his past resistance to a levy, lending momentum to a debate started earlier this year by French President Nicolas Sarkozy and backed by Germany. Geithner responded that a “day-by-day” tax on speculation is “not something we’re prepared to support.” British Bankers’ Association Chief Executive Officer Angela Knight said it “wouldn’t work in practice.”

Geithner says the U.S. would prefer to cover the cost of bailouts by forcing banks to repay rescue funds once the crisis is over. {Billy T: That obviously is not feasible if they fail. For example, AIG is not going to pay anything back to the tax payers.} European Central Bank President Jean-Claude Trichet said Brown’s other proposals may be more acceptable. For Brown, trailing in polls less than seven months before the next election is due, the comments are designed to open a divide with the Conservative opposition.

While they say the biggest risk to the economy is the record budget deficit, Brown has stepped up his attacks on banks. Economists argued over the merits of a tax on speculation.

Julian Jessop, chief international economist at Capital Economics Ltd., said it “could make a useful contribution to reducing the risk of future financial crises and sharing the costs more fairly.” Bill Witherell, chief global economist at Cumberland Advisors Inc. in Vineland, New Jersey, countered that banks would circumnavigate it and that it would do more harm than good. ..."

From: http://www.bloomberg.com/apps/news?p...fGcyPyKg&pos=6

BillyT comment:
It seems that the proponents of the Tobin tax are thinking more of it as a way to make banks pay when they lose money and need government funds. Many think the current system with profits of high risk speculation going the banks (and their CEOs) and losses when those high risk adventures fail going to the tax payers MUST be changed. (Huge "moral hazard" is now part of the system for banks "too big to fail.")

In the USA (probably other countries too) the banks already are charged a fee for the FDIC protection of their depositors. (Until this year that fee more than covered the losses when a bank failed - but about 115 banks have failed in 2009 and FDIC is about broke now.) I.e. the proponents seem to be focused on a Tobin tax fee to cover the bank's investment losses that would cause them to fail when their high risk investments / speculations (like the "toxic trash") turn out bad. I.e. thinking of the Tobin tax as an insurance, like FDIC, but for the banks (not their depositors) so Tobin tax pays instead of the tax payers when a bank "too big to fail" is about to fail.

Note this use of the Tobin tax funds does NOTHING to reduce the moral hazard, which has lead to the current crisis (and probably world's worst depression, IMHO). It only would help the politicians get off the hook for bailing out big banks etc. with tax payer's money. The current financial system needs to be fixed or the crisis will just continually re-occur.

Moral hazard must be FIXED, not just public anger at politicians reduced.

Tobin’s original idea was the funds raised be used for global social benefits, such as pollution reduction via planting trees etc. and food aid to the starving, etc. Thus the desirability of the Tobin tax also depends on how the funds are to be used. If only to help politicians be more popular, my support for it is greatly reduced even though it will still reduce the destructive hot money speculations, such as the "carry trade" which can (and frequently does) do great damage to whole societies just to enrich a few, who are already rich.

Well, I was going to post in response to CheskiChips, but then nirakar more or less exactly said everything I was planning to say. So...yeah.

The beneficial effects of speculators on the economy is marginal; at best, the speculators reduce volatility somewhat by quickly exploiting (and so correcting) pricing inaccuracies with their high volume of trade. These aren't the guys who finance corporate america via money markets, long-term investment, etc.

Stock market values haven't been reflective of actual goods and services for decades, so what? Americas main export is securities. Quick trades with marginal benefits inflate the speculative value of the dollar and create incentive for foreign investment into American stocks. We sold them that debt, now they have to put it back in the economy...we've got leverage. If they don't reinvest their dollars decrease below inflationary values UNLESS they've managed it in another effective manner.

These micro trades also encourage companies to be more active in changing their available shares, which in turn allows companies to quickly build capital or conserve values quickly.

Imagine...Microsoft wants to contract its total receipts available to increase its average stock share...and it has to pay 2.5% of value! Sound like they're stuck...what incentive do they even have to change these stock values in order to accrue capital? Well...with a 2.5% tax, none. This puts them at significant disadvantage to foreign companies that have methods to quickly accrue capital.

Right? So? It's their fault for putting it there. When you engage in risks you need to be active in risk management...we're supposed to stop punishing lethargic behavior and rewarding stagnation?

Purchases for short sales on high value stocks do prevent the stock varying significantly in a day...I agree. However, the next market state is entirely dependent on its immediate derivatives rather than its 3 year derivatives. Historic derivatives are basically irrelevant. Its trend is entirely dependent on its previous immediate history...I would consider that volatile.

Huh, what are you talking about? Since when has raw output begin equivalent to economic stability? 1904? We're in the digital age, information, securities, and asset management is crucial to a healthy economy. Americas exports are almost insignificant as long as we make our market appetizing.

Well... a .05% tax doesn't change most peoples mind on a long term product purchase. Because the product will exist for a long time. In terms of services, it doesn't change their mind because most people who purchase services are doing so because they need them. Not to mention an analysis of sales tax vs. citizen expenditures shows that roughly government income is identical with minor changes.

Excuse me, parasitic? It sounds like you just hate them, is it because you don't know how it works? It's 2009 buddy, you're obsolete, we're not living in the land of the constitutional market, that was 200 years ago...we're living in the 21st century. We shouldn't make our market behave under the principals of 200 year old principals of commodity trading. Commodities barely even matter.

Housing inflation was unrelated to short trading. I'll agree that the technology bubble was; but that's because there was absolutely 0 Assets being traded. But to be fair, it was partially assisted by the fact that most people didn't even understand what the internet was.
If you want to prevent collapses...why don't you go to a socialist country? If you think that short trading is the cause of large collapses...then you're letting off ASSET FORECASTERS pretty easy. It's not investment, short traders, ANYONE IN NYSE's job to speculate on forecasts...other than for their own benefit. It's the job of the asset holders, who should be doing so for their own benefit. Look at those who did, who didn't, Who survived?
====================
Look, I'm not an idealist...I'm a realist. I'm not looking to change the world, I don't expect anyone else to do it either. The fundamental ideology behind such a tax is basically the world should be slower, investments should reflect hard work. That's not true today and hasn't been true for at least 100 years. If you think we should go back to these principals then you're in the majority...but those who hold the power disagree. Can we prevent such behaviors? Yes. How?
Stop investing at all! You can't lose money if you don't invest, they can't take it if you don't give it to them. If you're really idealistic, lobby for the Chicago Stock Exchange to impose these rules - then...after 10 years determine what the results were. If it was effective, then you're right. Putting such a risky strain on our strongest markets is down right foolish. That's exactly what you're lobbying for.

In my opinion, yes a Tobin Tax is needed, if only to discourage the wide variations and disruptions an economy can suffer due to speculators.

I mean, seriously, the AUD was buying 0.92 USD the other day. That shit is not good for our exports, in an export oriented economy.

In addition, a Tobin Tax would help increase our level of national savings, by forcing what little investment in speculation to reduce..

I think it is still true. The fast, easy, no hard work stuff is just illusions but good con artists can make a lot of money selling illusions.

Fixing cars in a greasy garage, making and selling tooth paste or drilling for oil or making software or owning tree farms and selling wood products is the real economy. It is not fast and it is not easy.


This is a political question. Why do we elect people who don't serve our interests? It is because we allow ourselves to be spun. We need to make it more difficult to spin us. Campaign finance reform, a ban on political advertising, and busting up the big media companies into very small companies might help.


I don't need to stop investing/trading because I focus on probable pricing errors that I believe are much larger than a few percentage points and therefore a little 10th of a percent tax would not affect me.

That little Tobin tax or even an across the board little transaction tax would not affect any part of the economy that mattered. There would be no harm to the economy if 80% of currency,stock and commodity day and or month traders were driven out of business by the little tax.

I don't agree. Technical analysis for stock price trends is overrated. The market is irrational but it is that rational aspect tethered to the sales of goods and services that produces the stable part of a stocks price.


That won't work for long. It is not sustainable.

You don't sound like you know what you are talking about.

We have no leverage. They are going to get burned; it is unavoidable. I would like to know why they keep buying our junk.

That makes no sense.
That also makes no sense.



I hope you know what you are talking about.

How long can a yard sale feed a family?

The digital age did not change the laws of economics it just changed the types of goods and services sold and the marketplace in which they are sold.





I have made more money as a financial parasite than I have made doing anything actually useful for my fellow humans.

Your new economy is not real.

You think booms and busts are good for capitalism?

The housing boom was fueled by the mortgage backed security sales. Mortgages were sold repeatedly. They were diced up into tranches and packaged into securities, insured by insurers who did not have the assets to back up the insurance and then given fraudulent high ratings and sold to chumps in places like Norway. Is that they modern economy that you want to bank your future on?

Corrections are good for the economy, trying to prevent corrections usually just results in an even larger bust further down the line.

I support Keynes. A little interference to smooth out the business cycles is good. The problem is that the politicians spend in the busts and say they are Keynesians and then spend during the booms and say no problem we found free money. A real Keynesian runs surpluses during the booms.

Bubbles based on nonsense should be popped.

It's apparent, believe me. I don't like socialism, thank you.

Why not read Friedrich August von Hayek or Frederic Bastiat...two NON-Collectivist monetary theorists. The former of which basically states in his criticism of Keynesian theory the exact problem we're experiencing today. The latter of which wrote a book 'The Road to Serfdom' which discusses the political implications of government management in economics. Something that seems to have continually proven true.

So...why not ride it out to the end? Jump ship when it makes sense, it's beginning to make some sense...but not yet. We'll have to pay off significant portions of debt through inflation before it's even an option.

Creating a market environment that's appetizing to foreign investment encourages foreign investors...the more people hold their national value in American dollars, the higher our dollars value will be.

Our leverage is; if you don't don't insure we won't bankrupt you, we will.

Companies release and contract their authorized share capital frequently to modify their capital.


Yes it did.





Right....none of which had anything to do with short-sales. I have no qualms about it.


\btw I will change my mind if Default Credit Swaps gain their own stock ticker on MSNBC

If we were just going to money create our way out of our debts I might not feel so bad getting all that free WalMart stuff from China. But that is not how it is going down. We are not just selling dollar denominated bonds. We are also selling corporate stock and Real estate. The longer this goes on the more owned we will be when this ends. We will be like a colonized nation.

Every year a little bit more of US work infrastructure is outsourced. It is not just our manufacturing that is leaving. We are starting to outsource legal services now. This is getting ridiculous.

India understood the risk of letting foreign investors own everything and made laws against it. We always heard how good foreign investment is. This was left over rhetoric from back when the issue was US investors wanting to buy up cheap under priced third world assets and the third world people were not sure they liked it. If the foreign investor is going to build something useful that your nation could not or would not build for itself then the foreign investment is useful. If the foreign investor is just going to buy your existing assets so that your people can by foreign made consumer goods then foreign investment is bad.

Our high dollar is what makes America uncompetitive. Europe is going down the same path but at least their leaders understand that a high Euro hurts them.

We don't have the power to not bankrupt them. It is going to happen. The longer it is put off by continued net investment into the USA the worse it will be for everybody.

OK. You wrote "These micro trades also encourage companies to be more active in changing their available shares, which in turn allows companies to quickly build capital or conserve values quickly." How do these "micro trades" or institutional day traders encourage companies to issue new shares or buy back their shares? You are right but because without the speculators the stock price might move too much but a 10th of a percent transaction tax would in no way interfere with the speculators playing this role. New stock issues by established companies and and stock buy backs are not a very important part of the corporate financial planning. These events are usually quite optional and they don't affect the ability of the companies to produce product. There are always other sources of funding and other things that can be done with accumulated cash.

I am getting closer to knowing what you are talking about this this is still a mess. Are you saying that you think a 10th of a percent tax on American stock trades would put an American company at a significant disadvantage to foreign companies trading on exchanges that don't have the 10th of a percent tax on their stock trades? You would be wrong if that is what you meant.

Suppose Microsoft wanted to issue a lot of new stock to raise cash to finance an attempt to drive Google out of business; the 10th of a percent tax just means that the speculators won't buy the newly issued stock until it is 1/10th of a percent + a smidge under valued. The tiny tax has no noticeable effect in that situation.
{Billy T removed 5 blank lines here and several double spaced blank lines above - let's not waste page space.}

I never brought up short sales.