Tim Gets Adept At Washington Speak
Here’s how public officials speak in Washington. They raise their voices loudly in defense of the little guy on Main Street. They scold, threaten, bang the table and roundly condemn predatory and greedy groups that are waxing fat at the little guy’s expense. Then they turn around and do the bidding of these same predatory and greedy groups.
This game, practiced endless by both Republicans and Democrats, has now clearly been mastered by the Treasury’s Tim Geithner. In recent days his growing skill in such gaming was on view for all to see.
First there was the damning of those naughty money-crazed Wall Streeters. He verbally skewered them for the outrageous size of their bonuses. He pointed out, quite accurately, that they would have failed last year, would not have even survived, without government bailouts. And now, after being so well taken care for by the government (i.e. by us, the taxpayers), they not only rub our recession scrapped noses in their extraordinary compensation gush, they won’t even extend needed credit to consumers and small businesses that public money was ultimately supposed to help.
Well spoken, Tim. That’s telling ‘em, guy. Except…
Except at the same time Tim was making verbal shame-shame at Wall Street, he has been doing everything he can to scuttle something that would greatly enrich the public purse by taking back a bit of the obscene and undeserved Wall Street compensation he is verbally assaulting — the so-called Tobin Tax, a tiny (one-half percent) tax on stock trading transactions.
He opposition to this tax rings hollow, very hollow, even by the absurd standards often applied to any new tax proposal these days. He says it will hurt “retail investors,” the little guy. It won’t. If you or I trade $1,000 worth of securities, a Tobin transaction tax comes to $5 — chump change even for little chumps. The tax would really only hurt the profits of folks like those at Goldman Sachs that churn fast and often to take advantage of tiny stock price moves, something that benefits the overall economy not at all.
Tim also had the nerve (some might even say the gall) to state that “I have not seen a version of that tax that works…Otherwise people would have done it a long time ago.” Dah. The Tobin Tax, named after an economist named Tobin, was first proposed in the early 1970s and would be one of the easiest taxes to collect because wherever the traders are, the central clearinghouses where transactions are consummated at few, known to all, and easily monitored.
As for never being done before? Its only opposition from people like Tim Geithner and the interests he represents that have been the obstacle to that happening in the past. And these days there’s never been such egregious examples of Wall Street greed at the expense of the general public at a time of government solvency challenges that make such a tax so necessary, desirable and equitable.
In Britain there’s a plan afoot to tax excessive financial industry bonuses. Maybe that’s a little too sane and sensible to expect on these shores given the political clout of Wall Street. But a Tobin Tax that actually has the potential to raise enough money to fund the entire health care reform now before Congress, without impairing any sector of the economy except the Wall Street pig trough, that might actually be feasible — if Tim Geithner backs off.
One other political note here. FDR got elected for the first time in 1932 at the height of the Depression. When he ran for reelection in 1936 he won again, in spite of the fact that a Depression was still well and truly underway. And the Obama Administration might be wise to focus on the fact that one of FDR’s great weapons in the ’36 election was that he was “running against the banks.”
Please do stop with the anti-Wall Street blowhard act, Mr. Geithner, and really, really run against Wall Street. You might not see the difference between words and reality. The rest of us do, however, to your boss’s great detriment.
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17 Responses to “Tim Gets Adept At Washington Speak”
Speaking of the little guys on Wall Street, how about the guy who invented the vaunted Value Line Ranking System. He just got fired with no warning by Value Line after decades of loyal service. The company recently, purged of its Chairperson and owner by SEC edic, should be ashamed. I hope some book publisher out there commissions a tell-all book, or perhaps a big fan of the system, Warren Buffett hires him.
“If you or I trade $1,000 worth of securities, a Tobin transaction tax comes to $5″
You are absolutly too poor to get hurt by the Tobin transaction tax. For $1000, what can you buy?
I am a retail investor who could be forced out of the market by the tax. I am 100 times richer than you, with $100,000. I am not a day trader but a short term investor. My holding period ranges from several days to couple of weeks. My turn over is about 20 times a year. The tax on me will 100000 x .5% x 20 = $10,000. There are millions of small investors like me in the markets.
I'm not sure that the Tobin Tax is meant to apply to all securities transactions but rather only currency transactions.
Dear Jonathan09,
I hardily suggest you get in touch with the p.r. department of Goldman Sachs immediately. These people are always very, very interested in having a “small investor” explain why his/her interests are exactly the same as those of Goldman and other Wall Street mega-firms. You may soon be testifying before a congressional committee the way a few small business owners were testifying before Congress against estate taxes rightfully and appropriately structured to clip some wealth of a few hundred super rich families. No, sir, there are not “millions of small investors like me in the markets.” There are just a few thousand of you — at most. And all this new tax would do is induce you folks to trade a bit less often. No loss to the overall economy there
Dear michaelsilverstein,
Thank you for your suggestion but I don't have time to involve too much on this issue. I have a full time job as an engineer. Lots of my co-workers are also short term investor (that is why I guess there are millions of short term investors). We don't trust buy and hope strategy.
Free market economy depends on the stock market to allocate capital resource effectively and efficiently. Less trading will hurt market's efficiency and cause resource misallocation. Overall economy does get hurt. You know, without Microsoft, a PC can still boot up, but with Microsoft, PC works better. Without Day traders and short term investors, financial market still function, but with them, the market is much more efficient.
Thanks for getting back re: my comment to your comment.
What you describe, the day trading, is really nothing but beating a
spread. Instead of beating the Eagles versus Falcons football score
spread, you bet that ABC Company will go up or down a smidgin in a
short time and you can clear something over and above brokerage fees
— plus a piddling one-half percent transaction tax if it ever gets
passed. Could such a Tobin Tax cost you $10,000 a year? Gee, I hope
so — for your sake, because it would mean you probably cleared a few
hundred thousand on the spreads.
About the effect of Tobin on the overall economy. It wasn't
originally aimed as a tax measure. It was targeted against
speculation of the sort you do on a small basis and Goldman does big
time. Does such speculation add to market liquidity? To a certain
extent, sure, but what's needed now is less of this “liquidity” and
more long-term investing. The former promotes risk of the sort that
almost destroyed the world economy last year. The latter provides
widely based prosperity. Much too much of the new money coming into
markets today does not, as you suggest, go to making the next Apple
of IBM. It's simply hot gambling cash.
On a personal basis. I live in Pennsylvania. Practically everything I
buy here has an 8 percent sales tax add-on, and I buy things bearing
this tax far more often than you trade stocks. All these purchases
help companies that make the products I buy, add to their bottom
lines, lets them employ more workers. Does that mean I can get out of
paying that 8 percent sale tax? Not likely. So why should you get out
of paying a tax on your trading even if it does, in fact, generate
some good?
Taxes screw everybody. A Tobin Tax screws less and helps more.
Thanks for getting back….Mike
“Providing liquidity” business used to be monopolized by the floor specialist. Thanks to the technology innovation, individual stock day traders are now competing with the floor specialist to provide liquidity. The proposed tax bill will forced the day traders out of business for sure. If the floor specialists get exemption, they will monopoly the providing liquidity business again. If the floor specialists do not get exemption, NYSE simply cannot function smoothly. Since the day traders cannot stay in the market, bid-ask spread will be much wider. Online discount brokers will not be able to stay in business either since the volume drop sharply. My commission will back to $125 per trade. This tax will cost me much more than 10,000 a year. The result of this tax is that day traders leave the market, while millions of small investors, like me, bear the cost.
Myth: long term investor's money can be used while short term investor and day trader's money is useless.
Unless the investment is through IPO or secondary offer, no investor's money can be used by the company. In this prospect, long term investor's money and short term investor’s money are the same. They simply represent the ownership of a company. Short term investors are as patriotic as long term investors. The only difference is the short term investors try to allocate resource in a more efficient way.
I know you pay 8% sales tax. Should you consider more saving and investment? I think in the US, we spend too much and save too less. This tax punishes saving and investment.
Oh, please. Save these arguments for members of Congress who will
force themselves to believe that any tax on Wall Street speculators
will destroy The Republic so they can keep taking 'donations' from
these worthies with a clearer conscience.
The kind of short term, in-and-out liquidity speculators generate
these days works almost exclusively to the interests of other
speculators. If fees go up because of a tax they hurts people doing
that kind of betting, well, someone always gets hurt by any tax, and
this group seems like one of the best and fairest to go after.
The whole notion that day traders are some kind of great gift to the
rest of us, and that the markets would evaporate without them, is
utter nonsense. These legal gamblers did NOT exist in large numbers
until relatively recently when computers and lower brokerage fees
made them possible. Did the US and world economies not grow before
1990 because day traders were nowhere in evidence? Retail investors
back then generally didn't sell stock until its price had risen
substantially to clear the broker fee barrier, which led them to hold
stock longer, which led to greater market stability. That's what's
needed now. Not speculator-based casino games.
You said you were an engineer, Jonathan. A great and noble
profession. American needs more engineers. We can do without so many
Wall Street gamers — either big ones or little ones.
This is a wealth tax on the middle class. We have worked so hard to save. We will be taxed on our savings before we can even invest it. As bait to lure investors into the trap, some in Congress are proposing an insignificant exemption for our accounts. How long will that exemption last? How long will that “tiny” tax of 0.25% last before it rises to 2.0%? Even with the temporary exemption, the hidden cost increases will cost multiples more than the tax itself. All of the modern day financial business competition, trading volume and liquidity have made investing so much cheaper the last 15 years. This tax will put a stop to all of that and expenses will immediately rise to literally remove several percent from our annual yield even if markets drop. Broker fees will increase by many times as most brokers will fail as trading activity will vanish. The bid-ask spread will increase by 50 times. That and other expenses will reduce compounding. Investors will not realize one half of their retirement. Government studies from other countries show the application of the transaction tax produces net Negative revenue, huge job losses, and economic growth reversal. This can only be intentional wealth destruction of the middle class.
Hi ftf123,
I was fascinated by this statement in your post: “Government studies from other countries show the application of the transaction tax produces net Negative revenue, huge job losses, and economic growth reversal. This can only be intentional wealth destruction of the middle class.” Please refer me to these studies so that I might apologize if they indeed show the utterly astonishing numbers in your post to be accurate. Having never seen or heard of these “government studies,” or seen them referred to anywhere else, their existence, if real, could be quite important in this debate. (In passing, the EU ministers who proposed a transaction tax at their recent get-together also apparently never heard of these astonishing “government studies” and they should be alerted about them as well.)
michaelsilverstein,
The day traders hurt nobody. If you are a long term investors, all you get from the dat trader is liquidity. You keep your position for long term and don't participate the trading, the trader's activities does not take money from your account. They risk their own money to make a profit or take their own loss.
” Did the US and world economies not grow before
1990 because day traders were nowhere in evidence?”
Then I can imagine the next tax will be imposed on all IT engineers. Without this size of IT industrial before 1990, the world eonomy still grow.
Have you concern about the proposed tax will force lots of capital to oversea market? New York is competing with Hong Kong, Shanghai. Why we want to do anything to damage our financail market? It is not the end of the world, but little by little, we can reduce American's competitive edge and make it a third world country!
I guess I missed how it hurts the profits of Goldman. I'm no financial expert, but I kind of figured they made most of their money in the inefficient corners of the market.
Alright guys, how about this one. Why not simply record trades at fixed intervals – say every 5 minutes? You can initiate a transaction whenever you want, but until the minute hand touches a number on the dial, it's in limbo. That way, there's no new taxes and individual investors would not be cramped, but the AI traders would lose some of their firepower.
We can go around on this one for days. So let's just get real and look at what this tax is all about. This country is horrendously overextended in terms of spending and debt. Like or not, somehow, somewhere, some taxes have to be increased or new ones raised.
People who will pay a transaction tax don't like the idea. Why should they like it? Nobody likes a tax that costs them money, and when arguing against it the people directly hit by a tax always, Always, try to put the tax in a larger context that makes it appear devastating to the economy generally.
The two gentleman who are so down on my Tobin Tax suggestion have made their case. Here's mine, succinctly, and my last word on the subject here. If someone has to be taxed (and I think they do), I'd rather see stock speculators, big and small, take the hit than almost anyone else. We need the extra revenue and I think the “big picture” objections presented in reply to this post are part exaggerated and part pure hokum.
Are you for real? Seriously? Why would there not be negative revenue, job loss, negative economic growth as another industry vanishes to other countries?
You've mentioned “government reports” that show a quarter percent tax on stock transactions would generate revenue losses, job loses, negative economic growth in some industry or other. I eagerly await specific information about these “government reports” so the validity of your concerns can better be judged.
I have read your article and how you reply to comments with your unshakable enthusiasm concerning this awesome tax. I have dealt with others that shared your level of enthusiasm many times the past year and I know how it will turn out if I try to comply with your demands of more and more proof. Previously, I have provided others the evidence from government studies and, in their minds, all of the studies were somehow not properly conducted, or just not good enough, or they say all we have to do is tweak the tax just right and it will work for us, where it has failed everywhere else. All of this required a great deal of discussion and time and searching to fetch and retrieve ever more perfect studies in a process that would never end.
search tip — —-”result in” site:—
Find out what happened to Sweden.