1/4% Tax on all stock trades pushed in NY Times today

[Robert A. Green]

My editor Molly is pulling together my last few posts about 'Germany rolling over Europe with new taxes and penalties' for Forbes blog tomorrow.

Glad we can count on the Swedes to hold fast against FTT. They deserve their own Nobel Prize. The Germans may view Sweden as a No, but also as neutral again, and save their tax bombs for London.

Should be an exciting Thursday and Friday in Europe. Is UK PM Cameron going to be an appeasing-Chamberlain-type UK PM, or a stand-tough Churchill? We need him to channel Churchill.

 

[tomdavis]

Quote from Robert A. Green:

No, FTT will sink them, but they figure they are already sunk.

Perhaps the best thing that could happen is a small group of EU/EZ countries institutes the FTT and it fails miserably.

 

[tortoise]

Quote from Robert A. Green:

Same old playbook, the UK is the lone island of freedom, and I hope the U.S. doesn't wait too long before entering this battle. It's time for Secretary Geithner and President Obama to take off their kid gloves with the Germans and draw U.S./UK allies lines in the quick sand too. Be firm on no FTT, opening the ECB bank, and handling the EU bailouts inside the EU. Say a firm no to the IMF taking a leading role, as the American taxpayer is at risk for 17%. The U.S. is helping enough with the Federal Reserve already. Obama is tough on Republicans, how about bringing some of that toughness to the Germans too?

It's not going to happen, I'm afraid.

The NYT article was a shock to me. It wasn't journalism -- and I say this as an ex-correspondent with major national news credentials to my name -- it was an opinion piece, poorly argued, ludicrously sourced. But there it was, nonetheless, in the news pages of the NYT. Never mind that if the OWS folks have their way and Wall Street "goes away," NYC will lose approximately 1/3rd of its municipal revenues -- that's for starters -- and begin to spiral into Detroit-style decline. Never mind that a sober-minded case can be made that this cockamamie idea will impose an onerous cost on all sectors of society in ways both both unexpected and all-too-obvious, NYT is carrying water for this idiotic notion.

The question to ask is, "Why?"

I'd like to know the answer to that question. In the meantime, we have no reason to expect Obama to champion rational economic policy if NYT isn't willing to do the same.

Due some complications in my personal life, I've been temporarily unable to move forward with http://www.financialtransactiontaxes.com. I plan to resume work on that in a week or so.

 

[tortoise]

Quote from Robert A. Green:

Is UK PM Cameron going to be an appeasing-Chamberlain-type UK PM, or a stand-tough Churchill? We need him to channel Churchill.

That's the one plausible hope. U.K. will collapse into dysfunction and social upheaval if the financial sector there collapses, as it will with an F.T.T. Britain's future is as much on-the-line today as it was the last time she was in Germany's crosshairs. Cameron knows this.

 

[Robert A. Green]

In my long earlier post tonight, I mentioned that the Franco-German-Italian cabal would try to exert pressure on the abstainers to the new fiscal-union treaty changes, but I wasn't sure how they could do that legally.

Well, here's the answer from a quote in the WSJ now about the Franco-German plan update today.

Sarkozy, Merkel Outline Plan for New EU Treaty
http://online.wsj.com/article/SB10001424052970203501304577084001516935854.html

"EU nations that decide to opt out of the fiscal pact proposed by France and Germany risk being stigmatized by investors, who could decide to shun debt issued by countries that have rejected tighter collective discipline, the officials said."

They will let the bond vigilantes do the dirty work for them. They will say that abstainers are not "protected" - sounds like with the mafia - and they must face contagion on their own. The UK and Sweden have defended their currencies before, but do they want to risk standing alone going forward in a bigger EU crisis? Not so fast.

Remember the story of Bear Stearns (BS). At the big-bankers table to discuss a bailout of Long Term Capital - the infamous hedge fund that failed in the 1998 Asian contagion - BS was the only bank that balked at participation in the bailout, even though LTC was their prime-brokerage client and they already made a fortune off them. The nerve. The other bankers warned BS that if and when their turn ever came up, they would vote thumbs down, and they did years later. BS bit the dust and JPM got them for peanuts in the first stages of the 2008 meltdown. BS's share of the LTC bailout was just around 250 million. Penny-wise, pound foolish. The Brits will tread carefully here.

The Brits don't want to sign the new treaty changes and they want a no FTT tax pledge first. Can't blame them, and no harm no foul so far.

 

[Explorer]

Germany and France said a City tax will be part of a new European treaty in an aggressive move that will force David Cameron to concede defeat or allow the eurozone to advance without Britain.

Angela Merkel and Nicolas Sarkozy defied the Prime Minister's threats and announced a Financial Transactions Tax (FTT) will be part of the proposals for the EU treaty they want leaders to ratify on Thursday.

http://www.telegraph.co.uk/finance/...comes-under-threat-of-downgrade-by-SandP.html

 

[Rantany]

I was already afraid of this: They are going to misuse the EU treaty changes, to also push a FTT, which has nothing to do with the aims of that treaty, nor with the cause of the crisis.

Angela Merkel and Nicolas Sarkozy defied the Prime Minister's threats and announced a Financial Transactions Tax (FTT) will be part of the proposals for the EU treaty they want leaders to ratify on Thursday.

http://www.telegraph.co.uk/finance/...comes-under-threat-of-downgrade-by-SandP.html

 

[Robert A. Green]

Quote from tortoise:

It's not going to happen, I'm afraid.

The NYT article was a shock to me. It wasn't journalism -- and I say this as an ex-correspondent with major national news credentials to my name -- it was an opinion piece, poorly argued, ludicrously sourced. ........

............

Agree 100% with Tortoise here.

While President Obama should show more backbone in Europe, its doubtful, as he wants to appear entirely focused on domestic problems and solutions. The President also can't afford to be tough now with Germany. He wants to smooth the situation, find consensus and open up the bailout spigots as fast as possible. He needs the EU to put out this fire so there isn't contagion in the U.S., which could sink his re-election.

 

[Robert A. Green]

Quote from Explorer:

Germany and France said a City tax will be part of a new European treaty in an aggressive move that will force David Cameron to concede defeat or allow the eurozone to advance without Britain.

Angela Merkel and Nicolas Sarkozy defied the Prime Minister's threats and announced a Financial Transactions Tax (FTT) will be part of the proposals for the EU treaty they want leaders to ratify on Thursday.

http://www.telegraph.co.uk/finance/...comes-under-threat-of-downgrade-by-SandP.html

Darn, we all feared France and Germany would slip in FTT to play hardball with the UK, and also use their own maximum leverage at this time. Maybe, Cameron and Merkel knew this was happening behind the scenes beforehand anyway.

It also seems clear that the next chess move is made. The UK will say no to the new treaty with FTT, and the EZ encircles its wagons to fight the next battle. Once they solidify all they want in the EZ, they can come back against the UK again later. The small EZ countries will probably fall under blitzkreig.

 

[annaland]

Quote from lindq:

>>With apologies to Mr. Amihud and Mr. Mendelson and the Wall Street Journal for copying and pasting, here is the article for those who do not subscribe to the Journal.

By YAKOV AMIHUD AND HAIM MENDELSON
...

The hope that a securities transaction tax will reduce stock market volatility is wishful thinking unsupported by evidence. Anna Pomeranets of the Bank of Canada and Daniel Weaver of Rutgers University recently studied the effect of nine changes in the New York State Stock Transfer Tax between 1932 and 1981, when the tax was abolished. Their paper shows no consistent relation between tax changes and changes in stock volatility. Other studies of changes in transaction taxes and minimum commissions elsewhere in the world found that market volatility either increased or remained unchanged when these trading costs increased, while trading volume consistently declined.

A tax on Wall Street will hurt Main Street by reducing employment and investment, and it will increase the budget deficit at least in the short run. The waning investors' wealth as a result of the decline in asset prices will reduce consumption and hinder economic recovery, a far cry from what tax advocates hope to achieve.

Mr. Amihud is a professor at the NYU Stern School of Business. Mr. Mendelson is a professor at Stanford Business School.

http://www.bankofcanada.ca/2011/11/publications/research/working-paper-2011-26/

Author(s) Anna Pomeranets, Daniel G. Weaver
Date of publication November 2011

Abstract
We examine nine changes in the New York State Security Transaction Taxes (STT) between 1932 and 1981. We find that imposing or increasing an STT results in wider bidask spreads, lower volume, and increased price impact of trades. In contrast to theories of STT imposition as a means to reduce volatility, we find no consistent relationship between the level of an STT and volatility. We examine the propensity of traders to switch trading locations to avoid the tax and find no consistent evidence that they will change locations. We do find evidence to suggest that taxes imposed on the par value of stock will result in corporations managing the par value in the direction of minimizing the impact of the tax on investors.

direct link to paper: http://www.bankofcanada.ca/wp-content/uploads/2011/11/wp2011-26.pdf