Tax on trading would limit LIBOR-type scandals

[eridani]

http://www.nationofchange.org/wall-street-speculation-tax-way-address-corruption-1341925496
While there should be a thorough investigation that results in the guilty parties being severely punished, this incident sheds light on the fundamental problem with the modern financial industry. There is enormous money to be made by shaving a small fraction of a penny here or there. When this shaving is done on trades that can run into the hundreds of billions or even trillions of dollars, those fractions of a penny can run into really big bucks. And when we give people enormous incentive to lie and steal, it is likely that many will take advantage of the opportunity.

There is an obvious answer to this problem and a simple way to do it. The answer is to take the money away. If bankers didn't have the opportunity to make hundreds of millions or billions of dollars by manipulating the market, they wouldn't do it. And the simplest way to take away this opportunity is to reduce the size of these markets with a modest tax.

A small tax on flipping stock, options, credit default swaps and other derivative instruments would drastically reduce the size of these markets, thereby reducing the opportunities for market manipulation. Such a tax could also raise a substantial amount of money.

The Joint Tax Committee of Congress calculated that a 0.03 percent tax on all trades, as was proposed by Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio, could raise more than $350 billion in the first nine years that it was in place. This is almost ten times the sum at stake with the Buffet rule and more than 10 times the amount of money that would be saved by ending subsidies for the oil industry.

[Kolesar]

1. The tax would squish the automated day traders who trade on moves of "a quarter of a point"

Day traders use automation and complex mathematical models to buy and sell stocks in a matter of minutes. The other traders object because they are skimming huge amounts from the equity market. Presumably, they have connections to the "trading floor" that give them information before the other traders.

Saw it on www.60minutes.com

[dipsydoodle]

2. You changed the headline which rendered the subject meaningless.

LIBOR was artificially reduced not inflated.

[eridani]

3. Not seeing either "reduced" or "inflated" in the title n/t

[dipsydoodle]

4. I said you'd changed the whole title of the article : to put the empahasis on Libor.

In the event the article is a bit of a mystery anyway.

It says "Big banks were caught lying about interest rates in order to make big profits." That's not what happened - they manipulated the rate down to strengthen their balance sheets, partly to prevent nationalisation , which in so doing reduced their profits.

To increase their profits they'd have increase the spread on Libor which they pass onto lenders but there has been no mention they did so.