H.R. 1068, The Let Wall Street Pay for Wall Street's Bailout Act of 2009 (141 comments ↓)

  • This item is from the 111th Congress (2009-2010) and is no longer current. Comments, voting, and wiki editing have been disabled, and the cost/savings estimate has been frozen.

H.R. 1068 would amend the Internal Revenue Code of 1986 to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program.

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Bill Schamp

February 18, 2009, 3:56pm (report abuse)

Allow me to mention that this would extremely limit speculation and liquidity in the ag markets which means that farmers will have a really hard time hedging and locking in prices.

This would all but destroy small to medium sized agriculture businesses for years to come.

James StClair

February 18, 2009, 4:48pm (report abuse)

The bill, as presented, would cause unforseen and most certainly have an unexpected negative impact on the financial markets and its liquidity. Titled to represent that Wall Street should pay, the real impact is on the end investor who will bear the cost of this "passed through" tax.

Beau Wolinsky

February 18, 2009, 5:13pm (report abuse)

http://www.advisorworld.com/2009/02/18/the-real-threat-to-americas-economic-survival/ is what every professional's response is.


February 19, 2009, 12:32am (report abuse)

The more the "professionals" hate it the more I like it.


February 19, 2009, 11:38am (report abuse)


Do you understand what this bill would do to you as an investor? Please do some research before you form an opinion.

Essentially, the cost of transacting *anything*, be it mutual funds, stocks, options , etc will be much higher *ON TOP OFF* this tax. When liquidity is low (this tax will decrease liquidity), the "professionals" have the advantage, they can now easily manipulate prices. Less liquidity means less efficient markets which means poor prices for all of us when we try to buy and sell... please think about carefully about what you are asking for.

Why do you think our government is trying to do everything in its power to bring liquidity back into the credit markets???

Anything that further takes away liquidity in this already devastated economy will likely be the straw that break the camel's back so to speak.


February 19, 2009, 12:31pm (report abuse)

If this bill passes, I suspect there will be a huge sell off prior to the bill taking effect so people do not lose their current value. There are already taxes on capital gains and the more taxes on investmentse less people will invest.


February 19, 2009, 2:12pm (report abuse)

This will kill the markets if enacted. Talk about emotions running Congress! It will no longer be cost effective to participate in the stock market. Did anybody really think this through? Citizens will dump 401(k) in a heartbeat, as management fees will go through the roof. Way to go.


February 19, 2009, 2:26pm (report abuse)

Wow - everytime a US company has to sell some stock or other holdings they will have to pay the tax. Companies do evil things with their money (like payrole) so this tax makes sence.

I can't see how any company can stay in USA? They would have to take all such transations offshore.

John R.

February 19, 2009, 2:31pm (report abuse)

Douglas, a socialist like you wouldn't understand the value of saving and investing... [insult].


February 19, 2009, 3:21pm (report abuse)

Wall Street will need a bigger bailout!


February 19, 2009, 4:19pm (report abuse)

Douglas, You obviously never invested in Stocks, Options or Mutual Funds as are millions of retired people and those hoping to retire some day. How would you like your already shaky returns to drop by several percent per year due to the transaction costs? How would you like your investments to drop further as a result of making the markets even less attractive. Think this through before you try to "get even."

Jerry Wawrzeniak

February 19, 2009, 6:06pm (report abuse)

This bill is not about Taxing Wallstreet, its about driving the small and medium sized traders out of the market. Its about giving complete control of the markets to big money. Its obscenely biased against small traders. Had it been structured as a tax on profits per transaction it would have at least been fair. Given the democrats control this is a scary bill, I think the best we can hope for is a De minimus exemption so we can at least stay in business.



February 19, 2009, 8:21pm (report abuse)

For Active short-term traders, capital gains tax rates are the same as income tax rates. This is a misguided idea.


February 19, 2009, 10:21pm (report abuse)

Block the trader tax!



February 19, 2009, 10:24pm (report abuse)



February 19, 2009, 10:32pm (report abuse)

Please add http:// to beginning of address above

Kyle Robinson

February 19, 2009, 10:41pm (report abuse)

This is absolutely ridiculous. Wall Street has not changed its behavior since its inception, yet they decide to propose a bill that will "punish" Wall Street now for being greedy. This is just the politicians pulling the wool over our eyes to raise taxes, while under the guise of "it's Wall Street's fault"


February 19, 2009, 11:05pm (report abuse)

When you vote for Democrats, you get screwed. What else can you expect?


February 19, 2009, 11:21pm (report abuse)

The bill is a smart one. USA tax rate is too low. In Europe, the tax is much higher. The Government cannot run on deficit forever. The only solution is to get more revenue through tax.


February 19, 2009, 11:37pm (report abuse)

Ok, Mr. Fazio, you get the idiot of the year award! Go ahead, tax traders for the problems caused by the housing market!!!Gimme a freaking break! Like we should bail the GOD DAMN TARP OUT?? ARE YOU FREAKING KIDDING ME??? If this gets passed, you can kiss the status of the financial markets goodbye. I only hope your kids get hurt in the process! We just need to absolutely clean house in Congress, starting with DeFazio, Pelosi, Reid, and DODD!! They all suck!!!!!!!


February 19, 2009, 11:48pm (report abuse)

This would totally destroy financial markets as we know them. knowing that you can't change your investments without paying a transaction tax would (and should) make anyone reluctant to invest.

if you want to raise money, you should consider a tax on profits. taxing the transactions is completely ludicrous, you would be taxed for hedging risk because that too, would be a transaction. This would destroy american financial markets.

Ed Harrington

February 20, 2009, 12:35am (report abuse)

OK so what you are trying to do is socialize profits and privatize losses. That sounds fair - does the term Socialism strike a chord? 1984 - read it. It's here - truth is a lie and lies are now truth.


February 20, 2009, 12:45am (report abuse)

I cannot believe this is even being considered! I came to this Country 35 years ago like many thousands of others for the American dream, I have raised my family here and worked hard to run a business and make payrolls. As I look around I'm starting to see all the reasons for being here being destroyed, I love this Country but I'm saddened that I know more about free markets than my elected officials. When will you morons understand that somebody has to create wealth before you can tax it? This will effectively put me out of my small business, so you can add me to the unemployed and the people I will have to let go. I guess politicians will eventually figure it out when there is no one left making money to pay for their crapp! I hope there is a Country left for my children. Alas, Alas Babylon has fallen!


February 20, 2009, 12:48am (report abuse)

A tax on securities makes it easier for only the big banks to control the entire stock market and kill the mutual fund business as we now know it. This tax is double taxation since traders are already taxed on regular taxes on their trading profits.


February 20, 2009, 2:04am (report abuse)

And I thought the past 8 years were full of incompetent leaders. We keep getting worse and worse.

There are 2 types of people in this world. Those who never learn from history and are doomed to repeat it, and those who learn from history and get to watch everybody else repeat it.

Wes Matthews

February 20, 2009, 8:58am (report abuse)

This bill punishes the honest investors who had nothing to do with the bailout. The current crisis is a result of reckless mortgage brokers and investment banking leverage that was abused in an unregulated derivatives market. Why punish futures traders for the greed and excess of irresponsible derivatives traders?!?! Build a centralized exchange for these instruments and tax them in order to recoup the bailout funds. Two wrongs don't make a right...and taxing futures traders who had absolutely nothing to do with the current crisis would only make matters worse.

-Wes Matthews


February 20, 2009, 10:50am (report abuse)

Oh great! Just another way to tax the little guy to pay for the people at the top. Why is it that the little guy gets the shaft all the time and the fat cats at the top take all of our hard earned money? They do it because they can and they are in power but it doesn't make it fair. This bill stinks!


February 20, 2009, 11:03am (report abuse)

"(4) The $700 billion TARP fund and the new Federal Reserve lending facilities were created to protect Wall Street investors; therefore, the same Wall Street investors should pay for this infusion of taxpayer money."

This is a false premise. TARP wasn't just to protect "Wall Street investors," the purpose was to protect the larger economy and keep the credit system running...


February 20, 2009, 11:11am (report abuse)

First I pay my mortgage and get nothing from this bailout but yet someone who doesn't pay theirs gets a handout.

Now this, I invest via dollar cost averge method and in order to help pay for these bailouts - me - Mr. Small Investor will have to pay higher fees/taxes just to buy/sell stock?


February 20, 2009, 11:46am (report abuse)

This idea is as stupid as the IDIOT proposing it. Here is one LOSING investor ready to say the h--- with it all!


February 20, 2009, 12:33pm (report abuse)

Please pass this bill! I'll make one trade....and that will be to short the market. I'll be a billionaire over night and it will lock in one term for anyone that supports it.


February 20, 2009, 5:03pm (report abuse)

They should tax on other trades, too. Maybe the person who wrote the bill did not know there are people who trade currencies and commodities. It is fair to tax them if they want to tax the stock traders. How about the gamblers. When they buy chips, they should be taxed.

JOhn Williams

February 20, 2009, 8:00pm (report abuse)

If this goes through, DOW = 0 , SPY = 0 , QQQQ = and USA = 0. I will make one last trade and that is to short SPY as it goes down down down.


February 21, 2009, 7:28am (report abuse)

Redistribution of wealth does not work! When will the Dems understand this?


February 21, 2009, 11:52am (report abuse)

The industry will not be made more responsible by this. Wall Street will only pass on the cost to investors and traders -- 80% of which are small actors on Main Street. The mutual funds in our 401Ks and pensions and annuuities will just pass it on to the retired and blue collar workers who are counting on gains. It will reduce spendable profits and increase losses, making it harder for the economy to function. Don\'t we want to do the opposite?


February 21, 2009, 6:11pm (report abuse)

An unbelievably ill-conceived proposal. I trade stocks for a living, over 1200 miles from Wall Street, and I will have to find another way to make a living, if this passes. How can over-taxing individuals possibly repair the damage done by several big brokerage firms and financial institutions? Ridiculous stuff!


February 21, 2009, 7:10pm (report abuse)

This sounds like a hoax. A small 25,000 dollar account can easily trade a million dollars in a year, without even doing any day-trading. The tax (0.25 of one percent) would come to 2,500 dollars a year, or 10% of the account value. Something doesn\'t add up.


February 22, 2009, 9:31am (report abuse)

I agree. This proposal is ludicrous, ill-conceived, will crush the markets and put thousands, maybe even hundreds of thousands of traders and out of work. And what are we going to do about it? We need to take action. I will not let this socialism be forced upon me without a fight.

In the movie 'Billion Dollar Baby', Hilary Swank played a boxer and was in a title match and she was loosing. Clint Eastwood, her trainer, said to her between rounds, "She's bigger than you, faster than you and she's a better boxer than you. The question is "What are you gonna do about it!?'"

So, she went out and knocked out her opponent.

What are WE gonna do about it? We all need to write our Congressmen. We can contact the press. I for one am going to contact Rick Santelli fom CNBC.We need to unite and take action to protect ourselves and help save this economy.


February 22, 2009, 2:12pm (report abuse)

I've done some research, and I cannot find the Revenue Act of 1914 precedent where a 0.2% transfer tax was levied on all stock transactions.

The only thing I can find is a 0.02% tax. Which, even though that is still quite a lot, it's not devastating, like a 0.25% tax will be.

Can someone else post a link or find evidence of this tax? If not, what does one do about false historical precedent being placed in Amendments?


February 24, 2009, 11:50pm (report abuse)

According to the writers of this bill the average investor will not be affected by the new tax. Where do they think the tax money will come from? It will come from the investors who have already been battered by the collapse in security prices. Every time a fund manager sells a stock the investor will lose 0.25%. It will also destroy the livelihood of hundreds of thousands of people who make their living as traders. Traders often get in and out of positions with a few basis points of profits. A 25 basis point tax will force them to go out of business since they will need to make a 25bp profit just to break even! This will destroy the liquidity provided by the traders who are looking to make a few basis points of profits per trade. What happens when liquidity collapses was well illustrated last fall when security prices collapsed in a cascading waterfall as asset managers were forced to reduce leverage. Sad to see politicians find new ways to tax Americans when the nation is hurting.


February 25, 2009, 1:13pm (report abuse)

This bill's passage would spell the end of the financial markets as we now know them. This bill isn't worth the paper its printed on and will never be passed. Anybody who thinks anything different is plainly wrong. DeFazio is a populist moron and should have to go back to school before ever being allowed to author a bill. Seriously, kick him directly out of office immediately. I'd call that real progress.


February 26, 2009, 2:41pm (report abuse)

Steve, you're an idiot. You don't have to raise taxes to reduce the deficit...you can STOP SPENDING!!! The government needs to be cut back to the bare minimum. No more bailouts, no more fiat currency, no more regulating every last aspect of people's lives! Start laying off some government employees and closing some regulatory agencies, ending our foreign wars, and hundreds of billions would be saved...and We The People would be better for it.


February 27, 2009, 4:06am (report abuse)

The bill seems to imply that the tax wouldn't be permanent - "to impose a tax on certain securities transactions to the extent required to recoup the net cost of the Troubled Asset Relief Program." Wonder how long it would take for that to happen?


February 27, 2009, 7:01am (report abuse)

For Inc:



March 2, 2009, 9:14am (report abuse)

If the bill pases,they might as well close the Exchanges,securities will fall to 0 and America as we know will dissapear


March 2, 2009, 10:07pm (report abuse)

the way this reads any transaction would be subject to this tax. SO for those of you out there with a 401K - even if you don't consider yourself an "investor - guess what, you will pay if you move your money from one account to another, etc.. This will be buried in with the rest of the transaction fees you already pay. This is not Wall Street paying for Wall Street - this is about US paying - AGAIN.

James StClair

March 3, 2009, 4:32pm (report abuse)

This bill will never pass once the true numbers are calculated and the impact weighed. I'll make the prediction now....bill is dead on arrival!To help, Security Traders Association (www.securitytraders.org) has posted a letter everyone can use to send to their congressmen to help them see the light.


March 3, 2009, 5:38pm (report abuse)

In an interview DeFazio implied one purpose of the bill is to discourage day traders because they do not produce anything of value. That makes sense to me because if they are successful they must take profits from those who buy and hold. So getting rid of day traders would make long term investing more profitable and attract more of it. Doesn't that provide more useful capital to a firm than money that flows in and out in a day?

If I am wrong in thinking that day traders cause losses to long term investors then the successful day traders must be making a living from the losses of unsuccessful ones, and that does not sound like it would contribute to the GDP so why should society encourage it?

Re the need for liquidity argument, how did the market get along without the extra liquidity before day trading became popular?

Maybe this bill is not a good way to discourage day traders but wouldn't the country be better off without them?

No offense meant, I'm just wondering.


March 5, 2009, 7:18pm (report abuse)

Mason, get a clue and then send it to DeFazio. This bill is being titled "Let Wall Street Pay for Wall Street's Bailout". Tell me how day traders created the current situation on Wall Street. Did they force the banks, mortgage companies, and brokers to make bad decisions? Who is to blame more for our current problems, the Congressional banking committees, or day traders? Credit Default Swaps comprise a $40+ trillion market, yet are not regulated as much as a 1 cent slot machine in Vegas! Day Traders again? Forget that this proposed bill amounts to triple taxation, after cap gains and dividend taxes. If this passes, liquidity will dry up across the US markets, and it will reduce efficient pricing of stocks. Lets face it, this Democratic regime is interested in helping those who dont pay taxes by increasing the burden on those who can. Fairness is not really important. DeFazio is eliminating the livelihood of thousands, and doesn't care if he adds to the unemployment lines.


March 5, 2009, 8:21pm (report abuse)


It is incorrect to say that day traders do not produce anything of value. They help provide the liquidity that allow buy and hold investors, mutual funds, etc. to get better prices.

Day traders do not take profits from those who buy and hold. How is this so? If someone is holding an investment, no one can "take" their money unless they sell. And if you're a buy and hold investor and you sell at a profit, guess who gives you the liquidity to be able to sell your equity at a profit? The day trader.

Without the liquidity offered by day traders, you would have huge spreads, low trading volume, and you would actually be less likely to make money through investing.

On top of that, there are thousands and thousands of people who make a living off of some sort of trading. Taxing them out of business would result in a lot of people no longer being able to make a living.


March 7, 2009, 5:02pm (report abuse)

Thanks Jeff and James. I did some research and soon found my naïve intuitions about day traders do not even begin to scratch the surface. Apparently there is much disagreement about whether liquidity would be adversely affected to a significant degree by a small financial transactions tax (FTT).

In http://www.cepr.net/documents/publications/financial-transactions-tax-2008-12.pdf Dean Baker covers that and also argues “If a financial transactions tax reduces the volume of trading, and therefore the resources used by this sector...then it will be making the sector more efficient and freeing up resources for more productive uses. This could potentially be a very large benefit from an FTT....free[ing] up more than $60 billion a year in labor and capital for productive uses.”


March 7, 2009, 5:07pm (report abuse)

Dean and others (http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_1-50/WP20.pdf) also suggest a small FTT would make the markets more stable and less volatile, which seems like a good thing to me especially now.

I\'m left where I was with the stimulus legislation: I\'m in no position to make an informed selection between the two camps and I wish I could see a real discussion of the issues among distinguished economists of all stripes, carried out in public so we laymen could see whether they are able to convince one another. Instead we get sound bites and slogans from legislators and talking heads who probably for the most part don\'t understand it much better than I do.


March 8, 2009, 3:43pm (report abuse)


I am confused .. I read Mr Bakers testimony on the proposed FTT, and as far as I can tell he said this,

\"Calculations based on 2000 trading volumes showed that a set of scaled transactions taxes, imposed on transfers of stock and other financial assets, could raise more than $100 billion a year, even assuming large reductions in trading volume.

Where do you find that he suggests \"Free up more than 60 billion a year in labor and capital for productive uses\" ?

HOW on earth do you come up with the idea that traders (day traders, or not) don\'t produce anything worthwhile?

I suppose if they WANT to eliminate the capital markets a 25 basis point transaction tax would be a good way of doing so. But simply doing away with liquidity to somehow \'punish\' investors doesn\'t seem like a very good solution to me.

In my opinion this entire mess was caused in large part by the repeal of glass steagall http://ktglabrats.com/larrysblog/?m=20090304


March 8, 2009, 5:15pm (report abuse)

I don't know why the URLs did not come through. I'll try again.





March 8, 2009, 5:22pm (report abuse)

The "..." in the first URL in my last comment should be "008-12.pdf"

The "..." in the second one should be "-50/WP20.pdf"


March 8, 2009, 5:31pm (report abuse)

On the same page as the $60B comment Baker says “Whether or not reduced trading leads to serious harm to financial markets would depend on its impact on liquidity and market volatility. Obviously the tax will reduce liquidity by reducing the volume of trading, but it is not clear that the impact will have much consequence...reductions in trading may reduce the volume to levels of 20-25 years ago, but these markets were already highly liquid in the 80s....The impact on volatility is also ambiguous...if there are substantial numbers of noise traders (traders who act based on market movements rather than an assessment of fundamentals) in the market, the reduction in trading volume could actually reduce volatility...The research on the relationship between trading volume and volatility is ambiguous.”

If liquidity and volatility are OK with the lower number of traders the people who formerly traded and those who worked the markets to accommodate them would be freed up for other work.


(logged-in user) March 8, 2009, 7:31pm (report abuse)

How much would this tax add to the cost of trading an e-mini s&p contract?


March 8, 2009, 7:47pm (report abuse)

it would cost you 25 dollars to trade one e-mini S&P contract round trip


March 8, 2009, 7:58pm (report abuse)

In response to your comment here Mason:

***If liquidity and volatility are OK with the lower number of traders the people who formerly traded and those who worked the markets to accommodate them would be freed up for other work.****

How is this a good thing? The unemployment rate is already near 9%. Putting MORE people out of work and searching for new jobs simply makes things worse.

Also, I don't understand why Baker is basing his calculations on the trading volumes in the year 2000. Trading volumes would be *far* reduced below these levels with such a transaction tax. And this dramatically reduces any estimated revenue from the tax. Another thing that is NOT being considered is the reduction in capital gains (and thus government revenues) that would ensue.


March 8, 2009, 7:59pm (report abuse)

Also, this transaction tax doesn't make sense. As what's been said before, it punishes the people who had nothing to do with this financial mess. A transaction tax won't make "Wall Street pay for Wall Street's bailout." It's going to make Main Street pay for the bailout, because the tax affects your average joe investor who has nothing to do with the financial mess.

Part of this financial mess came from the trading of instruments that are not publically traded. So why punish the people who trade public instruments?

And why tax transactions? This is absurd. Traders are already taxed on capital gains, and then also have to pay SEC fees and commmissions. Adding another tax is in essence triple taxing them.


March 8, 2009, 8:11pm (report abuse)

I don't trade s&P e-minis, however, I believe the tax on a round trip trade would be $150, not $25 ...(notional value is 50x the index)


(logged-in user) March 8, 2009, 8:42pm (report abuse)

S&P close Friday 683.38x50= $34169 x .0025 = $85.42 EACH SIDE = $85.42x2= $170.84 per roundtrip s&p emini contract trade PLUS commission = SMALL FUTURES TRADERS OUT OF BUSINESS ... LIQUIDITY GONE


March 8, 2009, 8:45pm (report abuse)

Thank you Jeff, I stand corrected.

assuming the e-mini contract is worth 55,000 in principal amount the tax would be .0025 * 55,000 = 137.50 to buy, and then again to sell resulting in a total tax of 275 dollars.

(and sorry about the user name changes, washingtonwatch.com for some reason keeps forgetting my username)


March 8, 2009, 9:10pm (report abuse)

and PJ has got it right, I don't trade them either, but its whatever the principal amount is times .0025 for each side.

I suspect the e-mini market would be the first to dry up if this tax is enacted.

"Today, roughly 65 percent of all volume is executed by high-frequency traders, who have replaced specialists and market makers who fled the inside market due to narrower bid-ask spreads that raised their risk profile."


If this liquidity and volume were to dissapear we are facing not only a flight of liquidity which hurts the 'average investor', but a much higher incidence of manipulation due to the fact that a relativly few powerful institutions would be the remaining market participants. I fail to see how this can possibly be good for the country, or investors.


March 8, 2009, 10:12pm (report abuse)

I just have to say that as a retired person, living only off my investments and trading profits that this would put me in the poor house. What seems like a small amount would in fact be a very large amount. I both day trade and swing trade. My average profit on a transaction is about $200 on a $10,000 transaction. With this tax the government would be taking $50 or $25%, and that is before any expenses associated with trading or income taxes. It is almost unbelievable that this could even be considered. Please, please let some sanity be brought back to the government. Please, please don't let this bill be included in any legistation.


March 9, 2009, 9:55am (report abuse)

I just want to say that the title of this bill is hilarious, and a co-worker said it sound like Derek Zoolander named it.


March 9, 2009, 10:52am (report abuse)

“How is this a good thing? The unemployment rate is already near 9%. Putting MORE people out of work and searching for new jobs simply makes things worse.”

Keeping people unproductively employed is no better than their being unemployed and collecting unemployment benefits equal to their current salaries from public funds.

“If this liquidity and volume were to disappear...”

The premise that liquidity would significantly diminish is what Baker claims is disputed by experts and I'm in no position to disagree.

As for fairness, very little of what is happening is fair (except in the sense that we are a democracy and we allowed this to happen) but fairness does not seem to be possible.

To be clear, I'm not lobbying for anything here, just exploring.


March 9, 2009, 4:37pm (report abuse)


Keeping people unproductively employed is no better than their being unemployed and collecting unemployment benefits equal to their current salaries from public funds**********

Where is your evidence that traders are "unproductive"?

Also, productivity is irrelevant to the situation. By putting thousands of traders out of work, you are putting tens of thousands of people out there to compete for jobs with the already millions of people who are out of work. Again, I fail to see how this is a good thing.


March 9, 2009, 4:44pm (report abuse)

****also suggest a small FTT would make the markets more stable and less volatile, which seems like a good thing to me especially now.*****

People made the same claim about a short selling ban. But when the short selling ban on financials was implemented in the Fall of last year, the market continued to be volatile and financials dropped another 30%.

There were just as many traders around in 2007 as there are now, but the market was nowhere near as volatile. Why?

Because the current market volatility is due to the fear and uncertainty over the economy. It has nothing to do with short sellers or traders or anything like that. Those are just scapegoats for the real problem. If you want to fix the volatility, then you need to fix the economy. A FTT will do nothing.


(logged-in user) March 9, 2009, 6:43pm (report abuse)

Just for the sake of argument, lets say day traders produce nothing of value (I disagree). If this is DeFazio's yardstick, we need to close all the casinos in this country, plus ban tobacco and alcohol. Of course, there are taxes being paid on gambling, alcohol and tobbacco revenues, which are not going to be eliminated anytime soon. The FTT is nothing less than a parasitic tax for a money-spending machine (aka the federal government).


March 9, 2009, 11:42pm (report abuse)

For those who are not familiar with trading, this bill is like putting a $1 tax on McDonalds 85 cent cheeseburgers, and then claiming that since McDonalds sold 5 million cheeseburgers last year, this tax will generate $5 million in tax revenue. Rep. DeFazio lacks the understanding that McDonalds will just stop selling cheeseburgers because all the customers are now across the street paying 85 cents at Burger King.

If this law were ever to pass (which it won’t), high volume traders will move overseas, volume overseas will increase dramatically, then domestic mutual funds will start trading overseas because they will get better fills. This is not a Republican or Democratic view, it is the reality of how markets operate, regardless of whether DeFazio likes it, doesn’t like it, or even understands it.

We have big problems to solve. Liberal or Conservative, we can’t keep electing incompetent individuals, who lack even a basic understanding of how markets and economies function.


March 10, 2009, 12:54pm (report abuse)

“Where is your evidence that traders are 'unproductive'? “

In the cepr.net pdf I referenced above, as I mentioned in my March 7 5:02pm post.

“when the short selling ban on financials was implemented in the Fall of last year, the market continued to be volatile and financials dropped another 30%.”

How do you know it would not have been worse without the ban?

“the current market volatility is due to the fear and uncertainty over the economy. It has nothing to do with short sellers or traders or anything like that.“

I don't completely disagree but it may still be true that the economy as a whole would be better off without the allegedly unproductive trading.


March 10, 2009, 4:10pm (report abuse)

***In the cepr.net pdf I referenced above, as I mentioned in my March 7 5:02pm post****

The link doesn\'t work.


How do you know it would not have been worse without the ban?****

You are committing the fallacy of the appeal to ignorance.


All one has to do is look at what happened to the VIX after the short selling ban on September 19th. There was a large spike in the VIX soon after the ban, indicating the ban did nothing to stop volatility.

In fact, it may have increased it. SEC chairman Cox has stated that he regrets the ban, and the costs outweighed the benefits. In fact, the ban decreased liquidity...the same thing a tax would do.


You also ignored my comment how there were just as many traders around in 2007 yet the market was nowhere near as volatile.

Traders should not be taxed for something that isn't their fault.


March 10, 2009, 4:54pm (report abuse)

***it may still be true that the economy as a whole would be better off without the allegedly unproductive trading.****

Basic logic says otherwise.

Let's say you eliminate the "unproductive" traders. Some of the discount brokers, who make money off these traders, will go out of business. Thus, not only are traders out of jobs, but also the people who work for the brokers. Brokers who don't go out of business will have to raise their trading fees and lay off employees to compensate for the loss of revenue.

Long term investors then will have more fees and worse service. They'll also have an additional tax, which they'll incur even if they sell at a loss. Bid/ask spreads will get bigger due to lower volume, and so it gets harder to actually buy and sell stocks. The lower volume would mean less revenue for exchanges, which means more job losses for the people who work for the exchanges.


March 10, 2009, 5:02pm (report abuse)

Also, in 2003, the New York City Independent Budget Office examined the possible effects of reinstating the stock transfer tax. Their findings:

1. 1.6 private sector jobs would be lost for every potential government job gain, resulting in a net job loss

2. If investors leave Wall Street to evade the tax, the impact would be even greater. If 1/3 of trading activity shifted out of the New York exchanges, net job loss would climb to 150,000, and any potential net revenue from the tax would fall to 0.


March 10, 2009, 9:18pm (report abuse)

James, I'm afraid you are committing the post hoc ergo propter hoc fallacy. But your specific quarrels are with Dean Baker, not with me. I explained above how to get the link to work. I can't get this page to accept the entire link so you have to paste two pieces together. You'll have to read at least one of the papers to see what he is saying. I thought I read today they are thinking of reinstating the ban on short selling.


March 10, 2009, 10:30pm (report abuse)

"Post hoc ergo propter hoc" is a fallacy of false cause. Note that I did not claim that the short selling ban *caused* the current volatility. I simply claimed that the short selling ban did nothing to decrease volatility. That is not post-hoc, ergo propter hoc reasoning.

I did hypothesize that it may have contributed to an increase in volatility. However, that was pure speculation on my part and yes, that could be considered the post-hoc fallacy. But most of the volatility is due to the economic conditions. While the short selling-ban may or may not have contributed to an increase, it certainly did nothing to decrease it.

And no, they are not thinking of reinstating the short selling ban. They are considering re-implementing the up-tick rule, which states that one can only short sell at a price higher than the previous tick.


March 11, 2009, 10:05am (report abuse)

"People made the same claim about a short selling ban. But when the short selling ban on financials was implemented in the Fall of last year, the market continued to be volatile and financials dropped another 30%."

What is the fallacy of claiming that since people were wrong when they said A would have a given effect they must also be wrong when they say B would have that effect?

But seriously, I still don't understand how you conclude the short selling ban did nothing to decrease volatility from the unknown level it would have reached without the ban.

I understand you are saying the real problem is fear and uncertainty and I tend to agree. I still don't think that means nothing other than reducing fear and uncertainty can have a positive effect.


March 11, 2009, 7:16pm (report abuse)


Please explain to me what 'unproductive' trading is.


March 12, 2009, 10:39am (report abuse)

From the cepr.net pdf I referenced above (check it out, it's a short paper):

“In the years from 1977 to 2007, the share of private sector wages in the narrowly defined securities and investment sector grew from less than 0.6 percent to more than 2.3 percent. There is a real economic benefit to this growth insofar as it improved the allocation of capital, allowing firms to better gain access to capital markets or for individuals to better adjust their saving

and spending patterns over their lifetimes. However, if this growth in resource use was only associated with additional trading and did not actually lead to better allocations of capital, then the resources were wasted. If a financial transactions tax reduces the volume of trading, and therefore the resources used by this sector, without harming the sector’s ability to allocate capital, then it will be making the sector more efficient and freeing up resources for more productive uses.”

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