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'They Frankly Own the Place'

Adair Turner, head of Britain's Financial Services Authority, is arguing that the attention to bonuses is, at best, a “populist diversion” from policies that would really slow the financial sector. Among those policies? A global financial transactions tax.

I agree with him, of course, but I'd be a lot more optimistic if someone, somewhere, had managed to respond to the financial crisis by implementing a national financial transactions tax, or really any piece of legislation the industry didn't want. In this country, we're staring down swollen deficits and eye-popping levels of long-term debt, and even so, there's been no serious push to raise $100 billion a year from a tax that would tamp down on the speculative, high-speed trading that we want less of anyway. It would seem like a win-win policy, until you realize that it's actually lose-lose, as the relevant variable is not the national interest, but the interests of the financial sector. As Sen. Dick Durbin -- a member of the majority party's leadership team -- said, "The banks ... are still the most powerful lobby on Capitol Hill. They frankly own the place."

More: How a financial transactions tax would work.

By Ezra Klein  |  August 28, 2009; 10:07 AM ET
Categories:  Financial Regulation , Solutions  
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Why do we want less high-speed trading?

Every high-speed trade is economic activity - meaning someone gets paid, earns a fee which can then be spent on goods and services, etc. High-speed trading can increase volatility in some cases, and reduce it in others - it's not inherently destabilizing.

We do have a problem where high-speed trading treats investors differentially depending on the speed of their trading system, which may need to be address in terms of fairness. But calling for a reduction in high-speed trading, and stating that it is obviously desirable, needs much more support. Banning a kind of economic activity without negative externalities just because you think the banks are too powerful? That's questionable.

Posted by: Casper96 | August 28, 2009 11:31 AM | Report abuse

Sweden did this after their previous banking crisis. It did nothing except move transactions offshore, and they repealed eventually. As Sweden's workout of their previous crisis was more-or-less exemplary, I have to go with the n-of-one datapoint here: the Tobin tax is a distraction at best. There are much deeper problems to be soved, and it does not touch them.

Full disclosure: I work in financial services. My employer did not need a bailout.

Posted by: wcwhiner | August 28, 2009 11:39 AM | Report abuse

The US markets are not the Swedish markets. It seems like a good idea. The whole financial system is just pushing paper around in a circle with everyone taking a cut. The gov't shouold take a modest cut too, considering how so many of these people wrecked the system and needed bailing out. We are talking about .25% of each transaction. BFD.

Posted by: Mimikatz | August 28, 2009 12:32 PM | Report abuse

*Every high-speed trade is economic activity*

yes. There are lots of economic activities, however, and maybe we should think about what other economic activities people could devote themselves to when the "high-speed trading" option is not available. The goal here is to shrink the financial sector as a portion of the overall economy.

I don't know if the transaction tax is a good way to do that, but defending high speed trading as "an economic activity" is not an argument: it is actually the problem.

Posted by: constans | August 28, 2009 12:48 PM | Report abuse

*The goal here is to shrink the financial sector as a portion of the overall economy*

I don't think that is a wise goal. If that is the end result due to policies that lead to growth in other sectors of the economy, fine; but artificial reduction of the size of the financial sector is foolish. Note that this has nothing to do with finance in particular; I would be against artificially constraining the size of all other industries as well.

Posted by: Casper96 | August 28, 2009 1:58 PM | Report abuse

*I don't think that is a wise goal. ... artificial reduction of the size of the financial sector is foolish.*

Have you been asleep for the past year?

Posted by: constans | August 28, 2009 2:04 PM | Report abuse

seems to me what Sweden may show is that many/most countries need to do this at more or less the same time

Posted by: williamcross1 | August 28, 2009 3:45 PM | Report abuse

"implementing a national financial transactions tax"

The UK has one, called Stamp Duty. Paid on all share transactions.

Next question?

Posted by: timworstall | August 29, 2009 6:30 AM | Report abuse

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