In the absence of a major regulator overhaul, there is one simple measure that would at least ensure that the public gets a cut of the action. A modest financial transactions tax could easily raise an amount equal to 1% of GDP, or $150bn a year at present. This is real money – enough to finance a 10% across-the-board reduction in the income tax.
A tax of 0.25% on a stock trade or 0.02% on the purchase of credit default swap will have no measurable impact on productive financial transactions, but will likely put a serious dent in speculative activity. For this reason, it is a win-win-win proposition. It reduces speculation, it takes a big bite out of Wall Street revenue and profits and it raises a bucket of money. If anyone has any better ideas, they are keeping them to themselves.
What Dean is suggesting is essentially that New York should impose a wider version of the Stamp Duty which London has on share sales. Which has two interesting corollaries. The first is that we\’ll of course see leakage of the market away from places which impose such a tax: just as the original Eurobond market grew in London after New York imposed a witholding tax, or the boom in contracts for difference in more recent years in London. The second is that there\’s a large movement in London to scrap stamp duty itself, as it makes the markets themselves less efficient….and the major losers over the years are those investors saving for their own pensions.
But hey, why not do it anyway? Drive more of the US markets to London to the enrichment of the UK, wouldn\’t it?
Oh, by the way, is there actually any reason why we would want to curb speculation? Isn\’t it in fact a rather useful thing, moving, as it does, risk around and prices inter-temporally?