At the heart of R. Murphy\’s ideas about the financial transactions tax is the thought that the tax will widen margins in the foreign exchange (forex/FX) business, well, actually all markets. Wider margins will lead to lower liquidity and thus lower profits for banks and thus lower pay for bankers.
This is one of the source documents he uses to reach that conclusion. The IFSL 2009 September newsletter/report.
From 2001 to 2007, spreads in foreign exchange
markets contracted, meaning banks were making less margin. Spreads have
widened since the start of the credit crisis, due to increased volatility, a fall in
the number of dealer desks and increased concerns about counterparty risk.
This has resulted in boosting global banks’ revenue from foreign exchange
No, really, that\’s one of his source documents. Lower liquidity *raises* the amount that banks make from such trading. Yet Ritchie assumes that such wider margins as a result of lower liquidity will *decrease* the amount made and thus put pressure on bankers incomes.
It takes a special talent to entirely reverse the logic of your sources really.