General Question

Zuma's avatar

Why not tax some of the meag-trillion dollars generated the derivatives and exotic securities markets to pay for the deficit?

Asked by Zuma (5908points) May 10th, 2010

There are trillions sloshing around in these markets. Taxation would seem one way to channel this wealth to productive uses (which is what capital markets are for).

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14 Answers

grumpyfish's avatar

It’s that what capital gains tax is about?

The_Idler's avatar

They’re all in it together.

robmandu's avatar

Mark Cuban recently suggested the same thing.

In short, he suggests a 25¢ per share tax on all stock market transactions. For the professionals who trade stocks in and out everyday – apparently exacerbating the problems in the market we’ve seen of late – this tax would be a burden that slows down their activity.

On the other hand, for the long-term investors who buy stock and hold on to it (like you and me), the tax wouldn’t affect us so much.

The idea being to punish trading behavior and encourage investment behavior.

CMaz's avatar

They do. It is called capitol gains tax.

Espiritus_Corvus's avatar

You can’t tax it because it’s not real money. It doesn’t exist. The derivativre market is a big part of what caused this failure. Derivatves are fractional banking on steroids. Package a lot of bad paper with a little good paper, grade the instruments on the basis of the good paper, insure it based upon that grade, sell it all to suckers, and pull the plug. If you are in on the packaging, there is a lot of money to be made at the expense of all the little menches, the institutions passing the paper, and the insurers—unless the institutions are in on it too. It’s all debt-based bullshit. Air in a bubble. Derivatives, in the form in which they have been used/abused in the last 30 years—especially in the last 15—are a product of the insane banking deregulation that has been going on since the Reagan administation..

arpinum's avatar

Derivatives actually do play an important market role, one of which is to allocate risk to those who can best handle it. Futures markets are extremely important in keeping prices stable. Look at produce prices. You’ll notice that onions, the one produce product where futures are illegal, has far and away the highest volatility in price.
Or, take the classic example of the orange market. Farmers buy futures to protect against volatility in prices and weather because they would be wiped out if they were forced to take spot market prices.
Do not advocate for the destruction of something you don’t understand.

MyNewtBoobs's avatar

Mainly because a huge reason to give so much money to the investors who then put it in derivatives is because then they can find all the tax loopholes and hide your money there so that it can’t be taxed.

mattbrowne's avatar

Even the conservative politicians in Germany will probably introduce such as tax. The credit default swaps and collateralized debt obligations triggered the financial crisis and now fx future trading ruins countries like Greece.

We need to stop casino capitalism. The

was already proposed in 1972.

arpinum's avatar

@mattbrowne Curious to blame CDOs and futures markets for recent financial news. lets just take the latter. Are you insinuating that there was no real problem in Greece? That it didn’t have a huge amount of debt outstanding that it couldn’t service and was currently running a deficit? Everything was just rosy until some people decided to bring Greece down?

Trading ensures that assets are assets are priced accurately. There was little chance of Greece paying its debts, so why shouldn’t buyers ask for a bigger cut for assuming these risks.

Citing the Tobin Tax as if you are economically literate is laughable when compared to your obliviousness to market mechanisms, especially manipulation. Because you would know that the more people try to manipulate a market,the more robust the prices become. See a theory paper here, and an experimental paper here.

Greece ruined itself by pretending it was richer than it was. They spent more money than they had or could expect to pay back. Would you want to lend money to them?

And not only was the Tobin Tax proposed in the 70s, but was already used before and during the great depression. No obvious effects were seen from this. If you were up on the literature, you would know about the efficacy of a Tobin Tax.

Golly gosh darn, why is it that there are so many armchair economists out there?

mattbrowne's avatar

@arpinum – The securization of debt led to the crisis in 2007 and 2008. Therefore I mentioned CDOs and CDSs. There were too many unreliable borrowers.

There is a real problem in Greece and their politicians and corrupt citizens are to blame. Their economy has a productivity problem, no doubt, and it can’t compete. But speculation turned a major problem into a huge one. Greedy investment bankers want to profit from the misery. They got no ethics whatsoever. I know taxing financial transactions isn’t popular in the US and UK. But I think we don’t have a choice.

arpinum's avatar

So your reason for a Tobin Tax is that something must be done, and this is something, therefore it must be done? I wasn’t talking about it’s popularity, I was talking about the efficacy. We could pray to the flying spaghetti monster and save some money vs. a Tobin Tax.

How did the speculation exacerbate the problem? Greed always exists, why did they do this now? You think the bonds are under priced? Is wanting to make money a bad thing? How is making money hurting people here?
The bankers are doing nothing more than attempting to accurately price assets, directing capital to its most valued use. They are not a charity.
Attempts to manipulate the bond market will only bring about more accurate pricing.

“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest” – Adam Smith, Wealth of Nations

mattbrowne's avatar

I’m a promoter of a social market economy and I reject predatory capitalism. Greed is part of humanity, but so is altruism. We need a balance between the two, which is something Adam Smith didn’t seem to realize. Wanting to make money is a bad thing when it’s unethical and it doesn’t serve the greater good. Then wanting to make money is like worshiping the golden calf.

arpinum's avatar

Adam Smith did realize it, its called “The Theory of Moral Sentiments” (1759)

Ron_C's avatar

It was suggested that we charge a 1/10% transfer tax on stock trades to slow the trades and provide funds for regulation, that was summarily rejected. What chance is there for taxing gambling debts like derivative trades?

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