News & Analysis
The Financial Transactions Tax Rolls On
European Parliament Economic Affairs Committee: Financial Transaction Tax Should Be Imposed Even If Certain Member States Oppose It ... A financial transaction tax for Europe is debated and voted on this Wednesday (23 May, 2012). The EP wants to tighten the Commission proposal to include more trade and make evasion unprofitable. According to the economic affairs committee, the tax should be imposed even if certain member states oppose it. – High Frequency Trading Review
Dominant Social Theme: Because it can be done – badly – it is necessary to impose as efficiently as possible.
Free-Market Analysis: Another disastrous tax may be on the way, delivered to long-suffering Europeans by their Brussels representatives. Tomorrow, apparently, the European Parliament shall vote on a Financial Transaction Tax (FTA). Oh, no!
We've written about this horrible tax before. And the concept has been around forever. It's the tax that won't die. Brussels loves the tax because it provides revenue without Brussels having to do various extra-constitutional things involving the European Central Bank, etc.
No, this appears to be a fairly efficient transaction for Brussels to make, though we confess we are not certain of the power of Brussels to impose such a tax. The Eurocrats seem to believe they can.
A disastrous tax it will be, though apparently that shall not bother anyone voting for the tax. Nor shall it bother the tax's ultimate backers – the global elites that want to run the world and are constantly adding to the complexity of business, regulations, etc.
An FTA will surely retard economic recovery, not that there's much of it around anyway. It will surely add considerable additional recordkeeping throughout the business community. Everyone from the largest to the smallest would likely be under an affirmative obligation to keep some sort of log of trades and transactions.
And, as we've pointed out previously, once such recordkeeping is put in place, there will be a spate of new laws, new crimes and eventually, new criminals. The "criminals" will be those who do not wish to keep detailed records of their financial transactions or who attempt to obfuscate them.
This will open up a bonanza of new crimes and criminals, in our view. First of all, as times goes on, trade data could be matched by powerful computers to detect patterns of "insider trading." But sooner or later other crimes would be discovered as well.
One could come up with a whole category of market manipulation crimes once trade data is extensively tabulated. There could be volume crimes in which trades overwhelm the market, moving certain investment instruments up or down.
Or how about exotic frontrunning crimes in which markets are primed for frontrunning by manipulative trades. The trades push securities up into unstable valuations. Then someone triggers a selling program and the instruments begin to fall.
To counteract these newly discovered crimes, an international agency to fight market manipulation and insider trading might have to be set up. It would be a huge, global agency that would be funded by an ever-steepening transaction tax. As we concluded previously:
Soon, every large firm would have electronic market manipulation police. Certain firms would be identified as "going rogue." These firms might be black-listed once they received unsavory reputations. People's reputations would be blackened if they associated with facilities that did a good deal of trading.
Conclusion: It seems the FTA is coming, even as the EU itself faces break up. Perhaps it shall be a race between backers of the FTA and opponents of the EU to see which is implemented first – the tax or the breakup. We know what we're rooting for ...