Traditionally “lefty” organizations, including the Daily Kos, are pushing a petition that would place a $.03 tax on short-term Wall Street trading. The petition is short on details, but its description is lengthy enough to see that this is being pitched as a tax against the big bad rich Wall Street bankers:
Air traffic controllers and pre-school teachers are being furloughed or laid off. Mental health programs, scientific research, and unemployment benefits are being slashed — all thanks to the sequester.
Meanwhile, Wall Street speculators just had their best week ever.
Working families should’t be forced to shoulder the burden of economic recovery. Wall Street’s reckless behavior got us in this mess — it’s time they paid to clean it up and started creating real jobs for American workers.
But, couldn’t a well-written short-term trading tax be pitched and welcomed by “conservative” causes as a way to stabilize the stock market and promote sound investment?
The purpose of the stock market is supposed to be for businesses and investors to come together to trade immediate capital for a share of future business growth.
Yet, every year, billions of dollars are sucked out of the stock market by computerized traders who buy and sell large sums of stock literally within seconds. High-frequency-trading (HFT) now accounts for over half of the stocks bought and sold on the market today.
Today’s technology can make trades in less than 48 milliseconds. Many firms by and sell the same stock thousands of times a day.
This is not “investment.” It is gambling at best. And, with today’s technology taking out most of the risk, it could even be considered fraud.
By standard measures of “reward per unit of risk” (aka the “sharp ratio”) high frequency trades are thousands of times safer than regular stock trades. Why? It’s because they are not “investing” in the old “risk-reward” system; they are “taking advantage of” the old system by using technology never envisioned by those that created it.
If we allow high-frequency trading to continue to suck the gains out of the stock market, there will soon be no Wall Street left for real investors.
The best way to conserve the old investment/reward system is to focus on a way to prevent these HFT traders from destroying the purpose of the free market; one that protects the rights and expectations of investors.