By David Brin
Elsewhere I’ve long pushed the idea of a financial transactions fee to rebalance the playing field in securities markets, so they will no longer lean so hard in favor of giant Wall Street brokerage houses, now running a scandalous scam called commission-free High Frequency Trading (HFT). Extremely modest in scale, the transaction fee would not even slightly inconvenience normal traders, like you and me. But it could prevent disastrous bubbles and other calamities.
Indeed, recent months have shown dramatic moves toward this metric of sanity. Eleven Eurozone members, including France and Germany, will use it to discourage speculative trading. Also known as a Tobin tax after the economist who originally came up with it 40 years ago – the fee will charge 0.1% of any trade in shares or bonds, and 0.01% of any financial derivative contract.
Now, following the Europeans’ lead, Senator Tom Harkin of Iowa and Rep. Peter DeFazip of Oregon have introduced a bill to institute a U.S. version of the transaction fee. By raw extrapolation, this zero-point-zero-three-percent (o.03%) fee could raise a whopping deficit-curbing $352 BILLION dollars in ten years, while helping capital markets to settle down, avoid bubbles and computer runaway-meltdowns, while returning to both individuals and regular companies a fighting chance to participate in capital markets on an equal footing.
Question: at three cents for every $100 traded, who among us would notice? Only those who pour billions each year into shaving off microseconds in computerized systems that sense when any of us are about to make a buy or sell order and pounce before we can act. And pounce hundreds or thousands of times per second. These predatory HFT trades now constitute the vast majority of transactions on today’s exchanges. How did that happen?
Only the fact that they are participants in a cartel – “seated members” of exchanges like the the NYSE or NASDAQ — lets them get away with an activity that none of the rest of us could engage in. Even a savvy billionaire would soon be wiped out by commissions if he or she tried to do HFT from outside the cartel — a blatant case of insider manipulation and restraint of fair competition that ought rightfully to be broken up under anti-trust laws. (In this computerized day and age, why not have a hundred times as many “seats” or exchange members competing with each other? Indeed, though it be blasphemy, let me ask: why have “seats” at all?)
Have a look at the vast amounts of data now handled by huge, fantastically well-funded HFT systems (they recently laid their own fiber cable across the Atlantic, to shave a few more milliseconds), making NASA’s space probe data crunching look pale in comparison.
Why you should want – and help – this to happen
A couple of points: First – all right – we would not actually get $320 billion; because the fee would succeed in its goal of reducing volatility. Still, lots of income would come in from those who caused the Near Depression and seem bent on provoking another. At minimum, the new fee would pay all costs of running the SEC and other agencies charged with maintaining transparency and accountability in Wall Street, removing those burdens from the taxpayers. It could also serve as an alternative funding source for the bond rating agencies, like Standard & Poors, freeing them from the present incestuous conflict of interest — rating the bonds of those who pay their wages.
Note that under Harkin’s bill, initial stock offerings – the “best” and most truly useful trades – would be exempt, along with other exceptions, like the first hundred trades you and I make any year, to ensure that HFT speculation will carry the main load.
If you talk to a “quant” — one of the high-IQ dopes who have done the boffin work for High Frequency Trading — you will hear them howl that HFT serves a valuable function toward “efficiently finding correct prices” and eliminating the differential between perceived value of buyers and sellers. They actually believe this promotes market health, despite the sickness that has pervaded the capital markets ever since they took us down this road. Even though it can be proved, under basic thermodynamic and biological principles, that this incantatory premise of theirs is completely insane, a self-hypnosis mantra that’s diametrically opposite to true. (Engines and organisms and markets operate healthfully upon gradients, which HFT happily and eagerly and parasitically eliminate.) They need to go back to math and physics, where nature corrects delusion.
As the author of The Transparent Society, I like the way a Tobin fee would create a continuing open-audit of the giant banks and brokerage houses, a side benefit, letting us all see what they are doing. (Do you trust them, after decades of cheating and outrageously stupid behavior?)
Of course, wearing my other hat as a science fiction author, I have my own “terminator” reasons for wanting to see the Tobin enacted. But you’ll have to follow your curiosity to this older article: A Transaction Fee might save Capital Markets and protect us from the Terminator… in order to find wry/scary amusement in a “far-fetched” danger that could be very real. One that only a sci fi author would think of! (That too is where you’ll find the “thermodynamics” arguments explained.)
Please, despite its dry tech-speak, this reform really, really matters. If you can get up out of Facebook torpor enough to take the effort, write to your congress-critters and news-sites in support of Sen. Harkin and the Tobin Fee proposal!
You should have all the email addresses already on hand and ready for messages like this one, right? If you don’t, pause now to create a little file containing your standard opening and closing, plus the email addresses of both senators, your representative, the president and favorite media. (Check the website: Find Your Representative. ) A little work this time… will empower you to speak up easy and quick, the next time some issue raises your ire.
Or the next time I ask it of you!