As a former hedge fund manager who supports a Financial Transaction Tax (FTT), I realize I am somewhat uncommon.
For the record, I’m not particularly keen on taxes.
Like most self-respecting capitalists, I just want to be left alone to get on with my business and keep as much of the money I earn as I can.
But I do think the FTT is a good idea.
Designed well, it will play an important role in stopping the kind of financial activity that has zero benefit to society and exposes us all to significant risks.
In their opposition to a European FTT – the final decision on which is expected at a meeting of EU Finance Ministers later this week – my colleagues in the finance industry raise two main objections: firstly, that it will reduce liquidity; and, secondly, that it will hit pensions.
Well, they would, wouldn’t they?
I often talk about “playing the liquidity card.” It’s meant to be the Ace of trumps, a debate-killer.
But that’s just not the case.
High-frequency trading
The type of financial transactions the FTT is designed to curtail – computer driven, high-frequency trading that sees shares change hands in a fraction of a second – does little for market liquidity.
Sure, they give the illusion that there is a lot of money swilling around the system, but the moment the market goes off message with something the algorithms haven’t seen before, you can bet that their plugs get pulled for “further research”, and liquidity dries up.
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