During the testimony of the bank CEOs in front of the House Financial Services Committee today (2/11/09), Congressman Stephen F. Lynch (D-MA) asked what the bankers thought of a "transaction fee" on purchases of stocks and bonds. Lynch's idea is that because a sizable minority of his district does not own stocks, those people who do own stock should pay for the financial bailout. He mentioned a fee of what sounded like "three hundredths of one percent per share." (We'll have to see what the transcript says.) It looks as though the idea I wrote about earlier is gaining ground, unfortunately.
That earlier proposal, by the liberal think tank Center for Economic and Policy Research, called for a fee of 0.25% on every financial transaction. I hope the congressman is thinking of 0.03% (that's what it sounded like he said) rather than 0.3%. We can live with a 0.03% fee, but most day traders will be out of business with a 0.3% fee. That in turn will lead to higher costs for everyone, as well as more job losses for the reasons mentioned here.
Most of the bankers sheepishly answered that "it's a good idea" (e.g. Ken Lewis) or "I don't know" (Vikram Pandit). Only one, John Mack (I think) of Morgan Stanley (MS) said that it would be a good idea if it didn't drive volume away from American markets.
Some sort of fee will ultimately be imposed. I hope it's closer to 0.03% than 0.3%, but with our current congress I wouldn't be much surprised with a fee of 1%.
2 comments:
How 'bout those people (making more than, say $200k) who work for one of those financial institutions that took bailout funds pay for the bailout?
I could possibly understand a very small fee when you sell a stock (I think there already is one?) but there definitely should NOT be any fee involved to buy. After all, isn't the market better off when more people want to buy than people who want to sell? And perhaps there should be no fee if you've held the stock for a certain period of time (maybe at least one year).
Personally, I don't care if Day Traders get eaten alive by fees. They don't actually produce anything for society - they just sit in front of a computer and buy/sell stocks all day long. Buying stocks should be an investment, where you put thought into it, not necessarily to make a quick buck (though there can be a time for that), but to invest in a company for the long run.
Anyway, that's my opinion.
Your sentiment toward day traders is understandable. I just think they do produce something of value -- more liquidity and less costs in the system, jobs for brokers and accountants, etc. Other than that, you're right, they're not really making anything.
As for the banks receiving bailouts, I think the customers should be saved and the institutions should be allowed to fail. The USA has a history of socializing losses, which is why we're always finding ourselves in such situations. The fools are those who play by the rules.
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