Higher Trading Fees Coming?

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%.

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