Verret in Investor's Business Daily: Liquidity Prerequisite for Recovery
Professor J.W. Verret believes a proposed tax on all securities transactions to pay for bailout of Wall Street could have a much more detrimental effect on trading than has been suggested.
A bill introduced by a House member and currently stuck in committee proposes a tax on securities transfers, including stocks, options, and futures, for the purpose of funding the $700 billion Troubled Assets Relief Fund. A similar tax existed during the Great Depression.
In comments appearing in Investor's Business Daily, Verret noted that even during a recession, hedge funds account for approximately half of all trading activity, operating on tiny margins per trade and relying on volume and leverage for returns. The imposition of a suggested 0.25% trading tax could have the unintended effect of causing institutional funds to shift trading overseas.
"So I think that it will have a much more significant impact on trading than people are suggesting," said Verret. "And pulling down trading during a recession is the last thing you want to do. Liquidity is a prerequisite for recovery."
Bill Would Tax Trades of Securities, Investor's Business Daily, March 3, 2009. By Sean Higgins.
" Rep. Pete DeFazio, D-Ore., introduced the 'Let Wall Street Pay for Wall Street's Bailout Act of 2009' last month. It would tax securities transfers, including stocks, options and futures. It does not specifically set a tax rate, calling on the Treasury secretary to do that. But it suggests 0.25% would do.
"The bill has seven co-sponsors, all Democrats. DeFazio's office didn't respond to requests for comment.
"On the House floor in February, DeFazio cited 'obscene executive compensation' as TARP's problem.
"DeFazio, who opposed the original TARP legislation, cited a precedent for the tax: one existed during the Great Depression.
"'A modest imposition of a transfer tax -- something we had from 1917, it was doubled during the Great Depression and only expired in the sixties -- a transfer tax of up to one-quarter of 1%, something the British have on the London Exchange, would raise about $150 billion a year,' DeFazio said.
"There seems to be little interest in Congress. The bill hasn't moved since going to the House Ways and Means Committee. 'Nothing is currently scheduled,' said panel spokesman Matthew Beck.
"'I doubt it is going anywhere,' said a GOP staffer."