The Ed Show | January 23, 2013
>>> and in the big finish tonight, every time you buy your morning coffee or fill up your gas tank , you're paying a transaction fee. every time you buy a new car or a new house or close on that, you're also paying a transaction fee. when big banks and investment companies use computers to make automated high speed trades or shady derivatives or false swaps, they get off scot-free, don't pay anything. last night 11 members of the european union voted to level the playing field by putting a transaction tax on their markets. that's right. bbc reports the tax is expected to be charged at a rate of 0.1% of the value of any trade in shares or bonds, and 0.01% of any financial derivative contract. now the 11 european countries feel this tax will discourage risky trading and add billions of dollars to the struggling economies. senator tom harkin of iowa and congressman peter defazio of oregon have been trying to get a similar transaction tax passed in america for years. the proposal would put 3 cent tax on every $100 of stock bonds tax derivatives, saying it would generate $352 billion in ten years. not chump change . think about it for a second. here is 520s. there is $100. visualize this. there is $100. every time there is 100, there is three cents. i better get my piggy bank out here. just like that. that's it. that's it. one hundred, three cents, there you have it. what could we do with $352 billion? do you think maybe we could pay for at least one of the wars? or do you think maybe we could insure maybe another 30 million people? do the path. that would pay for about half of obama care. that would really make the righties happy. think about it. why is it number one, wall street doesn't get prosecuted. number two, they get off scot-free on these transactions. this is an easy thing, and nobody is going to feel it. everything is going to be fine. joining me tonight, david cay johnston , pulitzer prize winning journalist and author of "the fine print ." david cay, grit to have you with us.
>> good to be here.
>> explain what a high speed trade is for those that are in the fast lane .
>> almost all the trading done today is done with computers that spot prices, changes in the market and execute trades. 2.9 billion trades a day just on the new york stock exchange . there were 40 million a day roughly 30 years ago.
>> what would we do with $352 billion over ten years?
>> well, let's see, if you're worried about the deficit, you know, the republicans keep worrying about that. it would help bring it down. it would help us finance, as you pointed out, the affordable care act . there are a lot of things we could do with it that would benefit society in the ways that the high speed trades do not.
>> a study by the cftc shows the average aggressive high-speed trader made a daily profit of 45,267 in a month in 2010 . that's some serious coin. how would this tax hurt them?
>> well, the trading that they're talking about is speculation. we have a wall street market to marshall capital and make for efficient use of that capital to invest in factories and research and create jobs. but the investors who do that are being pushed out and made irrelevant by the speculators using borrowed money who account for almost all the trades. 10 what would happen is speculators like that would see their costs go up a little bit. they would be less likely to trade. we would have a more efficient market and fewer distortions for people who are investors rather than speculators.
>> do you think it would discourage the risky trading? because this is what they're saying in the european union , that this is one of the reasons why they passed it.
>> you know, there is an old saying. if you tax something, you'll get less of it. that is exactly what this is designed to do. it is intended to discourage these high-speed speculative trades that are distorting the markets, making the markets less economically efficient . wall street will come back and say there are studies showing this will make the market worse. those studies are based on more than 20 years ago before we had the high speed computer trades.
>> is there any downside to a tax?
>> yeah, if you're a hedge fund manager or one of the high-speed traders, you're going to have to pay some tax and it's going to discourage you from making bets that distort the market. for the rest of us, i don't see a downside, ed.
>> how would we make a determination? because you know they would come back and say oh, this is really going to hurt the economy. how would this hurt the economy?
>> i don't see how discouraging speculation, which is almost all done with borrowed money. they effectively borrow money at a rate of 30 to 1. you put 3% down and borrow the rest of the money. i don't see how this hurts the economy. and if we reduce this volatility and reduce market distortion , we can get back to having a market focused on investments that create production in the future and wealth in the future, not creaming the market today through speculation.
>> quickly, you think this is something congress could embrace?
>> not probably in this congress in the house, but i think this is an idea. it's been around for 80 years. we may well see come about, ed, and hopefully we. we need speculators, but we don't want them to be overwhelming the market.
>> all right, david cay johnston , thank you for your time on the "ed show." that is "the ed show." i'm