HOW TO AVOID ANOTHER MARKET CRASH

By Douglas Cliggott / Forbes - 9/03/2015 9:53am

A tax on Wall Street traders would tame risky bets on the stock market without disrupting America’s economy.


Until now, Wall Street lobby groups have been able to largely ignore any calls for taxing the financial services industry.

Eleven European governments say they’re going to implement a coordinated tax on stock market transactions, but progress has been slow and U.S. policymakers have been much more cautious.

Now, with Bernie Sanders, a major proponent of such taxes, surging in the polls and market volatility rattling investors, the momentum behind this idea is likely to build—as will the backlash.

What we’re talking about here is a small tax, at a fraction of 1%, on each trade of stocks, bonds and derivatives. Opponents argue this would reduce “market liquidity.” Our ability to buy or sell securities at their so-called “equilibrium value” would be limited. And this, in turn, would translate into poorer resource allocation in the economy, and weaker economic growth.

These fears are misplaced.

In a “bull market” there is plenty of liquidity – it is easy to buy and sell a lot of stock when folks are optimistic and prices are rising. But in a “crisis,” it becomes very difficult to trade. The observed changes in “liquidity conditions” in these two types of market environments have nothing to do with transactions costs and everything to do with the fear of losing money when prices are falling....

Full editorial:
http://www.robinhoodtax.org/news/breaking-news/how-avoid-another-market-crash-0