Europeans Ponder Financial Transactions Tax

I analyzed this very stiff tax several years ago. This tax makes trading harder, so it destroys market liquidity. Prices wander further from fundamental values and are more influenced by noise. Everyone has to pay for the “privilege” merely of making an exchange. The money just goes down the usual government rat holes. Taxing the purchases and sales of securities will drive prices down. Why? Because large amounts of risky securities are held or carried only for short periods due to their risk. In this way the risk is spread. This tax seriously hampers risk-sharing. Speculators would demand higher risk premiums if this tax is enacted. That means lower prices. Politicians routinely destroy wealth. This is an example.

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