Financial Transactions Tax

European leaders have begun to discuss options for moving forward with a process called “enhanced cooperation,” in which nine or more members of the EU agree to work on a proposal together, to bring a trans-European financial transactions tax to fruition.  Vocal supporters for this process include German Chancellor Angela Markel, Austrian Finance Minister Maria Fekter, and leaders in France, Italy, Spain, Greece, and Poland.

Last Friday, I participated in a Special Briefing on Capitol Hill in support of the Financial Transactions Tax (FTT). I came as a seasoned practitioner speaking on behalf of the real economy, not for the interests of the Wall Street trading community.  What I tried to convey was that what the US and World needs is enhanced capital market function, and that an FTT can help bring it through a feedback loop, rather than complex regulation. The $50 billion plus of annual deficit reduction is a bonus. The session was standing room only, a big change from the Washington press briefing I participated in over a year ago. Is change afoot? 

Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation. 

                   - John Maynard Keynes, Speculator and Economist

The mystery of derivatives, the secretive multi-trillion dollar market that few understand but is believed to be at the heart of the financial meltdown needs illumination. Without it, policy makers have no chance of getting much needed regulation right.  The recent NY Times piece, “A Secretive Banking Elite Rules Trading in Derivatives” was unhelpful in this regard.  What follows is intended to be a laymen's and policy maker's guide to derivatives practices and profits.