First Affirmative recently joined others in the financial sector to issue a public letter urging the U.S. Congress to mandate a financial transaction tax. Many countries have successfully instituted a transaction tax, and European leaders in Germany, Italy, France and Spain recently announced their support.
It’s easy to understand why governments support this tax, as they stand to gain much needed revenues. But why would First Affirmative, an investment management firm that makes financial transactions daily, support a tax that would apply to every stock purchase and sale we make for clients? Simply put, this tax is a small price to pay for more stable financial markets.
Financial markets play a valuable role in the global economy—allowing participants to raise investment capital, allocate this capital efficiently and mitigate risk. Recently, however, financial markets have become more volatile, in part because most transactions are motivated short-term speculation.
The value of financial transactions is now 70 times greater than the size of the real global economy. Much of the daily purchases and sales on stock exchanges is computer driven, high-frequency trading, where stocks may be held for a second… or even less.
Former Goldman Sachs vice president, Wallace Turbeville, points out that “These trades are not designed to help businesses and governments raise money from pension funds, endowments or other sources of capital that could fund new useful, productive projects. They are designed merely to generate profits from the process of the capital market.”
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Posted: July 19, 2012