Let’s Do It This Time

From 1986-2013, I was on a trading floor.  From the late 1980’s when I first got my membership until I left I was a member of CME’s political arm.  It went by various names.  The “job” wasn’t anything underhanded.  It was all volunteer.  Frankly, you donated money to the PAC and raised money for the PAC from members on the floor.  We also would talk to Congresspeople when they came to CME and interact with their staff.  Once a year, we’d go to Washington and have a party.  It was always well attended.

Our PAC donated 50/50 to both parties.  I had to talk to Chuck Schumer, and Lindsay Graham and make the same points.

Virtually every year in the budget there was a provision to tax trading.  It was called a transaction tax.  I have blogged about it several times before but it is one of the stupidest tax ideas ever (here and here and here).  It’s also super easy to avoid and if implemented in the US across the country, you’d see the entire financial infrastructure of the US go somewhere else.  Combine that with less liquid markets, hurting smaller traders, and ultimately hurting regular working class people that rely on the stock market to generate a return for their pension makes it even a dumber idea.  If any legislator can’t understand that they shouldn’t be in office.

On Mar 4, Socialists Pete DeFazio and Rep. Alexandria Ocasio-Cortez introduced it in DC.

Yesterday, they introduced it into the Illinois legislature.  Here is a link to the official document.

Creates the Financial Transaction Tax Act. Beginning January 1, 2020, imposes a tax on the privilege of engaging in a financial transaction on any of the following exchanges or boards of trade: the Chicago Stock Exchange; the Chicago Mercantile Exchange; the Chicago Board of Trade; or the Chicago Board Options Exchange. Provides that the tax is imposed at a rate of $1 per transaction for all transactions for which the underlying asset is an agricultural product, a financial instruments contract, or an options contract. Provides that transactions executed via open outcry that are physically filled on the exchange floor are exempt from the tax. Provides that the term “financial transaction” means a transaction involving the purchase or sale of a stock contract, futures contract, swap contract, credit default swap contract, or options contract, but does not include a transaction involving securities held in a retirement account or a transaction involving a mutual fund. Effective January 1, 2020.

Mary Flowers and Greg Harris introduced it.

I have been called by a couple of reporters to comment on it.  The legislation is so stupid that if a reporter cannot critically think about it and call it what it is, I have trouble engaging with them.  But, most of today’s reporters cannot critically think.  They haven’t been trained that way.  Or should I say programmed by their journalism schools.

It’s important to note that Chicago was a grease spot on the prairie until 1848 when the CBOT started.  Without it, St. Louis is probably the hub of the Midwest.  Chicago owes its entire existence to the formation of the Board of Trade and the subsequent financial innovation that occurred here since.

The tax also being bandied about as a solution to the public pension problem by the city of Chicago.  The Chicago Teacher’s Union wants it.  Idiots.  They are stabbing themselves in the foot when it comes to return on equity in their own pensions.

However, I am through fighting for it.  I really think they ought to fast track this bill, vote on it and put it on the Governor’s desk.  I am sure it will work this time. The city of Chicago should tack on their own tax.  We know that socking it to the rich is the way to go.

The beauty of this tax is that it only affects traders, right?  If you don’t trade, you don’t pay right?  Except you do since liquidity will be affected and everyone will get a more adverse price.

You have heard about Chicago’s “diverse economy”.  Chicago’s economy at its core is powered by the city’s exchanges.  There are so many ancillary jobs from lawyers and accountants down to barbers and cooks that owe their livelihood to Chicago being a center for risk management and finance.  Chicago’s economy implodes without it.  Chicago’s cultural institutions will implode without it.

If there is one thing a trader knows how to do it’s hit a bid.  Wait until you see what happens with home and apartment values with a transaction tax.

Passing it will cause Chicago to become Detroit within one year.  Let’s get it over with.  Exchanges and HFT firms can move quickly. It’s just the flick of a switch.   The champagne socialists and limousine liberals that are running the city and state might learn their lesson finally with that data point.  Of course, I am sure when all the exchanges, all the high frequency trading firms, all the financial management industry, all the hedge funds and venture capital funds leave it will be because of the weather.