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Tue Dec 22, 2015, 02:25 PM

Why Bernie's transaction tax to fund free education for our kids is a GOOD idea.


WARNING: We'll be getting a bit wonky here...and if you're a big stocks & bonds person forgive me for being basic.

Here's the real deal about the transaction tax:

Since the deregulation of Wall Street, investment houses, banks and insurance companies can now all 'play' the market, meaning they can speculate using other people's money on things like derivative bundles, which are very risky. So, there are two things about this tax that actually are a good idea:

First, think of all the people you might listen to for investment advice. They will generally tell you to 'buy and hold' but the real money is made once schmucks like us lay down their money and buy shares. Because the big house holding our shares for us can make money from trading them every day and we'll never know the difference.

OK, now that we've established that, how do they do it? Well, the big houses all have 'bots. These 'bots are basically computer programs that buy and sell securities (stocks) and commodity futures so the investment house can realize an incremental profit from arbitrage. Let me explain. The New York Stock Exchange (NYSE) for instance, is located on - you guessed it - Wall Street. The big houses have 'seats' on this exchange (and others). So each big house sends traders to the floor of the exchange and they basically yell at each other all day making trades. Seriously. I've seen this on video and it looks like the most hellish job that ever was...utterly without any existential meaning...

Anyway, for each transaction there is an 'ask' price and a 'sell' price. Usually they are very close, in the tenths of a penny difference. But when shares in a company are moving down or up, there's a real opportunity, if they do it really fast, to make a narrow profit on the difference between 'ask' and 'sell' prices. This is called arbitrage. For instance if a company bought 100,000 shares of X at $10.00 a minute ago, but now the 'sell' price is $10.01, the 'bot will signal a 'sell' order and in nanoseconds the trade will be complete - 100,000 shares of X bought a minute ago at $10, and sold just now at $10.01 per share for an arbitrage profit on that one trade of $1,000.

Thousands of these transactions take place per minute, and as I say, schmucks like us don't have any clue. All we did was buy the stocks, and then years later when we sell them we will have to pay a 'capital gain' tax on the difference in what we paid way back when (the basis) and what we sold it for. But all this time the company where we have our trading account has made thousands of dollars in profit trading up and down the whole time. In fact, the 'volume' (total number of trades) on the exchange is inflated because of these 'bots, and the market (value of stocks) can actually be artificially changed by all these trades. So, instead of the market moving on the value the companies behind the stocks re actually creating, it moves based on a bunch of greedy traders trying to suck the uttermost drop of blood.

Scummy, right? I mean, there's just something that feels dirty about that - almost like a sucker eating scum from the bottom of a pond just to eke out that final few pennies of profit.

Bernie's tax wouldn't affect that this happens - we'd just be collecting a tiny tax on each transaction. This is the money he wants to use to pay for free college at state schools to the bachelor's level. Great for our kids and only a microscopic reduction in profit for companies that are already like giant bloated mosquitoes that are ready to explode from sucking too much blood.

OK....now here's the second reason, the one that actually affects pension funds:

Second, as if the above isn't enough, the big exchanges gamble even MORE aggressively with our money without us ever knowing. Their method of choice is the derivative bundle. Basically, a derivative is a 'contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often called the "underlying."'

So, how does this egregious scum sucking look on the ground? Let's take the example above. Because hey, $1,000 every few seconds isn't anything right? Just chump change for these greed heads. What if the quantitative analysts for the big trading house decide stock for company X is a winner long term.

They can make money off this two ways:

1. They can bundle it as a derivative package with other 'winners' and sell it to other investors at a price that takes into account the estimated 'win' amount. So the investors put up money that belongs to other people, usually, and buy this bet that these stocks as a group are all going to go up Z amount. Since they bought it for Z-Y, they stand to make Y profit on the bundle. And, if the stock does BETTER than Z then they will make even more. Now the funny thing about derivatives is that that's all they are, just bets. You aren't buying anything really, you're just putting money into a big slot machine.

Because if the stock doesn't go up enough to cover your cost, then the derivative owner is upside down. This is what happened to Lehman Brothers in 2008, basically.

So how does this affect pensions? Well the company that holds your pension may have 'enjoyed' this nice deregulation, so now they can REALLY gamble...with your money. Now, and here's the nuance...it would be OK if they sold derivatives to other investors based on what they think will happen with YOUR money because that way you wouldn't lose your money even of those bets went bad.

But.......................oh SHIT!

What if the company that holds your pension mortgages the value of the pension and uses your money to buy derivatives from someone else???

Oh, oh.

And then, what if those bets go south? Well, that company has to use other assets to cover the value of your pension, and if they can't then YOU lose YOUR money. Bernie's tax on these transactions MIGHT prevent the big houses that make these arbitrage trades every nanosecond from moving the market artificially quite so much. And it certainly would stop most of this kind of arbitrage trading with bundled derivatives.

See, this is why Bernie is so RIGHT. He wants to reinstate Glass-Steagall, which basically says, hey, if you're a commercial bank then you can only do X. If you're an investment bank then you can only do Y. If you are an insurance company, you can only do Z. This is why Wall Street is so fucked up and immoral...well, one reason.

The other reason is the Fed. See, people think the Fed is 'quasi' governmental. Bullshit. The Fed is primarily owned by two big banks: JP Morgan Chase and Citibank. So this national debt? It's money we owe to ourselves. So why are we paying interest on that money to Wall Street?

What pisses me off, just burns me is that NONE of these slimeballs like Jamie Diamon have gone to trial let alone jail for their fucked up betting that ruined so many lives.

Last, cause this was a long post, let me say that if you are a working American, you should be for Bernie, period, because our interests have NOTHING, NOTHING, NOTHING in common with those of the greed heads on Wall Street.

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Arrow 13 replies Author Time Post
Reply Why Bernie's transaction tax to fund free education for our kids is a GOOD idea. (Original post)
PatrickforO Dec 2015 OP
mattvermont Dec 2015 #1
upaloopa Dec 2015 #2
PatrickforO Dec 2015 #3
JonLeibowitz Dec 2015 #5
PatrickforO Dec 2015 #6
JonLeibowitz Dec 2015 #8
F4lconF16 Dec 2015 #7
PatrickforO Dec 2015 #10
F4lconF16 Dec 2015 #12
bbgrunt Dec 2015 #11
Uncle Joe Dec 2015 #4
BlueCheese Dec 2015 #9
hill2016 Dec 2015 #13

Response to PatrickforO (Original post)

Tue Dec 22, 2015, 02:35 PM

1. very informative

thank you. Most people have no idea about this.

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Response to PatrickforO (Original post)

Tue Dec 22, 2015, 02:35 PM

2. So if I'm a college age kid and I don't know

what to do with myself, why not take Bernie up on his free education. Maybe to UC Santa Barbara. Nice to be close to the beach. Bitchin Holoween party in Isla Vista each year.

Hell I can string this out for four or five years. No grade requirement. I don't have to work or put any skin in the game.

Good deal

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Response to upaloopa (Reply #2)

Tue Dec 22, 2015, 02:43 PM

3. I think you might be making some assumptions of things that would be taken care of

by staffers who write these things.

I mean, how do you even KNOW that a kid could go out of state? What makes you think that you wouldn't be confined to your own state's schools and maybe just get a subsidy if you want to be on the 'beach' as you say?

Not only that but how is it you assume that there wouldn't be a grade requirement?

C'mon.

Not only that, but you're using the same tired old 'something for nothing' trope the Republicans have used so successfully for so long, but I'm gonna call you on it. Because right now we don't have enough kids getting degrees to replace the degreed baby boomers that are leaving the labor force. I've calculated this deficit at over 300,000 per year and it's causing small employers at the local level to lose out on business because they don't have the skilled people to do the work. (Small employers - the ones that can't afford H1B workers @ $5-7K a pop).

So Bernie's idea isn't just a giveaway to our children and grandchildren who CLEARLY don't deserve it - hell they need to pull themselves up by their bootstraps! It would actually help businesses.

As would single payer healthcare.

But you won't ever admit that, I think...

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Response to PatrickforO (Reply #3)

Tue Dec 22, 2015, 02:48 PM

5. You are correct. I would also mention that only tuition is free under Bernie's plan

That is, the actual cost of registering for and taking classes.

As for housing, well, that's unresolved. So it would seem students are encouraged to live spendthrift (edit: not spendthrift, thrifty) lives while in school studying.

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Response to JonLeibowitz (Reply #5)

Tue Dec 22, 2015, 02:54 PM

6. Thrifty, you mean. You bet. I have no sympathy for someone not willing to work hard.

These kids can work while they are in school to defray living expenses. Absolutely. I had to work.

But they won't get out of school in huge debt if they are smart and willing to work hard. Especially if minimum is $15.

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Response to PatrickforO (Reply #6)

Tue Dec 22, 2015, 02:56 PM

8. Oops! Yes, thrifty. I'll edit.

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Response to upaloopa (Reply #2)

Tue Dec 22, 2015, 02:55 PM

7. I'm one of those kids.

Way to think real highly of those of us who work our butts off 40+ hours a week to survive and can't afford even the cheapest of cheap schools.

Oh yeah, I forgot, I'm a liar. Actually all of us college aged millenials are just lazy takers who want a free ride.

Fuck this rightwing bullshit. I don't know why i'm on this site anymore.

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Response to F4lconF16 (Reply #7)

Tue Dec 22, 2015, 03:00 PM

10. IMPORTANT: No I have huge respect for Millennials. I work with many of you and you are

bright, socially and environmentally conscious kids who want to make a difference with their lives.

BUT...........IMPORTANT............

'You're an ass' is an ad hominem attack. I know you might think it bullshit, but I respectfully suggest you edit out the ad hominem attack and attack instead what upaloopa said. Otherwise you'll get hidden by jury.

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Response to PatrickforO (Reply #10)

Tue Dec 22, 2015, 03:34 PM

12. Yeah, I shouldn't dirty up your thread.

My apologies. Edited.

Not too worried about hides right now haha. I'm rapidly losing patience with this site. It's no wonder the Dem Party has almost entirely lost the millenials I know. The back and forth here is nuts, and utterly pointless. The fact that people even think stuff like this and then scream at you for not wanting to be loyal to the party is just offputting. Sanders is pulling them not to the party, but to an idea, and I think people here would do well to recognize that.

But you know that. Thanks for the correction.

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Response to upaloopa (Reply #2)

Tue Dec 22, 2015, 03:02 PM

11. first of all, students will have to be admitted to an institution in order to attend.

It is also true that they can flunk out if they don't meet requirements. If UC-SB is in such demand, they will be very selective in their admissions policy and their standards will rise with the increasing demand for admissions.

This policy will help redirect higher education into teaching rigorous courses aimed at actually educating students rather than having them scraping the bottom of the barrel to fill their quotas to make their institution "profitable" in the market sense.

Freshman students might be tempted to slack off but they won't last long under such a system.

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Response to PatrickforO (Original post)

Tue Dec 22, 2015, 02:45 PM

4. That's a great OP.

Thanks for the thread, PatrickforO.

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Response to PatrickforO (Original post)

Tue Dec 22, 2015, 02:56 PM

9. Thank you for a positive and detailed post.

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Response to PatrickforO (Original post)

Tue Dec 22, 2015, 04:03 PM

13. there are so many things factually wrong with what you wrote

 

for starters, exchanges don't have a prop account to trade securities.


when you mean "houses" are you referring to prime brokers, custodians, brokerages, or investment banks?

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