The European Commission formally proposed a financial transaction tax across the European Union today. Pundits are calling this "The Robin Hood Tax." It levies a fee as small as 0.01 percent on every transaction made in the EU between financial institutions. The financial instruments that will be subject to the tax range from stocks and bonds to derivatives.
The fee sounds small, but the number of transactions is enormous, and the tax could raise tens of billions of dollars each year.
Karen Shaw Petrou is an economist at Federal Financial Analytics. She says Brussels voted for this tax not just to raise money without going to the average taxpayer, but also out of vengeance. The EU is effectively saying the banks behaved badly by engaging in risky transactions, and need to pay, she says.
EC President Jose Manuel Barroso noted EU member states have committed trillions of Euros in government guarantees to shore up the financial industry and asserted that the financial industry needs to pay some of this money back.
Petrou compares the Robin Hood Tax to the Obama Administration's proposed Financial Crisis Responsibility Fee, which targets only the biggest banks. The EC proposal unleashes a wider net that traps pension funds, mutual funds and other institutions that would argue they didn't get a bailout.
U.S. banks and institutions will be affected, Petrou says, noting any trades that U.S. financial institutions do in the EU will be taxed. She said unless the tax is adopted by every country in the world, it could drive business from the EU to other countries. Tax havens such as the Cayman Islands could benefit, but the U.S. could also see some business come its way, too.
The notion that financial companies could favor New York over London as a place to trade has turned Britain into a strong opponent of the tax, which it sees as a Continental assault on the City of London's primacy as a financial center.
In the U.S., unions are strongly in favor of the transaction tax, and Petrou notes the AFL-CIO has called for the imposition of the tax right across the G-20 nations. U.S. financial institutions are utterly opposed to any kind of trading fee, however, and so far the government hasn't even suggested adopting the European tax.
Also on the show today, a new study from the University of St Gallen in Switzerland, Der Spiegel reports that traders are even more psycho than the average psycho! Researchers ran tests on 28 traders, and found that stockbrokers' behavior is more reckless and manipulative than that of psychopaths. That news, coming as it does in the midst of a mild financial crisis, nearly halted the Marketplace Daily Pulse altogether today and had us calling for a crash cart.