The buying and selling of investments has always been dominated by two different activities with opposing motivations.
One activity is the need and desire to save, save for the future, save for rainy days and save for your children. These are normal human desires which have always been in humanity’s DNA, from the times when farmers saved grain and when hunters preserved meat. When abundance comes is the time to put some of the abundance aside, because hard times will inevitably follow.
The second activity of buying and selling investments is a desire to speculate, a desire to gamble. It is very odd that governments allow people who wish to save play in the same market as people who wish to gamble.
Of course, greed is present in both types of activities and a pensioner desiring to gain a better return on his or her investments may be foolish enough to be tempted into more speculative investments by greed, ignoring the risks and complaining when the chickens come home to roost in someone else’s barn. The fact that a saver may be so tempted is made more likely by the fact that the saver can see that many profit from the market, but not him (or her) and therefore the saver gets a mindset of following the speculator, which is just what the speculator wants.
The first type of activity desires a steady, market, which moves slowly in tiny increments. That way the savings are best preserved (the first duty of savers) and the risks of growth are reduced. The second type of activity desires large movements in the markets, the larger and the quicker the better, so that speculators can make bets which can leverage markets into positions that are false but which offer the speculator the best chance of gain, usually at the expense of the saver.
Since markets were liberalised (some would say virtually deregulated) in 1988 the market swings have got larger and more violent and the speculators have been able to thus take money from the savers. It is odd where governments whose prime duty is to protect their citizens allow devices which can slowly and surely remove the savings of most of the citizens and place the savings into the pockets of the wealthy speculators.
I can often identify a problem but less frequently can propose a solution. There are many guises in which this problem appears – derivative instruments, future contracts which in a few hours set the price for food or a commodity which takes a year to produce, artificial trades in currencies which aggregate each day more than a hundred times the value of that currency and high frequency trading in which price variations in microseconds are exploited. All these things exist because it is in the interest of the speculators (who tend to be those who have wealth) not because the savers can get any benefit from such devices.
My solution is taxation; profits from short term investments should be taxed and highly taxed. In the United Kingdom most capital gains tax paid is no more than a tax on savings and wealth. It is time to change this.
Filed under: climate change | Tagged: capital gains tax, derivatives, high frequency trading, investments, investors, savers, saving, savings, speculation, speculative investments, speculators, taxatin |