Surely, You Jest?

High-frequency traders account for between 60% and 80% of the couple billion trades on the NY Stock Exchange every day. They are also deep into commodities and other markets. Using computers and sophisticated algorithms these modern-day “Highwaymen” ride the capital market highways and byways, ducking in and out in nanoseconds to pick up a couple pennies here and there.

And they gallop alongside large institutional block-traders pushing the price up on the block, cashing in when it executes. The “Highwaymen” are long gone with their profits when the pricing drops. The institutional trader (read- Grandma & Grandpa’s pension fund) is left holding an over-priced stock paid for with the hard earned savings of their pensioners. While it isn’t always the old folks who suffer, at the end of the day the high-frequency traders, day-traders, and other bottom feeders have pumped up the prices paid by regular investors-- the “losers,” as those who game the market call them.

None of this has anything to do with the stated purpose of the markets, putting  funds into the hands of business, funds to create jobs. The high-frequency folks, however, are emerging into the daylight. They showed up first on “K” Street doling out hundreds of thousands of dollars to candidates and lobbyists. Well north of a million and a quarter last year according to published reports. Big bucks, but well within their means, given the six billion they are reported to have skimmed off the markets last year.

The high-frequency folks have also laid claim to a positive impact on the market. They feel they’ve made it more competitive and lowered trading fees. They have to be joking. Experts argue that by using their speed to duck in and out of the market, they have taken the edge off competition and destabilized the market. And it seems much more likely that trading fees have been driven down by online trading and the brokerage houses featuring low fees.

None of the fun-and-games trading schemes that have emerged since the markets were opened up to pure gambling plays have anything to do with providing the capital American business needs to create jobs. Laws exempting traders from gambling laws and allowing banks to wander out of their traditional role created this mess, and triggered the economic collapse we are still staggering from.

Restoring sanity to this sector is no big secret. Repeal the gambling exemptions, and set up tax rules that will encourage capital development. Start with a 95% tax on gains from investments held less than a day, 80% on those held less than a week, 60% on those held less than a month, and so on until those held more than a decade are tax free. Let’s take our capital markets out of the hands of the Highwaymen and their ilk and return it to “Investors” and the companies they own. Let’s focus on what’s best for our people in the long term, not the next quarter. Let’s put the market to work providing capital for our economy and jobs for our people.