All Things in Moderation

Morning Report – Toll Brothers Earnings 12/04/12

13 Responses

1. 

   Mike, on December 4, 2012 at 9:22 am said:

   Fannie and Freddie are apparently having a foreclosure eviction moratorium for the holidays.

   Fannie Mae and Freddie Mac said on Monday they would provide a break for borrowers facing foreclosure to ensure those having problems making monthly mortgage payments will remain in their homes during the holidays.

   Fannie Mae said its eviction moratorium would apply to single-family homes and two- to four-unit properties from December 19 through January 2, 2013. Freddie Mac said it would offer the suspension from December 17 through January 2, 2013.

   The aid allows families to avoid eviction during that time, but doesn’t mean the foreclosure process will be put on hold.

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2. 

   yellojkt, on December 4, 2012 at 1:19 pm said:

   January 3rd the homeless shelters will be overflowing. What about Greek-Americans who don’t celebrate until the Epiphany?

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3. 

   lmsinca, on December 4, 2012 at 6:30 pm said:

   I’m seriously thinking a financial transaction tax would be the best way to go as far as raising revenue enough to make a difference.

   Here is the idea: A tax of less than half a percent on every $100 of stock sales or sales of other financial instruments including bonds, derivatives, and options. The tax could raise anywhere from $170 billion to $350 billion per year depending how it was applied. Extend that over 10 years, and we are raising almost what the White House and Republicans agree needs to be raised in order to accomplish the objectives of a grand bargain.

   But there is an added benefit here: Trading in the equity and debt markets has gone wild over the past few years. High-speed trading and speculation have overtaken the economically legitimate reasons for our desire to have highly liquid markets: the capacity to raise capital and then allocate it efficiently among sectors and companies. The trading that has emerged over the past few years is not serving that purpose—it is a casino enterprise driven by hidden pools and computer algorithms that do not seek to hold capital for longer than an instant.

   To the extent that a financial-transfer tax drove some of those trading practices out of the marketplace, that would be another good outcome.

   http://www.alternet.org/economy/eliot-spitzer-tax-traders-it-would-solve-economic-crisis-and-stop-reckless-activity

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4. 

   Brent Nyitray, on December 4, 2012 at 7:16 pm said:

   Spitzer and Nader (who discussed it in the WaPo) haven’t really thought this through.

   First of all, if you apply this to all bond, derivative, and options, you will get some major unintended consequences – for starters, it would add over a percentage point to the interest rate of every newly originated mortgage. If you are going to charge me 50 basis points to securitize and sell a mortgage backed security to a bank, and then charge the bank another 50 basis points to buy it from me, that 1% is going to get folded into the loan. Even more if I have to hedge the interest rate risk during the pendency of the loan application – I am going to pass that along to the borrower.

   Second, the 10-year Treasury only pays 1.6% interest to begin with. A round trip transaction in the 10 year would equate to roughly 8 months of interest. Rates would go up to reflect the increased transaction costs.

   Margins are paper thin in foreign exchange transactions. A 1% round trip tax would drive virtually all FX activity in the US to London, where the Brits would be very appreciative. Virtually no one would pay this tax – every company would set up an offshore sub, and slowly drain cash out of the US sub and deposit wealth overseas. Of course this has been the unintended consequences of our world-beating high corporate tax rates – companies minimize their revenue and maximize their expenses in the US and do the reverse overseas. In other words, because we have such a high corporate tax rate, we end up subsidizing foreign governments. It puzzles me that so many on the Left cannot see that.

   FWIW, The United Kingdom has a 50 basis point stamp tax on the buy-side of all stock transactions. Well guess what? Very few people pay it. Professional investors trade UK stocks through certificates of differences, not through the underlying stock. Retail investors use betting services like City Index or Sporting Index to trade stocks. If we instituted such a tax here, US corporations would list their stocks on more market-friendly exchanges (say Canada, or Europe).

   People like Nader and Spitzer believe speculation has no place in a market, and that just is not true. I have no love for high frequency trading, and if that disappeared, I would not shed a tear. But don’t forget – speculators provide liquidity. Speculators take the other side when no one else will. Because of speculators, you are able to have a bid/ask spread lower than a penny.

   If you changed the tax from 50 basis points to something like 5 basis points, then it probably wouldn’t change behavior. But 50 would have all sorts of unintended consequences.

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   • 

     yellojkt, on December 5, 2012 at 7:28 am said:

     Like you said, a 1% round trip tax (0.5% on each transaction) would be an enormous brake. The key is to get it low enough to discourage day trading but still make it negligible for buy and hold traders. I would start at 0.1%. Ten trades a year would start biting into churners in a hurry, It would also drive volume way, way, down so the the potential revenue would just evaporate. As much as I would like to, I don’t see a way to balance the budget on the backs of the financial sector.

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5. 

   lmsinca, on December 4, 2012 at 7:33 pm said:

   Dammit Brent, I guess we’re back to raising the tax rate on the 2%. Someone is going to have to come up with new revenue to pay for the Bush years spending and tax breaks and the spending to bail the country out of the housing crash. Would there be some way to compromise a transaction tax so the unintended consequences weren’t so dire? 5 basis points probably wouldn’t raise the needed revenue. Could we pick and choose more specifically what transactions would be hit with the higher fees.

   For example, we have money in the stock market and pay a flat transaction fee to CS. What if generic “stock” transactions also included a small percentage of tax added to that for the retail buyer? Would that generate enough income without those unintended consequences. It wouldn’t keep me from buying and selling.

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6. 

   jnc4p, on December 4, 2012 at 9:13 pm said:

   When it comes to these sorts of excise taxes, there’s always a tension between raising revenue & changing behaviour.

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7. 

   lmsinca, on December 5, 2012 at 7:16 am said:

   Brent, just realized you addressed the retail transaction tax already. I’m trying to figure out if there’s somewhere else to raise revenue that wouldn’t unduly affect the working poor and middle class. It’s fine with me if they raise rates on the top 2% but I was thinking a financial tax of some kind might be easier for Republicans to swallow.

   I’m doubtful they’ll really accept any sort of compromise that would generate most of the income from our wealthier citizens. They seem inclined to want to spread the misery downward. Certainly the tax code can be corrected by closing loopholes but everyone of those entails a big fight in itself and I don’t really see that happening in the time allotted.

   My dogs woke me up really early this morning, we had some sort of critter in the back yard and they were very unhappy, so I watched a little “Morning Joe”. Joe was talking about Boehner being the best negotiator we could have right now but Obama and Dems need to realize he won’t and can’t raise the tax rate and get the votes. And Obama has drawn his line that the rates have to go up…………………………..so?

   Of course the next segment they were talking about the disappointing vote on the Disabilities Treaty yesterday and how the “Black Helicopter” wing of the party in the Senate is ruining the Republican’s reputation. It’s my impression that the House has an even higher percentage of these folks and they’re even harder to herd.

   I think we might be going over the cliff, or slope. I don’t really even care that much but the dynamics are about as much fun to watch as a train wreck.

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   • 

     novahockey, on December 5, 2012 at 7:42 am said:

     “It’s fine with me if they raise rates on the top 2%”

     anyone know what that means in annual income?

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     • 

       yellojkt, on December 5, 2012 at 8:01 am said:

       The math is always fuzzy. If you are trying to minimize it, look at the annual amount which always seems like peanuts. On a ten year basis the numbers look big enough, but still nonsense. The number that keeps getting bandied about is $80B a year or $800B over ten years. Not a drop in the bucket but nowhere near enough.

       Has anyone read the Center for American Progress tax plan? I was stunningly impressed by it in that it was comprehensive and detailed. Basically they cobble together a lot of high water marks (Clinton marginal rates and Reagan cap gains) to give tax relief to the poor while keeping the middle class revenue neutral. But even at the high end nothing seems too draconian.

       They also transform deductions into non-refundable credits which makes them much more valuable to the lower brackets.

       There is some smoke an mirrors with spending and Medicare reform and they could take a much bigger bite out of defense, but it is the first serious out to the third decimal place idea I have read.

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8. 

   Brent Nyitray, on December 5, 2012 at 7:24 am said:

   Stock transactions can handle a higher tax rate than bond / fx transactions. If we charged 50 bps on FX, we would virtually eliminate the currency trading business in NY. And don’t forget the ancillary effects of driving all FX trading to London – a lot of people would lose their jobs here, and with it the tax revenue it generates.

   Stock trades could go up to something like 15 basis points – commissions on stock trades have fallen from 15 basis points to under 5 since the 90s. But I wouldn’t touch bonds at all. And derivatives are more or less irrelevant – OTC derviatives are the majority of these trades and they are already offshore.

   Increasing the tax would kill high frequency trading, which in of itself is not a bad thing – to me it is front-running and has no place in our markets. But the amount of money such a tax would raise in the remaining trading would be much less than advertised.

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   • 

     markinaustin, on December 5, 2012 at 8:17 pm said:

     Brent, the Eurobank and several gummints actually want a financial transaction tax, from what I read last summer, but need American and Japanese and Canadian and Hong Kong cooperation.

     I prefer a total automated payments transaction tax – not just the financial industry, but everyone.

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9. 

   jnc4p, on December 5, 2012 at 3:36 pm said:

   “The key is to get it low enough to discourage day trading but still make it negligible for buy and hold traders. I would start at 0.1%.”

   I’m unconcerned with day trading, as short term gains are already taxed the same as regular income.

   I’d try Brent’s suggestion of 5 basis points (0.05%?) to impact high frequency trading which I believe is a bigger problem. I agree with his assessment that it’s front running.

   When your router speed counts for more than your research desk, there’s a problem.

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