Possible Senior Bank Lover Timothy Geithner (photo: CAP)

Suzi Khimm of the Washington Post asked a “senior administration official” why the White House opposes a financial transactions tax of .03%, and got this absurd response:

We share the goal of wanting a more stable financial system. We share the goal of wanting a more progressive tax system. The only real questions are — what’s the best way to do that?”

What evidence is there for this nonsense? This is the crowd that didn’t have the stomach to stand up for a crystal-clear campaign promise to raise taxes on the rich, which is how we get a “more progressive tax system”. This is the crowd that couldn’t stand up to the Derivatives Emperor, Jamie Dimon, whose balance sheet is now festooned with a notional value of $77 trillion in various types of derivatives.

But wait, perhaps there are arguments to be made for the rejection of a financial transactions tax, also called a Tobin Tax, strongly supported by the French and the German Finance Ministers? Let’s see.

1. It would make trading more volatile, because, well, just because. Here is the explanation from the Financial Times:

An analogy: if I have to pay a charge whenever I use a cash machine, I make fewer, larger withdrawals and the amount of money in my wallet fluctuates more widely.

See, the reason I withdraw more is that the cost is the same whether I withdraw £100 or £500. If it costs £2 to do a withdrawal, that’s 2% on £100, and .4% on £500. On the other hand, if the fee is .4%, regardless of the amount withdrawn, then it doesn’t make any difference how much you withdraw, the percentage is the same. So, that doesn’t make any sense.

In fact, one cause of volatility is high-frequency trading. Remember the flash crash? Remember the part where the professionals left the market as it crashed, dumping losses on actual traders? A micro-tax hurts those clowns, who are sucking money out of every trade, and will reduce volatility.

2. Investors will evade the tax. Well, sure they will try, and there would be no one to stop them, would there? Because Heaven Forbid that anyone would take legal action against tax evaders, like indicting them. No one could possibly imagine how we might detect the cheats. The default position of the administration is admiration for cheats, not indictment, so much so that they capitulate in advance.

3. Investors will leave the country and execute their trades in some friendly state. First, high-frequency traders won’t be doing that, and if they do, great. That’s some other stock exchange where they will be doing their business, because the key to that business is co-location with the computers that handle stock trades. But if the rest of us insist on execution in the US, we get away from the HFT influence on trades, one step in the direction of actual markets.

Second, this argument is directed at mutual funds and hedge funds. That’s easy to fix: impose a tax on payments made by off-shore entities when their money comes into the US. So, when a shareholder sells a mutual fund located in the Cayman Islands, or a rich guy gets money out of a hedge fund located on the Isle of Man, the tax is 50%. See how easy that was?

4. It would cost jobs to tax financial transactions. The financial business is losing people anyway as the rest of us lose interest in their success. Why should they be different from all the other people who lost their jobs because of the depredations of the Oligarchy? If only the fired people were banksters instead of tellers.

5. The tax would fall on pension plans. At least this one didn’t come from the administration; it’s from the Financial Times guy. He doesn’t seem to understand that pensions, including IRAs and 401(k)s aren’t big traders; they buy and hold for the long term. They aren’t going to pay enough to matter.

To prove it wants to do something, the senior bank lover suggests a different tax, one applicable only to big banks. Here’s a crazy idea from Jared Bernstein: let’s do both. The tax on big banks is restitution for the damage done to the national financial position, and payment for the guarantee against failure for these giants. The Tobin Tax smacks the HFT traders, and cuts down on volatility. And did I mention that it is expected to produce a huge amount of revenue? Lots of winning there.

I’d say the real problem with the Tobin Tax is that Occupy Wall Street supports it. Gotta keep punching those hippies.