December 3, 2010
Volatility can be a sign of healthy markets when the pricing signals reflect valid data, but many people on Wall Street make money by adding noise to disguise their intentions or hide their motives. Bernie Madoff used a very fast system for executing trades that added volume to the stock exchange, but did not add liquidity or improve the pricing signals. He got paid for the volume, but he did not add value to the system.
Behaviors that detract deserve to be taxed. Putting a small tax on all trades would allow the American public to recover all of the money they sent to the financial gurus who were too well protected to fail. Fining for bad behavior may deter some people, but public accountability can make fines imposed for bad behavior more meaningful.
Contrived volatility is a tax on main street by Wall Street. Long-term investors help build America, while short term volatility introduces uncertainty. Buy and hold investors should pay less tax than manipulators who churn stocks for their own purposes.