Abolishing everything else is a bad idea, but a transaction tax is probably a good idea in itself. It would discourage quick trading and encourage stability. Things like short sells suddenly become less profitable.
I disagree. Quick trading is a way to correct prices quickly based on new information. Speculation is good, not bad. Short sales do the same thing. Those folks by keeping prices correct, help buy and hold investors like myself. And when I buy or sell, I know that I am more or less getting a fair price. The financial industry needs to be reined in, in many ways, but this is not one of them. Short term gains don't get favorable capital gains tax treatment. That is enough.
Torie, what new information do HFT algos process and respond to in the milliseconds they use to make trades?
Also, in what universe are the comically inflated equities traded on today's stock marked "priced correctly?" [Hint: it's time to divest from stocks and corporate bonds].
Predicting the stock market prices going forward is generally a fool's errand. I say generally, because if the stock prices get high enough that the dividend rate is too low, it does reduce the expected equity premium, and thus the odds of getting an adequate risk adjusted return falls. So say in 2000 or so, when the dividend rate fell to 1%, and the risk free return rate was relatively high, the expected equity premium hit zero, or went negative. Then it is time to lighten up on equities. But right now the dividend rate is around 2%, and the risk free rate sill close to zero, so that translates into about a 4%-5% expected equity premia (you add in the real growth rate of the economy as a whole more or less as the expected increase in equity prices), and that is about a fair rate of risk adjusted expected return.
