Imagining a “rake” system applied across all businesses in the equity market is an interesting concept. Here’s what it might look like and some potential consequences:
How It Would Work:
- Transaction-Based: Every transaction (buying, selling shares) would incur a small commission fee taken by a centralized entity, similar to the cardroom taking a rake in poker.
- Percentage-Based: The rake percentage would likely be lower than a poker game due to the volume of transactions. It could be a flat rate or a sliding scale.
- Capped Rake: A maximum rake amount per transaction might exist to avoid disproportionately impacting large traders.
Consequences:
- Trading Liquidity: Rake would reduce available profit per trade, potentially discouraging frequent trading and harming market liquidity (ease of buying/selling assets).
- Increased Costs for Investors: Investors would face higher transaction costs, reducing overall returns and impacting investment strategies.
- Concentration of Power: The centralized rake-collecting entity would amass significant wealth and power, potentially influencing market dynamics.
- Innovation Stifling: Reduced profit potential could discourage risk-taking and limit the funding available for startups and new business ventures.
Potential Benefits (limited but worth considering):
- Market Stability: Rake could slightly reduce volatile speculation and potentially promote more long-term investment strategies focused on fundamentals.
- Increased Revenue: The rake collection could be utilized for public programs or to reduce other forms of taxation.
**Overall: **
While intriguing to consider, applying a poker-style rake to the entire equity market would have significant repercussions. It is likely to introduce more friction and higher transaction costs than currently exist. The potential negative consequences for innovation and market liquidity would need to be carefully weighed against any limited benefits.
Instead, alternative approaches to consider in reality are:
- Financial transaction tax: A small tax on trades of stocks, bonds, or derivatives has been proposed in various forms to discourage speculation and raise revenue.
- Tobin Tax: Named after economist James Tobin, specifically focuses on taxing foreign exchange transactions to discourage short-term speculation.
These proposals have their own complexities and debates surrounding their effectiveness and consequences.
