The greed for fast money and the illusion of regulated financial markets

Modern financial markets have long since evolved from their original task of supplying the real economy with capital to an independent cosmos of self-enrichment. In this system, the focus is no longer on building values or promoting innovation, but on the pursuit of minimal price movements within fractions of a second.Group of actors has completely decoupled from the real economy and is playing a game that puts global money flows in a skewed position. Although the political institutions and central banks try to keep the system running through massive monetary gifts, they promote precisely those mechanisms that make a stable order impossible.

The obsessive focus on tiny price fluctuations

The participants in this speculative game want to profit exclusively from the smallest movements of the courses, however insignificant these fluctuations may be. To achieve this goal, these short-term traders sit for hours in front of their screens and follow the constant ups and downs of the markets in rigid concentration. If your own capital is not sufficient,is simply traded on pump, whereby the banks are happy to help out thanks to the constant liquidity injections from the central bank. For such a speculator, a holding period of a few days or even weeks is an absolutely unacceptable ordeal. It must ring in your own cash register after a few minutes or a few hours at the latest.

The change from the trading room to the home screen

A good two decades ago, there were still physical trading rooms where everyone sat in front of monitors and wanted to make quick profits by cleverly or rather happily buying and selling stocks and currencies. In the meantime, technology has advanced to such an extent that the vast majority of these dealers operate from their home computers. The modern structure of theworldwide network makes this shift to private living rooms possible in the first place. Nowadays, players use technical equipment that used to be reserved exclusively for large professional stock market traders. Complex information systems, suitable programs for analyzing the flood of data and fast data lines help the user within a few clicks toquick success or even total failure.

The questionable justification of speculative activity

Most of these short traders make no secret of the fact that the prospect of making money quickly and comfortably is the sole driving force behind their actions. However, there are also participants who seriously consider themselves benefactors of the entire economy. By their constant action, they would allegedly contribute to a higher efficiency of the capital markets and ensure that theMarkets remain fluid. With the same nonsensical argument, a shoplifter could claim that his work is beneficial because it trains the powers of observation of detectives. These speculators do not provide any benefit, but cause immense damage by artificially inflating the volatility of the markets.

The networking of speculators in the digital space

After the bursting of the big technology bubble at the beginning of the millennium, these short-term traders had become somewhat calmer at first. In the course of advancing networking, however, they are again pushing themselves into the foreground and propagating the principle of community trade. This term describes the constant exchange of information within the speculative community.Certain impulse generators act as particularly successful trading professionals and generate mood, while imitators try to exploit this supposed expertise for their own actions. In this way, the masses rock each other up and blindly follow the signals of fewer loudspeakers.

The central bank’s inexhaustible source of money

In order for this speculative activity to be financed at all, the banks need a constant supply of liquid funds. The term money allocation stands for the supply of credit institutions by the European Central Bank. Banks can express their liquidity wishes via their national institutions and receive a credit note on theirAccounts. In order to meet these requests, the central bank periodically calls for tenders for transactions where there are fixed or variable interest rates. With the fixed interest rate, the central bank specifies the costs, while the banks only have to specify the desired loan amount.

The control of the money supply and interest conditions

In the case of the variable interest rate, only a lower limit is specified, whereupon the banks offer not only the amount, but also the maximum interest rate. Both forms give the central bank the ability to control the volume of loans and determine interest rates. For example, if the banks have bids totaling 200 billion and the central bank only allocates 100 billion,each bank receives only half. Basically, borrowing from the central bank is the easiest and most attractive form of raising money for the entire system. If the volume is not sufficient, the institutions can help each other out, which used to work in an almost perfect global network.

The collapse of the global trust network

However, since the great financial crisis, the banking world has split into winners and losers, destroying the old system of mutual aid. The losers have to make high depreciations, which ultimately leads to an acute lack of money. When distrust entered the boardrooms, the central bank, with its unlimited allocations, was challenged to make the systemto prevent collapse. In autumn 2008, a changeover to fixed interest rates took place, whereby the banks’ loan requests were met without any restriction. Interest rates fell to lower and lower levels in the following period, eventually reaching historical lows of less than one percent.

Flooding the system with long-term loans

In addition to short-term transactions, there are also longer-term refinancing transactions with a maturity of several months. The then head of the central bank launched two massive programs in the winter of 2011 and spring of 2012 to help the banking system. Approximately $500 billion each was provided as a fixed allotment with full allotment at minimal interest rates.The three-year term of this huge loan program was remarkable, which gave the institutions enormous planning security. Despite these gigantic sums and extremely favorable conditions, the improved conditions hardly reached the normal consumers.

The passing on of costs to unsuspecting consumers

In the case of overdrafts, German banks continue to relentlessly extend their loans and demand interest rates of almost twelve percent. Compared to the previous year, these were only minimal reductions, even though the central bank’s costs had fallen by half at the same time. In other European countries such as Austria or the Netherlands, the cost of such overdrafts isfar from so high. The banks do not pass on the benefits of central bank policy to customers, but keep the spreads to themselves. This behavior clearly shows who is paying the price for saving the system in the end.

The idea of a worldwide levy on financial transactions

In order to curb this nonsensical activity, a renowned Nobel Prize winner called for a worldwide levy on international foreign exchange transactions as early as the 1970s. Inspired by the ideas of a famous economist, this levy should curb short-term speculation on currency fluctuations. exchange rates should, in his view, be long-term economicReflect phenomena and are not distorted by short-term greed. Unfortunately, times have not changed for the better since then, but today we are looking at a gigantic speculation machine. Earlier brakes such as the stock exchange sales tax were abolished in the course of the general deregulation wave and not replaced by anything equivalent.

The need for a real brake on speculation

Today, the dominance of yield-driven trading is not only expressed by day traders, but also by various speculation funds and the proliferation of commodity trading. A genuine financial transaction tax is more necessary than ever because it increases the costs incurred in short-term trading and thus promotes long-term commitment. Above all, high-speed trading wouldsuch a levy will dredge the water and calm the markets. However, such a tax must not be limited to pure stock exchange trading, otherwise it will immediately be diverted to the off-exchange area. The argument that taxes on shares already exist in certain financial centres is ridiculous and ignores the enormous variety of other instruments.

Tough resistance to market regulation

The European Commission has put forward a concrete proposal that provides for minimum levies on the trading of shares and bonds. The headquarters principle should apply in order to prevent a relocation of trading activities to tax-free countries. Despite the extremely low tax rates, this levy is expected to bring in huge sums every year, which increases the extent of trade volumeshowever, the aim cannot be to maximise government revenues, but primarily to curb pure speculation. As a result, a drop in revenue would even be welcome, as it would mean less damaging transactions.

The stalling tactics of the financial industry and its allies

At the beginning of 2013, it was decided to introduce such a tax in eleven European countries, but rapid implementation is not in sight. Representatives of the financial industry warn of the threat of billions of holes and even go to the European Court of Justice to delay the project. The island fears disadvantages in trade and argues that companies are migratingwhen the levy comes. In this way, a necessary instrument to curb unspeakable speculation is once again systematically dissuaded. The true profiteers may continue to collect their profits undisturbed at the expense of the general public.