I have mentioned the challenges weeklies like Businessweek and the Economist have with the financial crunch, especially since the major decisions tend to be reached on Sunday night in New York ahead of the markets’ opening in Asia. The weeklies close Thursday or Friday, and even the FT weekend edition is stuck until Monday morning with events that wrapped by Friday sometime.
But imagine you’re running a monthly and want to get ahead of the story.

All the more reason to congratulate Condé Nast’s Portfolio, the new kid on the biz publication block from the publisher of Vanity Fair, the New Yorker and Wired.

Portfolio’s Wall Street columnist, Jesse Eisinger, came through with a powerful column suggesting a transaction tax to reign in speculators. Akin to the Tobin tax, named for the Yale economist who proposed it for FX transactions, this could be a minuscule tax on each transaction – Eisinger suggested .25% – which wouldn’t make any significant impact on long-term investors but would curb the rapid fire trading, including algo trading, which has taken such a large share of the markets. The former Journal reporter says turned over has gone crazy – 143% on the NYSE and 93 percent among mutual fund managers. High trade volumes have occurred during two huge bubbles – the dotcom and the current financial services examples.

Interesting – he came up with a paper by Lawrence Summers, who became Bill Clinton’s treasury secretary, proposing a transaction tax in the wake of the 1987 crash. Summers has since backed away from the idea. Nobel Economist Joseph Stiglitz has also, cautiously, suggested considering such a tax. With some cooperation among the world’s regulators, this shouldn’t be impossible. Even on a unilateral basis, the US could set some rules for pension funds that would bring a huge chunk of institutional money into a long-term model of investment.

Eisinger makes a provocative case for a transaction tax even without considering two or three other factors in favor of it.

1. Wall Street attracts some of the brightest mathematics and physics experts to develop models that can make slight improvements in returns. With a tax, these brains might be more productively employed. It’s like Charles Peters, founder of Washington Monthly, says about lawyers – the nation has siphoned off too many very smart people into work that doesn’t really add value to the nation.

2. A transaction tax that reduced the flow of trades would save hundreds of millions, maybe billions, in IT infrastructure investment. Firms are spending huge sums to take microseconds off transaction times, communication firms are building bigger lines to exchanges and alternate trading venues, computer makers are spending millions to eliminate any latency they can find.

3. Green. High-speed data centers and very fast trading venues are gobbling up power. Cutting the number of transactions would save energy in developed countries and in emerging markets which are going to come under pressure to match the speeds in the US and Europe.
Portfolio is doing a great job. It has depth in at least some of its stories. A friend urged me to subscribe to Fortune, which can also do a great job, but I kept feeling that by the time Fortune printed a story I had already read it two or three times elsewhere.

Next up – the SEC

Filed under: Technology