The Chicago Teachers Union has a problem. Actually they have two problems according to Option Monster’s Jon Najarian. One of the problems is an underfunded pension stemming from years of mismanagement. The other problem is that its leadership has an almost childlike proposal towards how to bail itself out by imposing transaction taxes on the CME Group and Chicago Board Options Exchange.
CTU head Karen Lewis and Vice President Jesse Sharkey say imposing a $1 tax on agricultural futures and $2 on other derivatives would raise $10 to $12 billion a year. Paradoxically they also claim the tax would reduce derivative trading which they regard as morally distasteful and problematic by nature.
“These are not long-term investments of the kind your grandmother might have in her stock portfolio,” says Sharkey. On that point Najarian agrees but from there things get sticky.
“It doesn’t make sense at all,” scoffs Najarian. While he insists he likes both kids and teachers, Najarian suggests an educator should know better than to impose proactive taxes on the basis of trailing data. As the Option Monster points out, the CTU can’t go back and tax each transaction last year to get their projected windfall and increasing the cost of future trades simply drives the business elsewhere.
“Let me explain this to Ms Lewis,” he scolds. “These are for-profit institutions. They would immediately start transactions in New Jersey where they have their back-up sites rather than Illinois. There goes the projected revenue.”
Of course it gets worse. Once the business goes out of state so too would the traders, putting high-end homes on the market and dispersing real human traders into the Matrix of electronic trading where almost all other business is already done.
The answer to all budget and moral woes isn’t abolishing traders and sticking it to the wealthy. Transaction taxes aren’t even being seriously suggested by most Democrats because they don’t work. The existence of physical pits in Chicago is a delightful anachronism that should be preserved before the CBOE becomes another photo-opp museum like the NYSE and Nasdaq market site.
The CTU should look elsewhere.
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