Transaction Tax

Any policymaker contemplating a new tax should consider the potential unintended consequences.

The idea of a transaction tax is being floated now as a panacea that would both curb "hot money" speculation and raise billions to pay for bank bailouts.

You can't have it both ways.

If the tax is going to wipe big risky trades out of existence, then there certainly won't be any trades to tax.

Beyond the structural difficulty of trying to raise tax revenue on activities no longer practiced, the tax could victimize the very people it is trying to help.

A roach-motel financial structure would be created. Imagine an investor who buys into a market with every intention of becoming a long-term holder, only to be caught in an all-too-possible downturn. He would be trapped. Anyone contemplating even a long-term investment might well be dissuaded from making the initial trade, fearing the prospect of entrapment.

Should a transaction tax be implemented, the likeliest scenario is that Wall Street designers would simply invent a new, untested way to risk money.

Review: New Moon

New Moon grossed the most of any film ever in its first weekend, so I went to see it as my cultural duty. Girl and Boy fall in love. Boy is part of a little vampire family. Lovely little family, except they're all pale and ruby-lipped with a bad case of photographic red-eye, and one of the male relatives wants to eat Girl when he gets a sight of a bleeding cut on her arm, and Boy's sister wants to kill Girl in return for Boy's having killed her own true love.

The little vampire family must on, as the neighbors are starting to suspect something. Boy refuses to take Girl along, overruling her desire to become a vampire. Girl is devastated and alone, as nobody in her Northwestern high school understands.

Neighbor boy to the rescue. He's cute, with a wolfish grin. Oops, turns out he really is a wolf, part-time! He has a werewolf gene that activates when vampires, sworn enemies to werewolves,are in the 'hood.

Some thin to-do takes place about a vampire-werewolf treaty and Girl's attempt to reunite with Boy by doing away with herself.

I was rooting for the werewolf, who at least has normal eyes and skin tone. Alas, Boy's family votes Girl into the vampire fold. Soon she will develop her own case of red-eye. The ending is so pathetic that it must be left unreported.

Up in the Old Exchange

Ever since I moved across the street from the Nymex, I've been wanting a peek inside. Few lights come on, day or night. Few people go in or out. A handful of bicycles are parked outside. A security guard will tell you that yes, the trading floor is still open, and that yes, a visitor's gallery exists -- but no visitors are allowed.

Nymex is the world's largest exchange for the trading of physical commodities -- gold, silver, oil. And this is boomtime for commodities. Why is Nymex so dead? Of course trading is mostly electronic now -- but what kind of busines would let a 16-floor building remain vacant? Why no visitors -- too embarrassing?

I trade futures once in awhile, and I'm on the mailing list of the Chicago Mercantile Exchange, which bought Nymex for $9.5 billion last year. A few days ago, an invitation to the annual Nymex Foundation benefit came across my screen. My ticket to the floor.

I show up, pass two security scans and go up two escalators to the floor. Guards are posted all around. Catered food is arranged in several trading pits; a couple of open bars are open for business. An artist had just begun a painting of the floor. I walk around searching for signs of life. Here is what I see:

License plate: "2bigtofail"

Handwritten sign: "Go Home Flat Stupid."

Bottles of sanitizer, ubiquitous.

Seat cushions. trading jackets thrown over the backs of chairs.

Baby pictures. Cartoons with trader mug shots pasted on.

Old-fashioned heavy black wall phones with color-coded stickers.

The floor is cold. No money wasted on heat. The walls and furniture are dollar-bill green.

The place looks like the options floor in Chicago. Prices, too small to read, in LED lights on boards placed high above the floor. An idiosyncratic layout. Some round pits; some semicircular pits. Work stations on raised platforms. Some double-deck platforms.

Traders began to filter in. Big, bluff, tall men. Women in spike-heeled boots. Snatches of conversation: "Back in the eighties..." "He did well in commodities, so he decided to do something else. You could make a lot in telecom."

Liz Layman of Fox starts the charity auction. The Foundation has raised $22 million in 20 years for children, including $1.6 million last year.

Dinner for four at Rao's, starting bid of $4,000, sold for $5,500.

A Duxiana king-size bed starts at $10,000. No bids. The auctioneer lowers the starting price to $7,000. Still no bids.

I ask questions. Some 2,200 people used to hang their hats at the exchange; now it's more like 500. Most trade in options, supposedly because they are too complicated to trade electronically. I check the CME's Web site; an options seat on Comex sells for $15,000, up from $5,000 in January.

I wander through the building, unhindered. I find a second trading floor upstairs on the seventh floor, larger than the first. I count 14 pits. Half of the stations are obviously vacant. An ICE sign hangs over the floor. Kiosks are labeled Coffee, Sugar, Cocoa, Indexes and FX.

A janitor takes me in the elevator to the penthouse but I turn back at the sight of bare concrete walls and metal pipes. A female guard goes on in; I suspect a pleasant hidden eyrie.

Cern for Kids

Cernland is fun! Check out the games.

Health-Care Harbinger

It is now mid-November, far past the time when flu vaccines normally become available at doctors' offices, and yet swine flu vaccine remains largely unavailable except for children and, of course, employees of Goldman Sachs. Even supplies of the regular vaccine have run out.

Doctors are frustrated.

"What's this all about?" I asked my doctor today.

"Government involvement," he replied, shaking his head. "It's rationing again." His office had ordered supplies of swine flu vaccine on the first sign-up day, to no avail.

My son has had both his vaccines. His doctor had made repeated calls until finally limited supplies arrived. Fortunately I had made reservations weeks in advance.

Vaccines are available at public schools on weekends. Lines are long.

If the government is handling the relatively simple task of manufacturing and distributing crucial vaccines so poorly, what basis does anyone have for supposing that it is remotely capable of managing an entire health-care system?

Great Old Book

Max Nordeau's out-of-print and long-unavailable 1895 book "Degeneration," cited by Albert Jay Nock in "Memoirs of a Superfluous Man" as an inspiration, is now available on Google Book Search.

On the Arts Banned in China!

I heard this week from an acquaintance of an acquaintance that Chinese authorities are blocking access to this blog. I am, of course, flattered to be considered a threat.

Our Batty Market, Part 2

A reader has suggested that I read the 2003 book "Practical Speculation" to find out how to trade the U.S. stock market. When I didn't publish the comment, he then accused me of censorship.

Certainly there is no censorship of "Practical Speculation"; it is still available on Amazon and at bookstores. The market world has enough facile suggestions, so I don't think the comment merits publication. Nevertheless, I'll give my current view of "Practical Speculation."

The book was written during the tech crash years of 2000-2002, a decline shocking in duration and magnitude to even the most sophisticated traders. My collaborator and I struggled to nail down a theme. Our optimism about the future of the Internet and the benefits of the a market free of central planning made us natural bulls, but the unfolding market plunge forced a more Machiavellian outlook. Our writing began to be reshaped by a realmarket outlook, if you like, along the lines of realpolitik. When the book finally came to market, it was heavy on enumerations of the varied deceptions employed by market players and observers. The deceptions we wrote about seem quaint now, given today's dark pools, high-frequency trading and banks that trade hoards of free taxpayer money against the very investors who supplied the funds. Today's market is much more more sophisticated and dangerous than it was seven years ago, particularly for small traders with short-term horizons.

Moreover, the globalization of money has accelerated at a pace unimaginable at the turn of the century. Our narrow focus on the U.S. market would be impossible today.

"Practical Speculation" rewarded readers with a timely prediction at the very bottom of the 2003 crash for a market recovery. Unfortunately, the publication was upstaged by the invasion of Iraq. "Practical Speculation never made the best-seller lists; in fact, the top business book of the time was a doomsday tome by Robert Prechter (is he back on a boat waiting for the next crash?) Our bullish prediction went unnoticed (perhaps deservedly so, since readers would have had to outlast some admittedly overblown literary foufou to find it in the book's last pages).

We had some good insights about real estate's interrelation with the stock market. We had no idea that the market's resuscitation in 2002 would come at the cost of a mammoth real estate bubble rotten at its core.

In short, despite the book's benefits, it has become quite outdated. I reserve the right to be flummoxed by the market despite having once attempted to write lucidly about a market of another day.

My current prediction is that the evil effects of the massive stimulus/bailout bubble in progress now will dwarf the previous crashes. The guns and butter, the Afghan adventure and the health-care reforms will not lead to a good end. I am as bearish now as I was bullish when writing "Practical Speculation." The market's cycles are always changing; unfortunately, that was at once the truest and most facile of our insights.

Why Not?

My good friend Mara Milkis, a master violinist trained in the former Soviet Union, has a vision of an elementary school for young musicians. She attended such a school in St. Petersburg, where of course everything was done by diktat and state money and contra-U.S. animus. Similar schools exist in China, and I suspect that, more than any inherent aptitude, is why Juilliard is flooded with Asian students nowadays. In China, becoming a musician confers status. Here in the U.S., wealthy parents steer their progeny into moneymaking fields.

An American child bent on becoming a professional musicians must fight an entire system devoted to keeping him out of the progression. These battles has been beautifully documented by Michelle Schwartz in "The Pleasures and Perils of Raising Young Musicians: A Guide for Parents." Parents: Buy it, read it, need it. Michelle's son is now assistant conductor for the San Francisco Symphony; but ah, what a world of grief he and his mother faced on the path to that foothold.

Mara's ideal is to replicate her childhood school here in America. Chidlren would receive full scholarships. Room and board would be provided. The curriculum would focus on developing well-rounded musicians. Students would learn how the history of music is interwoven with world history. Regular academic training would be part of the package. They would be able, at age 12, to take four-part dictation, as Mara did at that age. They would perform with professionals. They would master their instruments in an environment sheltered from the exploitation of child prodigies that verges on pedophilia.

Impossible? No. Sure, obstacles abound. But it is the crazy dreamers, not the dashers of cold water, who start wonderful schools.

James Ellroy's conspiracy theory

I am transfixed by Blood's Rover, James Ellroy's newest novel, Ellroy is a master of dialogue, of rhythm, of setting a scene in fragmented sentences. And, of course, he is the master of historical conspiracy.

Perhaps because he is such a master writer, I fear that everything he writes is true. I have been listening to the Audiobooks version of Blood's Rover and reading the hard copy at the same time. They both seem necessary for stylstic appreciation; moreover, my iPod wasn't up to the job of downloading the entire huge file so I have no idea how Wayne dies or how the darned thing ends.

Sleepy Hollow

We are having the warmest November I can recall having experienced in 15 years on the East Coat. People say it's Indian Summer, or global warming. Folks are walking around in T-shirts. Sometimes I see winter coats and sandals on the same person.

It's nice, but it's a little disturbing. For me, I prefer clouds in the sky. The past two days had a blank, Los Angeles sort of sky, a mindless, pale, glaring sky. A Day of the Locust sort of sky.

I find it uncomfortable to see such a sky in New York, particularly in November.

I prefer deep blue skies, floating clouds and golden afternoon light, Sleepy Hollow weather that Washington Irving described. The Legend is worth rereading, and so is Rip Van Winkle, which is a modest little masterpiece.

Our Batty Market

What's going on here? Unemployment comes in much worse than expected Friday. The prior week, the market fell because everybody was worried about unemployment. What does the market do Friday? Has a huge rally.

Last weekend, the House passed the most regressive, punitive, fiscally unsound health plan ever. What does the market do? Goes up.

I just don't get it. Will somebody enlighten me?