An experiment with an uncertain outcome

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EU finance ministers will contribute to stricter rules for hedge funds. The introduction of a financial transaction tax also is possibly. Prof. Kaserer of TUM is the transaction tax is an inappropriate instrument.One problem in our financial markets is that institutional investors herd behaviour may be individually rational. This, which has actually been found is that to be unsuitable the transaction tax. The aim of the tax is to curb speculation and thus ensure more stable financial markets. Besides the fact that not the speculators weaken the euro, but only the lack of fiscal discipline in the euro countries would not help a transaction tax to stabilize the markets.

It is true that the tax tends to be the so-called “noise traders” and it would displace from the markets, which would ultimately reduce the volatility. Nevertheless, it means that damage is quite the opposite. Because a transaction tax has a negative impact on information processing in the markets.

Short-term investment strategies are burdened disproportionately. Business models are designed to exploit short-term rating errors are. Therefore, they are removed from the market. This reduces the liquidity of the market and leads to inefficient processing of information.Rather than bring out old instruments, one should rather focus on the development of effective regulations. For the portion of the assets managed by mutual funds, it has doubled in the last 20 years in Germany. The concentration of capital in the hands of institutional investors leads to systematic risks. Counteract this would be a first step towards better regulation.

Euro crisis is government failure

Europe looks for a way to stabilize the euro in the financial markets. At the weekend, EU finance ministers have put together an unprecedented rescue package. Some 750 billion euros will keep strapped member states facing bankruptcy and stabilize the euro. Thomas Exner, commentator of the world sees it as a threat to the market economy. In a recent commentary in today’s edition he writes: “Whoever suggests a running between politics and markets battle line, is a cornerstone of European integration, the market economy.”

The pressure on the euro come less on the part of speculators, but is rather signal a loss of confidence that stems not from a market failure but of many years of policy failure.

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