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Bernie Sanders doesn’t understand Wall Street—or math

Democratic U.S. presidential candidate Senator Bernie Sanders speaks during a Democratic debate
Lucy Nicholson | Reuters
Democratic U.S. presidential candidate Senator Bernie Sanders speaks during a Democratic debate

Democratic presidential candidate Bernie Sanders is running an aspirational campaign long on provocative ideas, but short on critical details.

In a recent discussion with The New York Daily News, the Vermont senator showed he doesn't know who has the authority to enact his promise to break up "too big to fail" banks, nor has he studied recent legal precedent which limits the government's ability to do so. This rhetoric over reality is alarming in light of his signature pledge to fund free college with a financial transaction tax on arguably the world's best markets for economic growth and job creation.

His promise to tax "Wall Street speculators" as social restitution for the taxpayer-funded bailout of 2008 is misguided at best. This tax targets helpful market activity that had nothing to do with the risky subprime mortgage loans that prompted the bailout. Further still, it goes beyond Wall Street to tens of millions of investors whenever they, or those managing their retirement savings, trade stocks and bonds. Recently, the Dutch Finance Ministry called a financial transaction tax "a charge on pensions." An ironic twist given the strong support Sanders enjoys from unions.

A link on Sanders' website explaining how the tax "would generate about $300 billion in revenue," leads only to a memo by Robert Pollin and James Heintz of the University of Massachusetts-Amherst. That document begins "we emphasize that our conclusions are not based on anything close to the type of solid foundation in research and evidence that one would normally expect in considering such an important question."

(Note: After this piece was published, the link on the Sanders campaign web site was changed.)

The memo contains basic arithmetic errors, such as claiming a half-percent tax on $25 billion worth of trading would generate $125 billion,as opposed to $125 million, in revenue. And it cites Securities Industry and Financial Markets Association trading volume from stock exchanges, but omits Financial Industry Regulatory Authority data accounting for a significant portion of additional market volume.

In other words, it's finger-in-the-air analysis. And a fat finger at that, which is most troubling when you consider the stakes.

As we draw closer to Election Day to determine who will lead the most powerful economy in the world, let's be vigilant in demanding specific details from all candidates. It would be a terrible mistake to trust our global financial standing to solutions that aren't "anything close" to reliable.

Commentary by Bill Harts, CEO of the Modern Markets Initiative (MMI), an education and advocacy group representing electronic traders focused on high-frequency trading. Follow him on Twitter @AlgoTrdr.

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