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Asset Price Fluctuations, Financial Crises And The Stabilizing Effects Of A General Transaction Tax

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Executive Summary

The deepening of the recent crisis was driven by the simultaneous devaluation of stock wealth, housing wealth and commodity wealth. The potential for this devaluation process had been "Built up" during the boom of stock prices, house prices and commodity prices between 2003 and 2007. Hence, this paper sketches the main causes and effects of long swings in asset prices in the context of the current crisis. It is shown that "Bull markets" are brought about by upward price runs (i. e., monotonic movements) lasting longer than counter-movements for an extended period of time (and vice versa for "Bear markets"). This pattern of asset price dynamics is the result of "Trading as usual" on (highly regulated) derivatives exchanges.

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