This is kind of funny, and actually probably closer to 180 degrees opposite of the truth. The illiquidity was a result of poorly designed and highly leveraged transactions. Once a security is trading at 20 cents on the dollar, an additional $0.0025 charge isn't going to have much of an impact on whether someone is willing to buy it or not. But conversely, a $0.0025 charge on each of the various transactions needed to put one of these complicated deals together, may have prevented them from getting done in the first place. The reason that these deals used so much leverage is that the margins were skinny. They needed the leverage to make it worthwhile. A small tax like this may have totally depleted whatever margin was there and made them completely uneconomic from the start. So rather than making the crisis worse, the tax may have prevented it from happening at all.
Sure. But then why tax all equity transactions? Why not limit it to the transactions involving derivatives, which is what ultimately caused the economic collapse. Equity transactions had nothing to do with it.
Here's an analogy of what seems to be going. Somebody violated curfew. And to resolve it, our solution is to burn down the entire neighborhood.
Once the tax is implemented, volumes will drop, which will cause bid ask spreads to widen. Once they widen, everybody will be hit with worse prices, higher mutual funds fees.
The retail industry stock industry has come out against this for good reason. If you today were to buy $25,000 worth of stock from Scottrade, it would cost you $7. But, with this tax, you would now have to add the following:
$25,000*0.0025 = $62.5
So $7 + $69.5 = $76.50. $76.50 instead of $7.
There will be lots of jobs lost from companies such Scottrade, Etrade etc. I get the "punish Wall Street" mantra. But this tax would not do much to punish Wall Street. It would punish Main Street.