The Luddite’s


This post is by Jeff Carter from Points and Figures


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I read the budget address by Illinois new governor yesterday.  Basically, there was nothing new in it.  They are going to legalize pot, legalize sports betting and estimate they will get some tax revenue from it.  The Democratic Machine is going to push for a progressive income tax that will hurt middle class families and families that can’t move out of state badly.  No reforms.  No pension reform.  No corruption reform.  It’s pretty disappointing.

Sort of reminds me of the movie It’s A Wonderful Life and the difference between Bedford Falls and Pottersville.

Something else occurred to me though.

In the early 1990’s, the membership at the Chicago exchanges split into two factions.  On the floor of both the CBOT and CME there were groups of members that wanted to invest heavily into technology.  They didn’t have the power in the board rooms of the exchanges.  They also weren’t the on the trading floor.

The exchanges were controlled by broker groups.  Broker groups had exactly zero incentive to invest in new technology.   For them, they would just assume get paid to fill their last order and then shutter the doors of the exchange.  They were the Flat Earth Society, the Luddites.  It was intuitively obvious to even the most casual of observers that the internet was going to be a thing and running the exchange business as we had for a century wasn’t going to be a survivable business model.

It took several years, from around 1993 to 1998, but at CME the group that wanted to invest heavily in technology won the day and got control of the board room.  The fight was bloody.  It cost people money and reputation.  Our faction was right though.  CME went from being worth about $100MM with $5MM in the bank in 1998 to the largest most valuable exchange in the entire world.

The problem in Illinois and in the city of Chicago is that the fight isn’t worth having.  While it might be emotionally painful to move out of state or city for a lot of reasons, it’s much easier to do than digging in and fighting.  Besides, what are you fighting for and what does victory look like?  In our case at CME, there was clear economic gain and we owned memberships so we had an inkling what they should be worth compared to what they were worth.  Owning real estate is not the same.  There is nothing heroic about going down with the ship.

My guess is there will be a tax on retirement coming.  There will be a city income tax.  There will be more user fees and increases to the ones already on the books.  Real estate transfer taxes on homes over a million will trickle down to homes of $500,000 or more.  Eventually, the Teacher’s Union will get a transaction tax.

That was the thought that occurred to me as I read the budget address.