1 Oct 2011

Osborne defends Under The Counter Trading

There are two reports in today's Guardian that are clearly linked. First, there is a report from the Bureau of Investigative Journalism showing how the City of London and the Financial sector bribe the Government by providing half the donations to the Conversative party since the elections last year.

Thene there is a piece about how the UK chancellor will be flying to Luxembourg later this week to block attempts by the EU to require reporting of OTC (Over the Counter) Derivatives trading. This is totally scandelous. Here's the comment that I added:

I find this amazing. Why is it so important to keep OTC Derivatives trading hidden from view? Currently, the only moment that we get to peek at what the City is up to is once every three years, where the Bank for International Settlements manages to get the Bank of England to round up some figures. According to their data, OTC Derivatives in April 2010 were around $1,235 billion a day. Assuming 250 trading days per year, this means that the City is doing something like £190 trillion a year of this - 46% of the global total according to the BIS.

But even these eye watering numbers are quite possibly only scratching the surface. Firstly, even the Bank of England's website noted that only 47 UK institutions participated in the UK survey, down from 93 in 2004 and 62 in 2007, "as only firms that participate in the inter-dealer market and/or have a large active derivative business with customers were asked to complete the 2010 survey. Small institutions were not asked to participate in order to reducing their reporting burden". Who is to say what levels of activity are being hidden here?

George Osborne is going to fly to Luxembourg to prevent this trading being reported. Presumably, he would also be in favour of abolishing the BIS Triannual Report too, which I imagine is an intolerable restriction on the City's ability to do precisely whatever they want with no controls.

It's obvious why he does this. Just look at who is paying the government. But the whole thing is incredibly stupid, especially when coupled with Osborne's announcement that he intends to veto moves to introduce an FTT at the European level. If the EU was to levy a 0.01% tax on derivative's trading, it would be so simple for the UK to add an extra 0.1% and generate levels of government revenue that could easily write off the entire UK public debt within a year or two. Osborne simply cannot claim that their is no Plan B.

And more importantly, refusing to allow regulations to require that derivative trading to be fully reported is positively criminal. Why do they call it Over the Counter (OTC) when it is so clearly Under the Counter?
 I quite like that one... we should definitely be calling it Under The Counter trading.

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