Today's censored comment on the Guardian

Yes, I'm still being censored by the Guardian. 

My 7 comments from last week are still invisible following the decision of one of their moderators to remove them, and I am still being  "premoderated", which means that I am being prevented from expressing my point of view. A message I posted yesterday morning still has not passed premoderation. 

I posted the following sensible comment this morning. It will be very interesting to see if they decide to publish it, and if so when. I sincerely feel that it is the moderator who removed my 7 comments last week and put me on the black list who should be moderated - not me. 

Posted in response to Larry Elliot's piece at 7h51 on Monday the 31st October.

There is a real plan B that could be enacted at the G20 meeting. It is the perfect occasion for introducing tthe 0.1% FTT proposed by the European Union. As I have explained elsewhere, this could provide the basic mechanism for (a) providing very large amounts of revenue that could be used to write of the 10 trillion euros of goverment debt in the 27 EU countries and (b) remove the taxes such as corporation tax that motivate multinationals to hoard 18 trillion dollars in tax havens.

The Guardian will be receiving mails every day until this censorship stops. 

My Guardian Comments have gone!

To my horror, I've just discovered that a whole pile of my comments on the Guardian's Website have been removed by a moderator
In trying to save the euro, Germany is making demands that cannot be met

Your comment 28 October 2011 5:43AM

This comment has been removed by a moderator.

Bank recapitalisation: who needs what

Your comment 26 October 2011 5:37AM

This comment has been removed by a moderator.

Banks should get incentives to lend to small businesses, says Mervyn King

Your comment 26 October 2011 4:36AM

This comment has been removed by a moderator.

Bank recapitalisation: who needs what

Your comment 25 October 2011 3:18PM

This comment has been removed by a moderator.

Bank of England official calls for radical overhaul of bankers' pay

Your comment 25 October 2011 7:02AM

This comment has been removed by a moderator.

Enough of Mervyn King and the economics of La La Land

Your comment 23 October 2011 4:59AM

This comment has been removed by a moderator.

In the City and Wall Street, protest has occupied the mainstream

Your comment 18 October 2011 9:26AM

This comment has been removed by a moderator.

I'm clearly going to need to keep a copy of them, because they have now disappeared without trace. I can only assume that my last comment was the problem. I suggested that if there are bankers that object to having a 50% haircut on their loans to the Greek government want to complain, they could try sueing Goldman Sachs who were paid 300 million to  hide the scale of Greek government debt, as reported in Der Speigel, the New York Times and elsewhere.  Seemed like a reasonable comment to me. This is really depressing. All those brilliant insights lost for ever.... ;-)

 

The Scale of EU debt and interest payments

Clearly, everyone is seriously concerned about the scale of debt within the European Union countries. I thought I would compile the latest numbers, by taking the September 2011 values for the interest rates that governments are being charged and the total amounts of government debt that I downloaded from the Eurostat website. The results are shown here.

The numbers are really quite revealing. Firstly, the actual amount of debt can be very high even in countries like Germany that are supposedly quite healthy. Germany actually owes over 2 trillion euros. But the interest rates that different countries have to pay to the markets for their debts vary enormously, from just 1.83% in the case of Germany, to 17.78% for Greece. No wonder the Greeks are in such a bad way. Despite oweing "only" 329 billion euros, they have to pay the banks something close to 60 billion a year in interest.

If we add up all the debt within the 27 European countries we get a number that is close to 10 trillion euros - a number that is actually almost exactly equal to the $14 trillion of public debt in the USA (an euro is currently worth $1.40) . And European tax payers are having to find something like 400 billion a year just to pay off the interest on this debt.

The numbers are clearly insane. So, I come back to the question I was asking recently. Namely, what would happen if we said to the banks that we will pay back all the money that is owed that actually belonged to the banks that made the loans. I really think that there is no obvious reason why we should be forced to pay off the loans that involved the magical trick of fractional reserve banking in which banks simply create money out of thin air.  Since the banks don't owe that money to anyone else, nothing terrible will happen  except that the banks would not be able to hand out massive bonuses and dividends to shareholders. No big deal.

Of course, if the banks object, there is always the other option of using an FTT to recover the money.

How to get the European FTT tax introduced

Given the rabid response of Conservative MPs in the recent Parliamentary debate on Europe, and the fact that George Osborne has made it clear that he intends to veto the introduction of Barroso's 0.1% Financial Transaction Tax, you can be forgiven for thinking that there is little hope of progress. But I've been doing my sums, and I reckon that there is a way for Europe to get the FTT plan through, even in the notoriously eurosceptic UK. Here's the plan.

Currently, the EU has a budget of 141 billion euros. This is paid for partly by contributions from VAT (although it turns out that this is actually very minor) and mostly by payments that are made by the different governments on the basis of each countries GDP. The mechanism is pretty opaque, and has been the subject of endless wrangling because of the reimbursement negotiated by Thatcher.

How about the EU saying that they will scrap all the existing payment mechanisms and introduce a new scheme based on the 0.1% FTT that they propose for all 27 European countries. Each country would impose the same minimum 0.1% FTT on all financial transactions, but they would only pay the EU their fair share of the 141 billion euros EU budget on the basis of GDP.  They would be allowed to keep the rest of the money raised. I've compiled the numbers in the following table.

As you can see, Germany should pay 28.8% of the 141 billion, France 22.2%, the UK 19.5% and so on down to Malta which would pay 0.05% of the total. This sounds very fair to me.

Now let's look at the amount that countries would be able to keep for themselves. Unfortunately, the Bank for International Settlements only provides numbers for a small number of EU countries, so I can only produce numbers for those, but I have provided numbers for some of the big players - namely Germany, France, the UK, Italy, the Netherlands and Belgium. (Incidentally, I find it astonishing that all EU countries are not obliged to provide the numbers - this is clearly one of the first things that the EU should do).

Anyway, you can see from the table that with the levels of transactions in the countries for which we have numbers, only a tiny fraction of the revenue raised by the 0.1% FTT would be sent to the EU. All the countries would get to keep at least 91% of the money. France is actually the the least well off of the 6. But Belgium would keep nearly 99% of the money, and in the UK, the number is a whopping 98.4%. Surely, the UK government would have to be insane to veto such an easy way to get extra revenue.

Specifically, assuming that transactions in the UK are up at around 1,200 trillion euros a year (which is a reasonable estimate based on the fact that the numbers from the BIS for 2010 are still incomplete), the UK could potentially reap as much as 1,180 billion euros worth of revenue.

Of course, as my son Jonathan would say, the levels of transactions could well drop a lot and this makes it difficult, indeed impossible, to make accurate predictions. And indeed, most of the transactions undoubtedly reflect speculation that is almost certainly very sensitive to the introduction of a Financial Transaction Tax. However, this sort of activity could be seriously reduced without have any adverse effect on the real economy. Nevertheless, I think we can safely assume that imposing a very modest 0.1% FTT will not cause transactions to drop by 99%. In other words, the mechanism is virtually guaranteed to work.

By doing it this way, the FTT could be initially introduced just to replace the current mechanism for financing the EU. There is a serious possibility that the UK (and others) could generate very large amounts of revenue that could be used for paying off national debt, or abolishing taxes. But the fact is that any outcome would be beneficial. And of course, the FTT mechanism would have been introduced... and that's the aim of the game.

Once in place, and once the real numbers are available, countries could increase the FTT above 0.1% (which should be the minimum) to allow the conventional tax systems to be abolished, pay off debt, and relauch the economy. Easy!

Two ways of solving the Euro crisis

We are continuously hearing that taxpayers will need to bail out the banks in the event of a Greek default. But is that really true?

Consider a bank that has lent 10 billion euros to the Greek government. The critical question is to know what percentage of that money was "real" money - money that was deposited in the bank by savers - and what percentage was produced out of thin air by the miracle of fractional reserve banking. It seems incredible, but when a bank receives a million euros in deposits by savers, it is allowed to lend up to 30 times that much to anyone who is prepared to sign an I.O.U.  For example, if  the Greek government signs a loan agreement for 10 billion euros with Bank X, it is perfectly possible that only 3% of that money is actually money that was deposited at the bank. The other 9.7 billion euros was quite possibly created out of thin air by a wave of a magic wand. See the positive money website if you don't believe it.

It seems to me that under these conditions, there are two perfectly acceptable ways of resolving the problem.

Solution 1 is for Greece to say that they will repay the 0.3 billion that was actually deposited in the bank (with interest) but refuse to pay the other 9.7 billion that the bank never had. Since the bank doesn't owe that money to anyone, this would have no impact on anyone except the bank. They would just have less money to hand out in bonuses and dividends. So what? For almost every normal person, that would be wonderful news. We wouldn't have to put up will the sight of all those bankers receiving their obscene bonuses at the end of the year.

Solution 2 is that that bank goes bust. This would indeed be very bad news to anyone who had deposited any money in that bank - including ordinary citizens who may have their life savings in there. In that case, I think it would be very important for governments to step in and reimburse the savers who lost their money. I am sure that every normal person would agree to have taxpayers money used for this noble purpose. 

The point is that neither solution should require the hundreds of billions that European leaders are trying to put together to bolster a bank bailout fund. When we are told that the EU will need to find at least 100 billion euros to protect european banks, then I would say that we can safely divide that number by at least 10 and quite possibly 30. Is 3-5 billion too much to find to save the euro? Not in my books it isn't.

The other very intersting feature of this approach is that it will require banks to distinguish between the money that was created out of thin air, and the real deposits that people assumed were safe when they put their savings in the bank. And if the banks can't tell the difference, then they deserve to go to the wall.

Getting 18 trillion back into the system

Yesterday, someone commenting on the Guardian Website noted that the amount of money currently in tax havens was around 18 trillion, about one third of global GDP.  Clearly, if that money could be brought back into the economy, there would be no shortage of money for financing growth and no need for taxpayers to bail out the banks yet again.

But how can this be achieved? As long as there is one taxhaven left, multinationals and banks will no doubt use it to avoid paying taxes.  Yes, if there was global agreeement, it would just be possible to impose a world-wide ban on tax havens. But, realistically, this is not going to happen.

But the "Thorpe" plan offers a way (!). The trick is to use the potential of a modest 0.1% FTT to replace the conventional tax mechanisms - and in particular corporation tax, income tax, VAT and so on. The UK government could offer to abolish all these taxes, but only in return for agreement that all financial transactions have to go through regulated (and taxed) channels. And this should  include financial transfers with tax havens.

Suppose that these regulatory mechanisms were in place. It would be possible to put a zero rate on transfers back into the real economy for money currently in tax havens, and impose a punitive rate - for example, 10 times the standard rate of 0.1% for any transfers going outside the area covered by the FTT. If at the same time, taxes on company profits were eliminated, it would become financially sensible for the multinationals who are currently hoarding money in tax havens to bring the money back into the real economy. The money could, for example, be used to provide extra resources to the banking sector. And all this without needed to increase public sector debt.

Makes good sense to me.

The "Thorpe" Plan

OK, I agree that the "Thorpe" plan sounds pretentious. I would be very happy to call it something else, if someone else was proposing the same thing. Lots of people are now pushing for the introduction of a Financial Transaction or Robin-Hood Tax. The problem is that while it is just seen as a way to punish the financial sector, the lobbyists have the power to block progress, especially via their friends in the UK government. Here, the key is to trade the abolition of virtually all the main sources of taxation for agreement to impose regulations on financial transactions. It seems to me that not only would such a scheme be seen as highly beneficial to virtually all citizens, it would also appear very attractive to  the business sector. This is what would put those in financial sector who have been (successfully) campaigning for total deregulation of the markets in an untenable position. So, here it is. Comments welcome.

The "Thorpe" Plan 

The overall aim should be to replace all the current taxation methods with a single flat-rate Financial Transaction Tax. The only taxes that should be kept are those that serve specific social functions - such as taxes on tobacco and fuel. This can be down using the following measures.

• Impose a Europe-wide FTT at the 0.1% rate proposed by the EU that would replace the current VAT revenues to Europe.
• For countries with very large financial sectors, the amount paid to the EU should be capped so that the amount transfered to Europe is proportional to each countries GDP. 
• The extra revenue should be kept by the individual countries for (a) reducing or eliminating the exisiting taxes, (b) paying off national debt, and (c) launching investment programs in key areas such as energy, transport, education and research.
• Each government should negotiate with the financial sector and business with the following proposal. The government would abolish taxes on company profits (such as corporation tax), income tax, VAT  and employer contributions in return for agreement on a number of key areas.

1. All financial transactions would have to go via authorized and regulated mechanisms that are subject to the FTT
2. A ban on a wide range of socially undesirable financial instruments such as Credit Default Swaps, CDOs, Short Selling etc..
3. The abolition of the Fractional Reserve Banking system that allows  banks to create money. Only the elected government should have the right to create money.

Quantitative Easing for Dummies

The Bank of England has announced that it will inject £75 billion into the economy using Quantitative Easing. Some would describe this as printing money. Others describe it as handing even more money to the banks with no strings attached. You can download a pamphlet from the Bank of England's website where they attempt to explain what it involves. They've even done a nice little propaganda film to convince people that it is a wonderful idea. Here's a figure that makes it all clear

It all seems wonderful. When the Bank of England hands over the £75 billion, they say that they will avoid giving the money to the Banks directly. Instead they will will buy gilts from places like pension funds, insurance companies, and other "firms". I imagine that this include hedge funds.  The pamphlet then says "The sellers of the assets have more money so may go out and spend it. That will help to boost growth. Or they may buy other assets instead, such as shares or company bonds. That will push
up the prices of those assets, making the people who own them, either directly or through their pension funds, better off. So they may go out and spend more"

Lots of conditionals there. They "may" go out and spend more. As the figure shows, there is absolutely nothing that constrains those who have been handed the money to use it usefully. They are perfectly at liberty to send the money to a tax-haven in the Cayman Islands. Or they can use it to speculate on the foreign exchange markets. Or buy Credit Default Swaps. Or CDOs. In fact they can do precisely what they like. I think we can safely assume that they will just do what they always do - maximum their profits. There was no analysis of what happened to the previous £200 billion of quantitative easing in 2009-2010. There doesn't look like there will be anything more serious this time round.

Many people are been asking the obvious question - why not just  hand 1200 pounds to every man woman and child in the UK? Why not indeed.

Global Financial Transactions at 9.5 petadollars

The Bank for International Settlements recently published their Statistics on payment, clearing and settlement systems in the 23 CPSS countries for 2006-2010, although the data is still preliminary. I downloaded the comparative tables and compiled all the data from the 5 tables that provide numbers for the value of transactions that have been processed.  Transactions peaked in 2008 at $9,513,494,000,000,000 . Call that 9.5 million billion dollars if you like but I think that we really need to be using petadollars for these sorts of sums.

 
The financial crisis led to a drop to a mere 7.7 petadollars in 2009. The total for 2010 of 7.3 petadollars are still provisional, and in fact is bound to be a lot higher when the final numbers are published in December. In particular, the values for the UK lack the data for LCH.Clearnet.Ltd which reported 1.58 petadollars in 2008 and nearly 1 petadollar in 2009. I think that we can presume that we can add at least another petadollar of trading for 2010. We could well be around 8.5 petadollars when then full numbers are in.

The fact is that these numbers are massively underestimated. Many of the entries in the tables have had "Not available"  ("nav") for the entire period since 2006. Among the culprits you can find the London Stock Exchange, the American Stock Exchange, and many trading institutions in Australia, India, Saudi Arabia and Sweden.

And what about the other countries that don't report anything? For example the other 20 countries in the European Union that don't bother to provide data? Why doesn't the European Union oblige every country to provide the numbers? And why is the London Stock Exchange, and the City of London given the right to do as much Under-the-Counter trading as they want with no controls? And what about trading in Credit Default Swaps, CDOs, ETFs etc etc? Has anyone got the foggiest clue about what the true levels of activity are?

When people try to claim that the financial markets are lacking liquidity, I frankly have serious problems in believing them. The money is there. You cannot do something like 6 petadollars of trading per year without liquidity.

Note that applying the 0.1% FTT proposed by the EU last week could produce truly eye-watering amounts of revenue . Either that, or it would drastically reduce speculation on the financial markets. Both options are fine with me.

How to prevent a UK veto of a European FTT

In the week since the EU announced its plans to introduce a European Financial Transaction Tax of 0.1% (and 0.01% on derivative trading), it's become clear that the UK government is likely to veto the plan. This is partly because they are essentially doing what the City tells them to do. But it is also because there is clear (and partly justified) opposition to the idea that the money raised should go only to the EU. Clearly, the percentage of European financial transactions that go through the City of London is very high. I've heard some politicians claiming 80%, although I don't know where they get their numbers from since there are massive gaps in the reporting. The Bank for International Settlements only provides data for 7 of the 27 EU countries and, as I noted last weekend, the data for the London Stock Exchange has been "Not Available" since 2006 at least. The other source of information used by the EU, namely the Federation of European Securities Exchanges, has no data for the London Stock Exchange at all for 2010 and 2011.

Anyway, forget trying to get the true figure for the UK. The problem now is to convince the British that it is in their direct interest to go along with the European Union plans.

I have a suggestion. We should keep the 0.1% value for the EU-based FTT, but in each country, only half the revenue raised should be sent to Europe, the other half should stay in the country. That way, the system is a level playing field - no country can have a rate lower than the standard 0.1% rate, but each country would be able to benefit directly from the tax. This would be particularly important in the UK. According to my estimates based on the BIS numbers, financial transactions in the UK are somewhere between 1 and 2 thousand trillion pounds.  Imposing a 0.1% tax on this would have effects that would be certainly difficult to predict with accuracy, but would clearly lay somewhere along a continuum. At one end of that continuum is the unlikely possibility that financial transactions would continue at the (ridiculously) high levels seen at the moment. In that case, the tax could generate between 1 and 2 trillion pounds. At the other extreme, the tax would lead to a complete collapse of speculative trading, either because the traders stop trading, or because they move to some island somewhere that has no tax at all (this is what the lobbyists in the City claim will happen). Note that any of these scenarios can be considered desirable for the vast majority of citizens. Obviously, if speculative trading does collapse, there will still be the real economy to generate FTT based revenues, so the amount raised will still be very considerable.

The EU economists came up with a number of €57 billion for the amount of revenue that would be generated, but it's frankly very difficult to see how the number could be so low. For the UK alone, it is likely to be hundreds of billions. With my suggestion, half of the money raised would go directly to the EU (and could be used for any of a large number of worthy projects, including stimulating the European economy). But the UK would be able to keep the other half. On its own, this could be well be sufficient to abolish the other main sources of taxation, which only generate about £530 billion anyway.

Note that while the 0.1% FTT should be a minimum value, countries should be free to increase the tax locally to generate additional national revenue. And I propose that any increase above the minimum European level should go entirely to the national government. Thus, if the UK were to set the value at 0.2%, they would get to keep 75% of the revenue. And if they were to apply the same 0.5% rate that they have been using since 1986 to tax share trading via Stamp Duty (and which can hardly be said to have crippled share trading on the London Stock Exchange), they would be able to keep 90% of the revenue - and only 10% would go to Europe.

Imagine that - 90% of 0.5% of 1000 trillion is one hell of a lot of money. It's £4.5 trillion - twice the UK national debt (currently standing at £2.3 trillion if bank bailouts are included). Surely, this has to make sense, even to the most fervent Eurosceptics. The UK government's position is that they would only accept the introduction of an FTT if it was truly global. Given that there is no way to force every single island on the planet to accept the idea, this is effectively saying no, never. But even if the tax was only applied in the EU, the UK would benefit enormously. And if it including all the G20 nations, then 97% of all trade would be covered.

Let's do it now!

BIS Data for France and the other Eurozone countries

I've finally got round to adding something to my French language webpage. I've done the same sort of analysis of the latest BIS data for 2010 that I did for the UK, but using the French data. The total that I obtain (268 trillion euros) is certainly a lot lower than for the UK - they have a lot less of the frenetic financial trading that characterises the city of London -  but it's still very respectable. You can find all the gory details here.

Note that a 0.1% tax on 268 trillion euros would generate nearly three times as much revenue as all the current sources of income used by the French government. This again demonstrates that FTTs really can be used to replace conventional taxes, even in countries that do not have the bloated financial sector that characterises the UK.

I've also extracted the numbers for the four other Eurozone countries that figure in the BIS dataset, and all five countries are shown in the table below.

The total transactions for France, Germany, Belgium, Italy and the Netherlands come to €1572 trillion. I note that a 0.1% FTT applied to that would generate nearly 16 trillion euros - more that 27 times more than the €57 billion estimated by the EU, despite the fact that we have only taken into account 5 of the 17 eurozone countries. I presume that this difference comes from the elasticity parameters that the EUs economists used for their calculations. This is their way of estimating how much reduction in trading would be produced by the introduction of the tax. But I imagine that they will be forced to accept that it is pure guesswork. They also used a smaller value of 0.01% for taxing derivative trading, but this will not make much difference here because only a small fraction of the transactions in these countries - less than about 7%.

The main conclusion of all this is that there is a desperate need to impose complete reporting throughout the European Union so that realistic proposals can be made. This is precisely what the EU wants to do, but George Osborne apparently intends to block. Given the urgency, I would personally propose that the tax should be introduced as soon as possible, and the rate adjusted to generate the required levels of revenue.

B.I.S Data for 2010

The Bank for International Settlements has just published its preliminary data for financial transactions in 23 countries for 2010. The countries are the same as in 2009 - Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Korea, Mexico, Netherland, Russia, Saudi Arabia, Singapore, South Africa, Sweden, Switzerland, Turkey, the United Kingdom and the United States. You can download the full report as a pdf file, comparative data as an Excel file, or the specific details country by country as an Excel file. It's a real shame that they don't provide numbers for at least all the Eurozone countries. It's not surprising that the EU can only guess that the Financial Transaction Tax that they propose will generate around 57 billion euros. They based their numbers on - wait for it - the BIS data and the data from the FESE that I mentioned a couple of days ago.

When the European Union doesn't have complete figures for all the countries in the Eurozone, can it be any wonder that nobody can come up with sensible numbers. And to think that Osborne is trying to prevent EU level requirements on reporting.

Anyway, I've extracted what I consider to be the most critical information from the UK data in the full report.

First, here's Table 8 -" Indicators of the use of payment instruments and terminals by non-banks". It shows that last year in the UK, there were over £65 trillion in credit transfers, £948 billion in Direct Debits, £455 billion in Credit Card Payments, and £1,095 billion of Cheque payments. This makes a total of £67.5 trillion of "non-bank" transactions. This is certainly down a lot from the peak of £107.4 trillion in 2007, but it's still a hell of a lot of money. A 1% charge on that would generate enough revenue to abolish all the other forms of taxes in the UK - Income tax, VAT, Corporation tax, Stamp Duty etc which only raise about £538 billion. These transactions are not likely to move anywhere else.

Table 11, which reports "Payments processed by selected interbank funds transfer systems", tells us that the CHAPS system handled £56.7 trillion of credit transfers, and that the BACS system handled a further £4 trillion.

Table 18, which should provide numbers for the Values of executed trades for the London Stock Exchange and the Virt-x system just says "nav" (Not available) for every year since 2006.  Funny that, the City doesn't seem to be providing the numbers? How can that be?

In Table 21 ("Values of contracts and transactions cleared") informs us that LCH.Clearnet Ltd hasn't provided the number for sterling contracts (it was £588.8 trillion in 2009), but we do learn that contracts and transactions in Euros went up to €19.5 trillion in 2010 from €12.6 trillion in 2009. If the Sterling exchanges have gone up by a similar amount, LCH.Clearnet might well have handled something close to £1000 trillion.

Finally, Table 26 ("Value of delivery instructions processed"), tells us that the CREST system handled £143.5 trillion, somewhat down on 2009, but substantially higher than for 2006-8.

By adding up the different numbers, I would estimate that financial transactions in the UK that are reported to the BIS are likely to be at least as large as in 2009, when they totalled £911 trillion, and could easily top £1000 trillion. Applying the 0.1% FTT proposed by the European Union, and immediately rejected by the UK government could raise as much as £1 trillion - enough to pay off roughly half of the UK's national debt in a single year.

The truly mind-boggling fact is that these numbers don't include anything for the London Stock Exchange. They don't include the £300 trillion a year in Foreign Exchange going through the City of London, and the £190 trillion of OTC Derivatives trading. And who has the foggiest clue about how much trading in more obscure financial instruments such as Credit Default Swaps (CDSs), Collateralized Debt Obligations (CDOs), Exchange Traded Funds (ETFs) etc etc etc.  There is apparently no requirement to report these values.

A couple of days ago, I added up the numbers for trading on the FESE website for 2003-2011. What I failed to notice at the time is that two major Exchanges that are supposed to be included in the dataset didn't provide the numbers for 2010 and 2011. One was Italiana Borsa. And the other one? Yep - you guessed right: it was our friends at the London Stock Exchange yet again.

Conclusions? 1) The UK appears to be the world leader in Under-The-Counter Trading, and 2) the UK public has to realise that there really is a Plan B.  It simply requires that the UK government aligns with the rest of Europe and imposes a modest tax on financial transactions.

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.