My letter to the Financial Times on 22 May produced a modest firestorm of response in letters to the paper.  I guess I should have been prepared for that: when I gave evidence to ECON in the European Parliament back in February 2012 I was assailed from all corners with hostility, with the three other speakers being vehemently in support of the original proposal (for an FTT in all 27 Member States).  The MEPs in the chamber seemed in denial by political dogma, prejudice or whatever; and nobody was willing to support any of the concerns that I was highlighting over the real economy impact.

How greatly things have changed since then.  There’s much wider acceptance that there are profound problems with the nature and the implementation of FTT.  I feel much less isolated in expressing the views that we hold in the EACT.  But the reactions now to my FT letter seem to reflect a reanimation of some of my old demons.

I had said: “…[FTT’s] avowed aims – to seek some recovery from the financial system for the taxpayer costs of the crisis and to discourage non value-added transactions – are ones with which the real economy has some sympathy…”.  I’m not sure I could have pinned my personal feelings more overtly to the mast.

Lord Myners – for whom I have huge respect – wrote in response on 28 May that “…Richard Raeburn misses the point. There is no evidence that high levels of equity trading bring any benefit to investors or corporations; indeed a great deal of evidence, including the performance over longer time periods of passively managed funds versus most actively managed diversified portfolios, suggests the reverse”.

In fact I entirely agree with Lord Myners and my personal money is where my mouth is – I pursue a passive investment strategy.  But in the letter I was neither directly nor indirectly linking FTT to this important issue.  For the real economy there is plenty of credible evidence to show how the tax will substantially raise the cost of derivatives and of financing.  The underlying activities giving rise to the need for derivatives and financing are nothing like as controversial as is active trading by investment managers – indeed they are central to what companies need to do to reduce financial risk and assure the supply of liquidity for fixed and working capital investment.

I believe that the way to cut the active trading by investment managers that generates little or no real value for those carrying the cost is to work harder to demonstrate the case for passive strategies.  I don’t think that the passive trading argument is sufficient in itself to justify the implementation of FTT.

On 3 June 13 Sharan Burrow of the International Trade Union Confederation wrote to say that “…Politicians, we are told by Richard Raeburn, have backed “a monster that threatens their children. In Europe, the monster is not the FTT. It is the oversized and subsidised European banking sector, which populates more than half of the official Group of 20 “too big to fail” list”.

Of course I wasn’t commenting on the banking sector and, probably much to Ms Burrow’s surprise, I actually agree with much of her core sentiment.  But FTT is neither sufficient nor necessary to get everyone to address the fundamental and still unresolved issue of the monstrous problem of banking.  I’m with Ms Burrow in believing that this is of huge concern and that the EU and governments generally have still not adequately addressed how to protect the taxpayer, with its generational burden from the crisis and that threatened by further crises.

In my view the real argument against FTT still remains intact: this is a tax that will largely not be paid by the financial sector but will be borne by all of us – companies, individuals, pension funds – who must deal with that sector as it is now.  I’m aligned with Lord Myners and Ms Burrow in wanting an economy in which non value-added activities in the financial sector are discouraged and where the taxpayer will not stand yet again as bailer-out of last resort for poor management within excessively large banks.

A refined and much better focused FTT that addresses these legitimate aims would be far easier to support and must be the safety route for the politicians who (foolishly, I would argue) jumped on the bandwagon of the Robin Hood Tax.  In this new FTT it should be a given that the burden of the tax remains, so far as this can ever be possible to guarantee, within the financial sector.


I’ve spent the morning drafting the EACT’s submission to the European Commission’s consultation on the new (Basel III) capital requirements regime.  Impenetrable source documents for many of us – but for some time I’ve felt the issue was blindingly simple.

Let’s assume commonsense prevails on the need to allow corporates to continue to use OTC derivatives without having to go through central clearing and tie up real or imaginary cash to meet unquantifiable future margin calls.  If the arguments for that are accepted – and although we are not there yet the signs are positive – will legislators, regulators and civil servants really take leave of their senses and allow Basel III to reverse the exemption?

More to follow on this and I’ll post a link to our submission once it’s agreed across representatives of treasury associations in 19 countries (no kidding).  In the meantime I’m about to take a call from a US risk advisor who wants me to comment on a draft article he’s preparing that’s headed ‘What Does Europe Know About Derivatives that the White House Doesn’t?’.  Great stuff – and at the end of a 24 hour period in which the political tensions around OTC regulatory proposals seem to have been heating up – look at Senator Blanche Lincoln’s website and also try to track what Senator Saxby Chambliss has been saying (not an easy task).