Nigel Tufnel Day

… It’s 11/11/11 – Nigel Tufnel Day. Go one louder!


LCH.Clearnet – who? what? why?

So, just to make sure I understand this straight: Italy’s current problems are the result of the hitherto-unknown (at least by me) LCH.Clearnet – essentially a clearing house for bond trading – deciding that traders in these things need to lodge more money up front with it to cover any prospective default, thus increasing the price of doing so and the rate of interest which the Italian government has to offer on such things to sell them.

This is despite the Italian economy being, generally speaking, in a healthy state, with low private debt, a level of public debt that is high but not unsustainably so, and a level of public expenditure which has been lower than taxation revenues in every year since 1992 (other than 2009).

A couple of questions, in the tradition of the simple laddie at the Emperor’s parade:

1. What exactly is LCH.Clearnet and to whom is it accountable?

2. How has it come to occupy such a central role in this whole business?

3. Are there, to coin a phrase, other clearing houses available for the trading of bonds, not just in Italian government bonds but those of other countries? If there are, is there any suggestion of a cartel?

4. And the evidently rhetorical – why do we give such organisations this sort of power over our economies? Or, perhaps more accurately, given the lessons of 2008, why do we continue to place such economic faith in the actions of financial institutions? To what extent does it make sense to give ‘markets’ (and here, we should be clear that this does not reflect an ‘invisible hand’ but the decisions of very powerful (but nevertheless completely invisible) individuals) this sort of role in the shaping of our economies? Not least when financial ‘markets’ (and individuals) are not exactly known for taking the long-term view which is critical in the circumstances in which we have been landed.

This really is the return of History (or, otherwise, perhaps the end of the End of History).