Of all tyrannies, a tyranny exercised for
the good of its victims may be the most
oppressive.

Steve Baker (Wycombe) (Con): I beg to move,

That leave be given to bring in a Bill to require certain financial institutions to prepare parallel accounts on the basis of the lower of historic cost and mark to market for their exposure to derivatives; and for connected purposes.

I rise not as an expert in derivatives or derivative accounting, but as someone who has wrestled with the problems of the banking system in the company of experts, both academic and practical. I am persuaded that a parallel, more conservative accounting regime for derivatives would mitigate some of the worst risks in the financial system.

Even though banks are governed by overarching EU and Basel rules, it is for British regulators to approve the day-to-day activities of British banks. This is a profoundly important role. My Bill is a moderate proposal which seeks to improve accounting transparency to enable that role, because, as Mervyn King has said,

“banks are global in life but national in death”.

Read the rest of my speech via House of Commons Hansard Debates for 15 Mar 2011. The Bill was successfully introduced.

There’s too much state intervention in banking already, so I hesitated to propose another imposed measure. However, it seems to me that until we expose the exploitative merry-go-round fostered in banking by the State, we will not achieve meaningful change.

In the preparation of this speech and supporting material, I am deeply grateful for the tireless support and encouragement of Prof. Kevin Dowd, Visiting Professor, Cass Business School, Prof. Margaret Woods, Reader in Accounting at Aston Business School and Gordon Kerr of Cobden Partners, who admits to having previously played a small but significant role in crashing the British banking system.

To learn more, please see www.cobdencentre.org.

Over at The Cobden Centre, my friend and colleague, financial engineer Gordon Kerr, explains how to destroy the British banking system through the use of derivatives which take advantage of the regulatory system, then sets out four measures to solve the problem:

Nine years ago I worked as a structuring engineer in a three-man team within the investment banking unit of a major British bank. One of us was very bright. He stunned me one day with an idea as to how we could:

Produce immediate (but illusory) substantial profits for our bank, thus ensuring that we would enjoy generous personal remuneration;

Generate ‘virtual’ share capital to boost our bank’s capital reserves;

Leave the actual investment risk exposure and profit expectation of our bank almost exactly the same after the transaction as before it.

Was this idea the kind of rocket science derivative engineering that justifies master of the universe labels for the three of us who designed and implemented it? No: it was extremely simple. Here’s how it worked. We transmuted some loan assets into a derivative transaction for regulatory purposes, whilst leaving the actual loan arrangements unaltered.