NB: HNWI is "High Net Worth Individual"; the bold is mine.

As we approach the year end, fund managers and bankers are thinking about how their balance sheets will look. Fund managers will wish to show how prudent they are, holding cash, treasuries and no gearing; with the pace of redemptions this will be difficult for some.

Hedge funds, so far as we are aware, have fallen to about $1.6 trillion in aggregate, battered by falling markets and accelerating redemptions. They needed the Madoff scandal like a hole in the head. No HNWI feels safe invested in a hedge fund any more, and they are all want out.

However, hedge fund rules normally require 45 days notice before a quarterly dealing day, so the books closed for the current quarter in mid-November. There may be some fund managers holding out for better prices before the year end, but if so there are not many days left and thin markets to sell into. Next quarter is likely to see substantial liquidation, which will become apparent in mid-February, as the wealthy rescue what they can out of the wreckage of yesterday's fashion.

Bankers are also looking at their position, and from them there is a conspiracy of silence about the true position. Royal Bank of Scotland is an excellent illustration of this. Through two fund-raisings, RBS has raised £32 bn to bolster their balance sheet, and are now government controlled. Since their last year-end (December 2007), they have written off only £5.9 bn. This is a bank with a £1.7 trillion balance sheet, and which has not yet consolidated its share of ABN-AMRO.

A rough examination of RBS's 2007 balance sheet suggests the write-offs could easily exceed ten times that declared so far, suggesting the new capital is fully absorbed by losses. ABN-AMRO comes with a derivative dowry having a gross value of €10.66 trillion, an unimaginable sum. It's not clear whether all of this exposure will end up with RBS, but we will look forward to the combined entities' figures with interest.

When they are released, analysts should look at the treatment of the bank's liabilities as well as the assets. RBS has issued bonds shown at £237 bn. These will be marked-to-market, throwing up a surplus (since they have fallen over the year, reflecting the cuts in RBS's credit rating). This surplus is, believe it or not, in accordance with accounting rules, but utterly false. Likewise, the liabilities side of derivative positions may be marked down for the same reason, for the overall benefit of the balance sheet.

This opacity is not confined to RBS: all European banks face write-downs, though Eastern Europe and Russia as well as property will figure large in many cases.

The truth is that banks are fully exposed to the maelstrom of debt-deflation, for maelstrom it is. All assets get sucked into it, making any notion of value meaningless. Governments and central banks are desperate to stop this debt-deflation, driven by fear of the 1930s. But bankers are not stupid; they can see the risks as well, which is why they are not lending. Every time a finance minister exhorts them to lend, it serves as a warning to hoard their cash.

It is very difficult to see how the world can emerge from this crisis before it has blown its course. That being the case, the debt-deflation will end with total exhaustion, with price levels of all asset classes reduced to some nominal value.

The good news is that it should happen quickly, and be over in the first half of 2009. Those of us with anything left may want some cheap farm-land, and perhaps some very basic non-cyclical businesses. You should be able to buy them for a song, and on a ten year view you will make a fortune, because inflation will return with a vengeance as soon as velocity of circulation recovers. If gold dips, buy lots of that as well.

A few points come to mind.

Firstly, the fact that while the Powers-That-Be can recapitalise banks, they can do nothing about the Shadow Banking system which is where one of the next blows is about to fall through the forecast wave of hedge fund sell offs, with the other blows being waves of defaults in lending in respect of commercial property and private equity.

Secondly, the effect that Madoff's "bezzle" is about to have on the hedge fund industry, as documented here.

Thirdly, the question at the end, which is essentially that of where all this money is going to go even if it can get out from hedge funds?

Finally, unlike the author, I don't think the Credit Crunch is going to "blow its course" without collapsing the entire system, and I see the solution as a "Debt/Equity Swap" on a system-wide scale.

I advocate entirely new classes of low risk, reasonable real return, investments in "unitised" flows of income or production from assets - such as affordable housing and renewable energy - in common ownership.

Only in this way, I believe, can the debt deflation haemorrhaging be stopped.

Church of the Flying Spaghetti Monster

has been taking the piss out of Intelligent Design for some time.

Apparently one of the tenets of their religion is that there is a causal relationship between the decline of piracy and the growth of global warming, as this little comment on a Guardian article points out..

Has anyone looked at the Pastafarian web sites?

If anyone does not know about them, they are a spoof religion started up by some students to counter claims by `intelligent design supporters that their version of `christian evolution should be taught in the US.

The Pastafarians use similar arguments to `prove that God is a `Flying Spaghetti Monster'. One of the tenets of this spoof religion is that the increase in Global Warming correlates well with the decline of pirates, so that must be what's causing it. They advocate dressing and talking like a pirate to bring world temperatures down.

Recently there has been a upsurge in pirate activity, particularly around Somalia. And, impressively, global temperatures have been decreasing. The correlation seems to be much better than with the CO2 figures, given that temperatures are going down, and CO2 is going up!

The Pastafarians are having a field day, given that they actually predicted this effect, so their prodictions are more accurate than the IPCC.

I dont know about you, but I'm convinced.......

All good knockabout stuff.....

These posts (my highlights and titles) on the Gang8 Creditary Economics list get to the heart of the current policy errors.

Apologies in advance for the density of this stuff - we are in among the smoke and mirrors of the banking system here

Recession and Credit Creation

I calculate that the liquidity needs of the British financial system are at least $60 bn and ideally £80 bn. This is therefore the amount by which the Debt Management Office (DMO) should underfund. The last figure for its underfunding was £5 bn, so that the Bank of England has to lend the banks the what they need and borrow it back from them. The note issue of around £40 bn is nowadays not backed by government bonds but by reverse repos which are private sector obligations.

In August last year the Bank of England appears to have raised the liquidity target for banks from £20bn to £30 bn, yet at the same time the DMO was stripping £2.5 bn out of the banks by a gilt issue. Naturally the banks had to make arrangements with the Bank and it was the leaking to the BBC of one of these arrangements that caused the Northern Rock fiasco.

chewy stuff, good comments - afew

Colossal Financial Collapse

The Truth behind the Citigroup Bank "Nationalization"

By F. William Engdahl

On Friday November 21, the world came within a hair's breadth of the most colossal financial collapse in history according to bankers on the inside of events with whom we have contact. The trigger was the bank which only two years ago was America's largest, Citigroup. The size of the US Government de facto nationalization of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be `too big to fail.'

November 25, 2008 "Global Research" -- The clumsy way in which US Treasury Secretary Henry Paulson, himself not a banker but a Wall Street `investment banker', whose experience has been in the quite different world of buying and selling stocks or bonds or underwriting and selling same, has handled the unfolding crisis has been worse than incompetent. It has made a grave situation into a globally alarming one.

`Spitting into the wind'

A case in point is the secretive manner in which Paulson has used the $700 billion in taxpayer funds voted him by a labile Congress in September. Early on, Paulson put $125 billion in the nine largest banks, including $10 billion for his old firm, Goldman Sachs. However, if we compare the value of the equity share that $125 billion bought with the market price of those banks' stock, US taxpayers have paid $125 billion for bank stock that a private investor could have bought for $62.5 billion, according to a detailed analysis from Ron W. Bloom, economist with the US United Steelworkers union, whose members as well as pension fund face devastating losses were GM to fail.

That means half of the public's money was a gift to Paulson's Wall Street cronies. Now, only weeks later, the Treasury is forced to intervene to de facto nationalize Citigroup. It won't be the last.

Paulson demanded, and got from a labile US Congress, Democrat as well as Republican, sole discretion over how and where he can invest the $700 billion, to date with no effective oversight. It amounts to the Treasury Secretary in effect `spitting into the wind' in terms of resolving the fundamental crisis.

It should be clear to any serious analyst by now that the September decision by Paulson to defer to rigid financial ideology and let the fourth largest US investment bank, Lehman Brothers fail, was the proximate trigger for the present global crisis. Lehman Bros.' surprise collapse triggered the current global crisis of confidence. It was simply not clear to the rest of the banking world which US financial institution bank might be saved and which not, after the Government had earlier saved the far smaller Bear Stearns, while letting the larger, far more strategic Lehman Bros. fail.

Some Citigroup details

The most alarming aspect of the crisis is the fact that we are in an inter-regnum period when the next President has been elected but cannot act on the situation until after January 20, 2009 when he is sworn in.

Consider the details of the latest Citigroup government de facto nationalization (for ideological reasons Paulson and the Bush Administration hysterically avoid admitting they are in the process of nationalizing key banks). Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got some $150 billion in US taxpayer funds in the past two months. Ironically, only eight weeks before, the Government had designated Citigroup to take over the failing Wachovia Bank. Normally authorities have an ailing bank absorbed by a stronger one. In this instance the opposite seems to have been the case. Now it is clear that the Citigroup was in deeper trouble than Wachovia. In a matter of hours in the week before the US Government nationalization was announced, the stock value of Citibank plunged to $3.77 in New York, giving the company a market value of about $21 billion. The market value of Citigroup stock in December 2006 had been $247 billion. Two days before the bank nationalization the CEO, Vikram Pandit had announced a huge 52,000 job slashing plan. It did nothing to stop the slide.

The scale of the hidden losses of perhaps the twenty largest US banks is so enormous that if not before, the first Presidential decree of President Barack Obama will likely have to be declaration of a US `Bank Holiday' and the full nationalization of the major banks, taking on the toxic assets and losses until the economy can again function with credit flowing to industry once more.

Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses. After that, remaining losses will be split between Citigroup and the government, with the bank absorbing 10% and the government absorbing 90%. The US Treasury Department will use its $700 billion TARP or Troubled Asset Recovery Program bailout fund, to assume up to $5 billion of losses. If necessary, the Government's Federal Deposit Insurance Corporation (FDIC) will bear the next $10 billion of losses. Beyond that, the Federal Reserve will guarantee any additional losses. The measures are without precedent in US financial history. It's by no means certain they will salvage the dollar system.

The situation is so intertwined, with six US major banks holding the vast bulk of worldwide financial derivatives exposure, that the failure of a single major US financial institution could result in losses to the OTC derivatives market of $300-$400 billion, a new IMF working paper finds. What's more, since such a failure would likely cause cascading failures of other institutions. Total global financial system losses could exceed another $1,500 billion according to an IMF study by Singh and Segoviano.

The madness over a Detroit GM rescue deal

The health of Citigroup is not the only gripping crisis that must be dealt with. At this point, political and ideological bickering in the US Congress has so far prevented a simple emergency $25 billion loan extension to General Motors and other of the US Big Three automakers--Ford and Chrysler. The absurd spectacle of US Congressmen attacking the chairmen of the Big Three for flying to the emergency Congressional hearings on a rescue loan in their private company jets while largely ignoring the issue of consequences to the economy of a GM failure underscores the utter lack of touch with reality that has overwhelmed Washington in recent years.

For GM to go into bankruptcy risks a disaster of colossal proportions. Although Lehman Bros., the biggest bankruptcy in US history, appears to have had an orderly settlement of its credit defaults swaps, the disruption occurred before-hand, as protection writers had to post additional collateral prior to settlement. That was a major factor in the dramatic global market selloff in October. GM is bigger by far, meaning bigger collateral damage, and this would take place when the financial system is even weaker than when Lehman failed.

In addition, a second, and potentially far more damaging issue, has been largely ignored. The advocates of letting GM go bankrupt argue that it can go into Chapter 11 just like other big companies that get themselves in trouble. That may not happen however, and a Chapter 7 or liquidation of GM that would then result would be a tectonic event.

The problem is that under Chapter 11 US law, it takes time for the company to get the protection of a bankruptcy court. Until that time, which may be weeks or months, the company would need urgently `bridge financing' to continue operating. This is known as `Debtor-in-Possession or DIP financing. DIP is essential for most Chapter 11 bankruptcies, as it takes time to get the plan of reorganization approved by creditors and the courts. Most companies, like GM today, go to bankruptcy court when they are at the end of their liquidity.

DIP is specifically for companies in, or on the verge of bankruptcy, and the debt is generally senior to other outstanding creditor claims. So it is actually very low risk, as the amount spent is usually not large, relatively speaking. But DIP lending is being severely curtailed right now, just when it is most needed, as healthier banks drastically cut loans in the severe credit crunch situation.

Without access to DIP bridge financing, GM would be forced into a partial, or even a full liquidation. The ramifications are horrendous. Aside from loss of 100,000 jobs at GM itself, GM is critical to keep many US auto suppliers in business. If GM failed soon most, possibly even all of the US and even foreign auto suppliers will go under. Those parts suppliers are important to other auto makers. Many foreign car factories would be forced to close due to loss of suppliers. Some analysts put 2009 job losses from a GM failure as high as 2.5 million jobs due to the follow-on effects. If the impact of that 2.5 million job loss is seen in terms of the overall losses to the economy of non-auto jobs such as services, home foreclosures caused and such, some estimate total impact would be more than 15 million jobs.

So far in the face of this staggering prospect, the members of the US Congress have chosen to focus on the fact the GM chief, Rick Wagoner, flew in his private company jet to Washington. The Congressional charade conjures up the image of Nero playing his fiddle as Rome goes up in flames. It should not be surprising that at the recent EU-Asian Summit in Beijing, Chinese officials mooted the idea of trading between the EU and Asian nations such as China in Euro, Renminbi, Yen or other national currencies other than the dollar. The Citigroup bailout and GM debacle has confirmed the death of the post-1944 Bretton Woods Dollar System.

The real truth behind Citigroup bailout

What neither Paulson nor anyone in Washington is willing to reveal is the real truth behind the Citigroup bailout. By his and the Republican Bush Administration's adamant earlier refusal to take an initial resolute action to immediately nationalize the nine or so largest troubled banks, he has created the present debacle. By refusing on ideological grounds to instead reorganize the banks' assets into some form of `good bank' and `bad bank,' similar to what the Government of Sweden did with what it called Securum, during its banking crisis in the early 1990's, Paulson and company have created a global financial structure on the brink.

A Securum or similar temporary nationalization would have allowed the healthy banks to continue lending to the real economy so the economy could continue operating, while the State merely sat on the undervalued real estate assets of the Swedish banks for some months until the recovering economy made the assets again marketable to the private sector. Instead, Paulson and his `crony capitalists' in Washington have turned a bad situation into a globally catastrophic one.

His apparent realization of the error of his initial refusal to nationalize came too late. When Paulson reversed policy on September 19 and presented the nine largest banks with an ultimatum to accept partial Government equity ownership, abandoning his original bizarre plan to merely buy up the toxic waste asset-backed securities of the banks with his $700 billion TARP taxpayer money, he never revealed why.

Under the original Paulson Plan, as Dimitri B. Papadimitriou and L. Randall Wray of the Jerome Levy Institute at Bard College in New York point out, Paulson sought to create a situation in which the US `Treasury would become an owner of troubled financial institutions in exchange for a capital injection--but without exercising any ownership rights, such as replacing the management that created the mess. The bailout would be used as an opportunity to consolidate control of the nation's financial system in the hands of a few large (Wall Street) banks, with government funds subsidizing purchases of troubled banks by "healthy" ones.'

Paulson soon realized the scale of crisis, largely triggered by his inept handling of the Lehman Brothers case, had created an impossible situation. Were Paulson to use the $700 billion to buy up toxic waste ABS assets from the select banks at today's market price, the $700 billion would be far too little to take an estimated $2 trillion ($2,000 billion) in Asset Backed Securities off the books of the banks.

The Levy Economics Institute economists state, `It is probable that many and perhaps most financial institutions are insolvent today -- with a black hole of negative net worth that would swallow Paulson's entire $700 billion in one gulp.'

That reality is the real reason Paulson was forced to abandon his original `crony bailout' TARP plan and opt to use some of his money to buy equity shares in the nine largest banks.

That scheme as well is `dead on arrival' as the latest Citigroup nationalization scheme underscores. The dilemma Paulson has created with his inept handling of the crisis is simple: If the US Government paid the true value for these nearly worthless assets, the banks would have to write down huge losses, and, as Levy economists put it, `announce to the world that they are insolvent.' On the other hand, if Paulson raised the toxic waste purchase price high enough to protect the banks from losses, $700 billion `will buy only a tiny fraction of the 'troubled' assets.' That is what the latest nationalization of Citigroup is about.

It is only the beginning. The 2009 year will be one of titanic shocks and changes to the global order of a scale perhaps not experienced in the past five centuries. This is why we should speak of the end of the American Century and its Dollar System.

How destructive that process will be to the citizens of the United States who are the prime victims of Paulson's crony capitalists, as well as to the rest of the world depends now on the urgency and resoluteness with which heads of national Governments in Germany, the EU, China, Russia and the rest of the non-US world react. It is no time for ideological sentimentality and nostalgia of the postwar old order. That collapsed this past September along with Lehman Brothers and the Republican Presidency. Waiting for a `miracle' from an Obama Presidency is no longer an option for the rest of the world.

© Copyright F. William Engdahl, Global Research, 2008

As most here know, in my view one part of the solution lies in reinventing Equity through Unitisation of land and property rentals.

Time for G7 to count its oil barrels

COMMENT

Time for G-7 to count its oil barrels

By Chris Cook

"How many divisions has the Pope?" was Josef Stalin's reaction when told that Pope Pius XII opposed his policies.

In a recent 10-day visit to Iran, I made a presentation in relation to a new financing approach to energy markets based on a simple but radical partnership-based legal and financial structure or "Enterprise Model". As a result, I subsequently met many senior officials of the highest rank.

One lesson I drew was that my hosts considered that Iran was not alone in considering that the current rush by the Group of Seven (G-7) leading industrialized nations to reconfigure the global financial system - they will be at the forefront of a summit this weekend to discuss a way out of the present financial crisis - is based on wishful thinking at best and total delusion at worst.

The day after my departure, Iran, Qatar and Russia - which possess well over 50% of global natural gas reserves - met to discuss the future of the global market in gas and the possibility of a "gas OPEC". Most serious commentators regard this as impracticable for a variety of reasons, most important of which is the role of infrastructure such as pipelines and LNG liquefaction trains - and in particular their stupendous costs - which mandate long-term contracts.

While Iran has for some time been in favor of developing a gas equivalent to the Organization of Petroleum Exporting Countries (OPEC), it appears that the impetus behind the current series of meetings may well have been from Russia. Certainly, from where Russia is sitting, the pro-US stance of new French President Nicolas Sarkozy, combined with a German approach, which could not exactly be said to be favorable to Russia, has for the first time brought the EU seriously into question as a destination for gas.

Energy security - like pipelines - has two ends. Geopolitical calculations in relation to security of supply are - in the case of Russian energy giant Gazprom - supported by the commercial reality that having a single route to market is never a good idea. This is particularly so when the route runs through countries such as the Ukraine, which may be tempted or feel economically obliged to draw on gas in transit in breach of agreements.

Whatever the facts of the matter, Russia was extremely annoyed at the extremely negative way in which its dispute with Ukraine has been characterized in the West, when they have been reliably delivering gas to the EU for some 40 years, including during the Cold War.

That being so, the idea of energy cooperation between Russia and Iran, particularly through the routing of Caspian oil and gas through Iran to the Persian Gulf or elsewhere, appears to be far more than merely a Russian negotiating tactic.

However, the Gas OPEC meeting in Moscow scheduled for November 18 was postponed and some observers consider that competition between these and other leading gas-supplier nations will render further progress impossible; indeed one of the sticking points has been whether the proposed Gas OPEC should be based in Doha or Moscow.

A new global market in gas
In my presentation in Tehran, I referred to the possibility of a "Caspian Master Partnership" approach to the collaborative development of the rich Caspian energy resources. This was received extremely well, to the extent that I felt encouraged to submit for consideration an outline of a proposal for a "next generation" networked global gas market architecture.

This "GasClear" proposal was based on very considerable development work I have carried out in the past 10 years in the area where markets and the Internet converge.

The first element of my proposal is for a global "Gas Master Partnership" whereby an association of gas market producers would combine with an association of gas market consumers to create a natural gas "Clearing Union" based on "GasClear" - the generic function of gas market transaction registration. The cartel of energy market intermediaries which currently benefits disproportionately from oil market volatility, and which many consider has an interest in promoting it, would participate in this gas market on terms set not by themselves, in their own interests, but rather by producer and consumer "end users".

The key stakeholder of such a master partnership I envisage as a neutral gas market "custodian" entity - in which nation states are members - which in all likelihood would be a Swiss entity. The other subscribers to the gas market master partnership agreement would be the "Association of Associations" gas market user group of market counter-parties, on the one hand, and a "Gas Market Service provider" consortium on the other.

Gas unitization
The second element of my proposal is that natural gas should be "unitized", through the simple device of the creation of "units" (in the Master Partnership) issued by producers and redeemable in gas. It is then possible for gas market infrastructure to be financed - or refinanced - in a way that renders secured debt - which in any case is becoming ever more scarce - entirely redundant.

Gas producers could, simply by selling undated gas units "forward", obtain interest-free finance through what is essentially a (sharia compliant) loan denominated in energy. Investors would be able to invest directly in gas, and benefit from energy price rises, but with the knowledge that they will always be able to redeem the units against their own energy consumption or to sell units to other consumers, if not to investors.

The outcome of such a market would be "energy dollar" units initially based on natural gas, but capable of being extended to other forms of energy and thereby of becoming a global means of exchange. Such an energy dollar could come to replace as a global reserve currency the US dollar, which is currently being temporarily propped up by the continuing process of massive de-leveraging, whereby dollars are necessarily required to repay dollar loans.

Clearly the prospect of holding balances of such energy dollars would be infinitely more attractive to consumers such as China and Japan than the prospect of accumulating still greater balances of conventional US dollars.

Bretton Woods II
The great producer nations must be looking on in amazement as the G-7 rushes to press the "reset" button on the deficit-based financial system, thereby wiping out trillions of dollars worth of the value that producers received in exchange for their production.

Many months of preparation preceded the first Bretton Woods, and in the limited time left before the final collapse of the post-Bretton Woods US dollar-based system it should be possible for producer nations to prepare a coherent and holistic counter-proposal for the necessary new global settlement - a successor Bretton Woods II agreement.

The US in particular should be asked to repay its energy debt to the rest of the world, and to do so by deploying their stupendously wasteful military industrial complex to the peaceful - and extremely profitable - purpose of creating and deploying the technology necessary to conserve the precious non-renewables we still have, and to create new and renewable sources of energy in the future - that is, a "Green New Deal", largely funded by US creditors, and with the benefits shared equitably among nations.

In my view, John Maynard Keynes's proposal in 1944 of an "International Clearing Union" was the correct approach. The key difference in the alternative networked and decentralized architecture I envisage is that the "value unit" (Keynes's "Bancor") would not be an inherently worthless "fiat" currency issued by a global institution.

It would instead be a redeemable "energy dollar" issued by producer nations within a networked pool of energy production and a global Master Partnership framework agreement. Moreover, a carbon levy - essentially a mandatory, but valuable, investment - could then fund direct investment in renewable energy production (megawatts), and indeed even in energy savings ("negawatts").

Such an International Clearing Union architecture would be in the interests of nations which focus on the creation of real, rather than paper, wealth, and could lead to a market framework operating, as Muhammad Yunus of Grameen Bank puts it, "not for loss" rather than for the profit of purely financial intermediaries.

So, in conclusion, energy producers generally could be forgiven for asking the question:

"How many barrels has the G-7?"

Complex? I don't think so, and neither does anyone else who has seen the proposal.

Hopelessly naive? We'll have to see what becomes of it.

But I shall be back in Teheran in a couple of weeks, all being well, to run a couple of workshops on it.

Toward Society 3.0

by one John Moravec who operates

Education Futures

It's a great presentation, and I am going to have to view it again at leisure to get to grips with it.

He is saying that we cannot use current Education 1.0 techniques to educate people in the coming Education 3.0 paradigm - and implicitly, I suppose, that we will pretty much bypass an Education 2.0 altogether.

I see quite a bit of congruence with my

Market 3.0

which was published seven years ago, and has recently been picked up by a Peer to Peer guru, Michel Bauwens.

In particular  

Why Market 3.0?

The first generation of markets -- Market 1.0 -- was decentralised but disconnected, and 'market presence' required the physical presence of buyer and seller, typically in local and regional exchanges.

Market 2.0, which has now reached its zenith, is centralised but connected, with market presence through intermediaries such as Exchanges or proprietary Alternative Trading Systems (ATSs).

Market 3.0 represents the final evolution of markets: decentralised but connected, with market presence being through a 'network presence' on a dedicated market network.

Understanding Market 3.0 requires consideration of the architecture of the Internet itself and how this relates to the communications, security, technological and legal infrastructure of markets.

Sunshine in Berkeley

almost exactly a year ago.

But now Berkeley has their innovative municipal financing system up and ready to go.

Berkeley FIRST (Financing Initiative for Renewable and Solar Technology)

Program Description

Berkeley FIRST is a solar financing program offered by the City of Berkeley. It provides property owners an opportunity to borrow money from the City's Sustainable Energy Financing District to install solar photovoltaic electric systems and allow the cost to be repaid over 20 years through an annual special tax on their property tax bill.  The tax will only be paid by Berkeley property owners who voluntarily participate in the Berkeley FIRST program.

Berkeley FIRST is intended to solve many of the financial hurdles facing property owners who want to install solar systems. To calculate the cost benefit of the Berkeley FIRST program for your household energy needs please see the UC Berkeley RAEL calculator on the UC Berkeley website.

Calculator

The advantages of the Berkeley FIRST program are:

    * There is relatively little up-front cost to the property owner.
    * The cost for the solar system is paid for through a special tax on the property, and is spread over 20 years.
    * The financing costs are comparable to a traditional equity line or mortgage.
    * Since the solar system stays with the property, so does the tax obligation--if the property is transferred or sold, the new owners will pay the remaining tax obligation.

The FIRST program will initially fund 40 installations distributed throughout Berkeley. It will provide financing up to $37,500 per installation for either residential or commercial properties. Property owners in all areas of the City are encouraged to apply. During this pilot phase the City will evaluate the program and determine whether another round of funding can be made available.

I'd be very interested to see how this unconventional (loan to the property,not the man) but still "deficit-based" approach stacks up.

My alternative approach would be to create the fund as a "Berkeley Energy Pool" and make the loans interest-free, but denominate them in an equivalent number of (say) 10 Kilo Watt Hour Units

So an "energy loan" could then be repaid:

(a) by regular purchases from the Pool at the market price (the Pool becomes a virtual utility); and

(b) through sale of excess energy into the system.

Investors in the Pool would essentially be buying units in an Energy Fund, and, as with gold, they would get no income. But you can't run your A/C with gold.

By using a mechanism like

Kilo Watt cards

Units could be easily used in exchange, and Berkeley could thereby put the magic of

Seigniorage

which is the benefit they would get from the fact that a large number of redeemable Units would not in be cashed in - to municipal use.

...and as an afterthought, the service provider running the system is of course an LLC...

Gordon Brown 'warned over Iceland banking problems in April'

The Prime Minister was allegedly told in April by Geir Haard, his Icelandic counterpart, that the arctic country's financial sector had serious problems, Channel Four News reported.

Mervyn King, the Governnor of the Bank of England, also was said to have asked his officials to assess the risks to Iceland's banks in April, the report said.

The Bank also rejected an Icelandic request to support its currency, which was under pressure from international investors who believed the Icelandic economy was unstable.

Newspapers and City analysts began raising doubts about Iceland's banks at the start of this year. But neither the Government nor the Bank said anything about the potential threat to Icelandic investments at the time.

And of course the Treasury had nothing whatever to do with either the need for local authorities to obtain "Best Value" or the "fiduciary duty" of charities' trustees to seek out what were - apparently - both safe and remunerative investments....

Meanwhile the LibDems' Vince Cable - widely perceived to have had a "Good War" so far - wants an investigation

Probe calls over financial crisis

Cable is following the politician's maxim

"Always kick a man when he's down"

Liberal Democrat treasury Vince Cable said that the Government now needed to explain exactly what it knew about the extent of the problems in the Icelandic banking system.

"What was so striking (was that) the Governor of the Bank of England had judged that the Icelandic banks were in such dangerous and volatile condition that it would be difficult to save them and yet the authorities ignored all of this information and as a result billions of pounds of LGA (local government authority), police, charities money has been lost,"

he told the programme.

"There is a need for an investigation and at the very least a proper statement of exactly what the British Government was told, when they were told and what they did."

Indeed.

The reason was a gathering of a group of engineers and scientists - the name Claverton Group - deriving the name from the venue.

Apart from Jerome, whom I introduced to the group, and was otherwise engaged, I am probably the only "non-techie" in the Group.

The star speaker was Dr Gregor Czisch, of Kassel University, who set out his vision of a European Super Grid.  I missed the first half of the presentation, but had the chance subsequently to catch up a bit .

This study is quite remarkable, and shows quite clearly that in terms of actual costs - before financial costs - a renewable future for Europe is a "no-brainer". Dr Czisch realised he could not have been taken seriously without including financial assumptions, and he assumes a pretty conservative Real Interest rate of 5%.

Since I am leaving it to my learned ET friends to delve into the paper, this is therefore only a Lazy Quote Diary.

I would be interested to hear their conclusions. Likewise, while Dr Czisch is a very busy man, he has stated that he hopes to be able to respond to questions - particularly from anyone who has read the paper.....!..which is available here.

Low Cost but Totally Renewable Electricity Supply for a Huge Supply Area - a European/Trans-European Example

The Claverton Group released the following press release today.

Expert unveils plan for a European-wide renewable electricity solution
At the fourth Claverton Energy conference, hosted by Wessex Water, Bath, international energy expert Dr Czisch outlined his strategy for a European-wide super grid that would supply all of Europe with entirely renewable electricity.

Speaking at the conference Dr Czisch of Kassel University, Germany, also said the move to a renewable electricity system could cost the UK consumer the same as what is currently being paid, and, if there is the political will, he added that it could in theory be achieved in decades.

Dr Czisch, who has conducted research of world weather patterns and European electricity consumption on an hour by hour, day to day basis, says Europe could ensure its energy security, slash its CO2 emissions and have a sustainable, renewable electricity supply by employing a network of wind turbines that stretch across the continent from Siberia to North Africa, where the wind is most constant.

This would be supported by biomass, coupled with an extended transmission system and existing hydropower plants providing storage capacity. In Dr Czisch's system wind would account for 70% of the electricity mix. Biomass and hydro would provide storage and back up and the biggest part of the remaining electricity production.

All of this is the result of a mathematical optimisation that allows for maximum objectivity in searching for the lowest cost renewable electricity supply for Europe and its neighbourhood.

Dr Czisch states that biomass production in his system would not have to impinge on agriculture. Electricity in Dr Czisch's system created by wind farms in North African countries would also be used domestically in each country, but the major part of the total electricity created by these North African wind farms would, as Dr Czisch's optimisation calculated, be fed into the European super grid.

Dr Czisch says this would create economic development in each of these countries, as well as a reliable renewable energy infrastructure, and in addition it would give each nation the prospect of good income and long-term employment.

According to Dr Czisch if the power stations and transmission system are installed gradually - e.g. replacing existing plants as they become obsolete - the annual investment costs for the new installations in the whole scenario territory - according to the base case scenario - would account for €52.1 billion for the wind power plants, €16.2 billion for biomass power plants, €6.4 billion for the HVDC transmission system and €2.7 billion for solar thermal power plants, totalling €77.5 billion. This is 0.6% of the EU's 2002 GDP.

Speaking after the conference Dave Andrews, Claverton Energy Group secretary and conference organiser said:

"A lot of negative comment has been made about wind turbines and wind power without regard for fact. Dr Czisch's European super grid is a clearly defined long-term solution for our energy needs that does not include nuclear power or the building of more coal and gas fired power stations. This largely confounds the claims of various energy experts who claim renewables cannot meet UK power needs, who make this assertion without reference or criticisms of Czisch's detailed analysis."

Leading UK and international energy experts agree that technology already exists for a European super grid and that renewable energy is the long-term solution for energy needs.

Godfrey Boyle and Prof Dave Elliott of the Open University, Dr Mark Barrett of UCL, ex-chief scientist and co-founder of Airtricity, Brian Hurley, who have all carried out their own studies into the practicalities and use of wind power and other renewables, as well as Chris Hodrien of Expansion Energy Ltd and Oxford University, and Oliver Tickell environmental campaigner and author of Kyoto2, have welcomed Dr Czisch's idea for a European super grid.

The experts agree that renewable electricity is the right way forward and urge UK and European governments and energy policy makers to investigate this further.

It is now becoming clear that the UK Treasury has cocked this up on a cosmic scale with a toxic mix of complacency, arrogance and simple deafness. Feelings are running high in Iceland against the UK, who appear to have precipitated the very events they were seeking to avoid, and moreover, abused the spirit, if not the letter of UK law in order to do so.

The subject is

The Credit Crisis in 30 slides

and the winner gets an iPod iTouch.

The judges make their decision on the basis of the presentations voted best.

Vote Early! Vote Often!

...as they used to say in Chicago....

Amid the rubble of global finance, a blueprint for Bretton Woods 2

I was interested to see that he is saying in respect of carbon markets exactly what I have been saying in "Energy Risk"; "Asia Times" and here on ET for some three years now. In fact he uses almost the same language I have been using here in ET except that I say "brought to us by the same people who brought us the Credit Crunch" instead of the highlighted text.

A straightforward tax on the carbon content of fossil fuels, levied by all countries, would do the job, and much better than the enormously cumbersome emission-trading system concocted and championed by the same financial engineers who brought us our current banking crisis.

I couldn't resist the following LTE, which will undoubtedly go the same way- onto "the Spike" - as all my other letters to the Guardian (for the reasons Helen has percipiently pointed out), apart from the odd one liner.

Dear Sir

Having just returned from Tehran, where I met among others the head of the Majlis Energy Commission, and deputy ministers, I am pleased to see that Mr Sachs has woken up to what I have been saying for several years now in publications such as "Energy Risk" and "Asia Times" about the sheer fatuity of deficit-based voluntary or  "fiat" schemes such as the Emissions Trading Scheme, Carbon credits and so on.

Clearly it makes more sense to monetise energy - which has intrinsic value - rather than to monetise CO2, or an IOU,  which have none. And as Mr Sachs points out in almost exactly the same language as I used in an Asia Times article, monetisation of something valueless is exactly what brought us the Credit Crunch.

Where I differ from Mr Sachs is that he seems to think that the G8 will be calling the shots in relation to any "Bretton Woods II" whereas I can tell him that this is not likely to be the view of the suppliers of most of the G8's gas - Iran, Qatar and Russia - when they meet later this week in Teheran, or indeed of OPEC members when they also meet shortly to discuss their own concerns.

My proposal, which was received with great interest in Teheran, to the extent that I was asked to assist their Oil Ministry in tabling a proposal to the meeting this week, is for a new "Clearing Union" market architecture. In such a proposal gas would be  "unitised" - within a global partnership and trust based framework - into redeemable units  traded bilaterally or "peer to peer" and subject to a mutual guarantee supported by provisions into a mutually owned default fund.

In such a global framework, there will be no need for capital standards  because there are no credit intermediaries. Although there is a requirement for banks to add value as service providers, there simply is no need any more for them to put their capital at risk by creating credit based upon it. As for regulation, as I said recently in evidence to the Treasury Select Committee, the existence of a global transaction registry would allow national regulators both access to necessary market data, and give them regulatory teeth through the ability to suspend or terminate the right to register transactions.

My proposal would essentially give rise to an "International Clearing Union" as envisaged by Keynes at Bretton Woods, but without the global Central Bank he suggested, and with a "Bancor" Value Unit redeemable against energy, rather than being the "fiat" currency envisaged by Keynes.

Yours sincerely

Chris Cook

The start was inauspicious. A cock-up with the flights meant I left Edinburgh on Friday afternoon instead of Thursday.

The good part of that was I got in a conference I thought I had missed (plus 24 more hours with solveig, of course!): the bad news was arriving at 4am on Saturday morning, and finally staggering in to the 5 star Estaghlal (used to be the Hilton) at 6am.

Vast improvements in the two years since last here, and these days they even take credit cards....not that I need one...all taken care of....

Up at 8am. The place is swarming with nationalities. It's like the Star Wars saloon bar full of aliens...

Off to the conference, and I find I'm  chairing the first session, and sitting alongside the Deputy Oil Minister, Head of the National Iranian Oil Refining and Distribution Company, Mr Nematzadeh. He's the host and chair of the proceedings, and introduces three ministers who made welcome speeches.

I then chair a session on global energy and refining prospects. Some interesting speakers, but tight timetabling. Would have been nice to have been at the speaker dinner the night before....

The first speaker blows it all out of the water by speaking for 40 minutes. It was the remarkable Dane, Haldor Topsoe, 95 years old and still working in the catalyst firm he owns which is at the leading edge of catalyst development.

Not easy to give reminders to someone whose sight and hearing are failing but whose mind is as active as ever. Topsoe has been working in Iran since the 60's and the conference ended with a moving tribute and series of presentations to a great man, much loved in Iran.

So I had to be ruthless and prune the rest of the speakers down to about 12 minutes each, but as far as I could see their presentations didn't suffer because of it....

The rest of the day's presentations were pretty much beyond me technically, but there were some interesting expositions concerning refining strategy, and new pipeline developments.

Off to bed after another meal of rice, meat and salad....I'd forgotten the cuisine here.

Then I'm first speaker on at 9.00 hrs the next morning, traditionally the graveyard shift as everyone who got pissed the night before rolls in late. Not in Tehran , though....and there's a fair showing as I kick off and more as I go through my 15 minute slot.

The presentation was in a narrative style - about 130 slides in all, but saying what I was saying, pretty much, with Farsi translation (the only one of the conference, and much appreciated...) and some good images and diagrams. I had rehearsed it the night before (there's always a first time) and cantered in within my allotted time.

I first did Chris Cook's view of the continuing collapse of the global financial system, and then moved on to the possibilities for Iran of "Unitisation" as an new form of equity alternative to secured debt.

ie financing infrastucture by selling forward redeemable units of production.

First, I sketched how it might look for a proposed Caspian refinery to be financed by selling production forward. I was careful here to point out the importance of having a long term crude oil supply as a partner.

A proposal for a gas liquefaction plant at Kharg Island in the Persian Gulf was another matter. Here they are flaring off a gazillion Btu's of gas every day, and my proposal is to monetise this free gas by unitising and selling it forward, using the proceeds to build the plant, and allocating a proportion of the production to an operator.

The rest is profit aka surplus.

Then it's a quick run through the benefits of a partnership framework for developing energy resources in the Caspian Sea.

A Caspian Master Partnership.

Not a million miles away from the MasterDeed framework arrangement in the North Sea that eases transfers of interests in North Sea fields. Except that the MasterDeed is based on UK trust law - invented by lawyers, for lawyers, and still a nightmare, just less of a nightmare than before...

Finally a spin past a carbon currency, a reference to the complete uselessness of emissions trading and carbon credits, and that's me done.

The extraordinary thing about the rest of my panel, was that virtually every one of them made explicit reference to the necessity for partnership working in the refinery development process. An Iranian engineer even gave a presentation in respect of a "Project Alliance" contractual framework (piloted by Aussies and in NZ apparently) which he wanted to introduce in Iran. I could have written his presentation myself.

The next few says have been a bit of a blur. I was approached by dozens of people, and have had about ten meetings in the last few days ranging from the head of the National Petrochemicals Company interested in "unitising" methanol and urea ( I thought he was taking the piss...) the people who run Iran's electricity grid, and thought they wanted a UK or Nordpool structure......and concluding today with a press conference with about 20 Iranian journalists (not a western one in sight more's the pity) and a meeting with Mr Nematzadeh himself, not four hours after it was announced he was being replaced and is to be the Ministers' "Top Adviser" instead.

Remarkably civil in all the circumstances, I thought...

But the big one was yesterday, and right out of the blue...

A senior Oil Ministry official is deeply taken with the partnership structure which he sees as possibly replacing "buybacks" ( atype of contractual arrangement which oil majors hate), and also hugely interested in the Caspian Master Partnership.

But all I can say is that his most pressing interest concerns the global market in gas, and after a couple of days R & R in Isfahan, I've got a meeting with the Chairman of the Majlis (Parliament) Energy Commission on Saturday pm, and  couple of other meetings.

If I can agree terms of engagement in the meantime, I've got an outline document to write on Sunday......

All good stuff.

Now out into the fumes and impossible traffic of Tehran to meet more of the friendliest people in the world...

My paper and presentation should be available on my site

Open Capital

early next week, for those interested in such things.

By way of preparation I wrote an article which will be published in two Iranian newspapers on Saturday, I understand, and "Asia Times" have been kind enough to publish it today, despite the fact it directly addresses Iran

A New Dawn for Iran

After the conference I have quite a few meetings already lined up, including ministers, leading parliamentarians, financial services practitioners, and - perhaps the one I most looking forward to, believe it or not, a meeting with clerics in the Holy City of Qom, to discuss the values underpinning financial markets and products.

Interesting times, indeed....

Beyond Peak Credit - a New Dawn for Iran?

I have been working for some seven years, with a background in global financial services at the highest level, to assist Iran in developing a coherent financial system fit for the 21st Century.

Throughout this sometimes painful process I have made clear that the Western "market economy" is fundamentally unsustainable and that its collapse would occur sooner rather than later. Unfortunately, those decision-makers in Iran who received my advice took the mistaken - but conventional - view that the Western "Twin Peaks" financial market model based upon "Debt" (credit created as money by credit institutions) and "Equity" (in Corporations) was both sustainable and even desirable.

But, as I have been saying throughout, both privately and in articles published globally, this model never was sustainable. Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth's resources - particularly carbon-based energy.

The Problem - "Peak Credit"

The dollar-based global financial system is continuing a slow, and irreversible, collapse from the point - I call it "Peak Credit" - in August 2007 when the unsustainable US property price "bubble" finally burst.

The problem is not one of liquidity - ie the absence of money - Central Banks can print as much of that as necessary. The problem is a terminal shortage of capital or Equity in the global banking system - a solvency problem. The US government was previously able to resolve such a problem - as they did in the 1930's - by deploying unused domestic resources.

The US has brought forward, through its catastrophic waste of resources in Iraq, its "Suez Moment". This is the realisation forced upon Britain by the US in 1956 that economic realities require an End to Empire. The US cannot resolve the insolvency of the Dollar-based global financial system without the assistance of their international creditors, and this requires a new global settlement - a "Bretton Woods II".

It is ironic that Iran has been protected from being infected by the "Anglo Disease" by the very sanctions which were aimed at damaging her.

What is the Alternative?

We must recognise the distinction between "Money" and "Money's Worth" and ensure that the financial system reflects this.

Over 70% of Dollars created are in fact based upon the value of land use - and came into existence as loans secured by a legal claim or "mortgage" over land. Most of the rest of the Dollars are based upon the value of carbon-based energy (ie oil) much of which originated in Iran.

Firstly, in relation to energy, I advocate the replacement of the literally worthless (because "deficit-based") Dollar created by the US Federal Reserve Bank with an "asset-based" "Energy Dollar" or "Carbon Dollar" value unit based upon the intrinsic energy value of carbon-based fuels.

This currency would be created by "Unitising" energy as "Units" redeemable against energy within the "PetroTrust" framework I am presenting in Teheran at the important International Oil Refining Conference on 11th/12th October. Such Units would then circulate globally, subject to mutual guarantees, within the framework of an "International Clearing Union" similar to that proposed by the great economist John Maynard Keynes at the first Bretton Woods conference in 1944.

Secondly, in relation to the value of land I propose a new "Co-ownership" framework for direct investment - "Unitisation" - in a new type of "Real Estate Investment Trust" ("REIT"). This would replace the conventional financing of land and buildings through secured "mortgage" lending which invariably gives rise to bubbles in land prices.

Such "Capital Partnerships" between Investor and User of Investment are in fact already emerging in the UK and will be immediately recognised by anyone who is familiar with the revenue and production sharing agreements which have been at the heart of Iranian and Middle Eastern commerce for literally thousands of years.

A National Equity?

The alternative to an unsustainable "Deficit-based" system can only be "Asset-based": new forms of "Equity" -beyond the "Corporation" - to replace unsustainable secured Debt. Existing national accounting - based upon a "National Debt" - is fundamentally flawed but is unquestioned, and until recently, unquestionable.

I believe that Iran could be the first to evolve a "National Equity" to replace much of her - conventional "National Debt".

The means to do so is simply to use new alternatives to the legal form Iranians - like everyone else - regard as a fixed constant - the "Limited Company" or Corporation. Once it is realised that alternatives to the Corporation are not only possible, but are emerging because they actually work better, then everything else will fall into place.

I am pointing out that Iran does not need to sell ownership and control of her natural resources to multinationals when she can simply "Unitise" and "sell forward" part of her production to investors, receiving interest-free finance in return.

A New Dawn

The resources of Iran in terms of energy, whether carbon-based or the energy of her immensely talented and young population, are phenomenal. I believe that it is possible for the Iranian people - with wise leadership, which is not lacking - to harness these energies and to "self organise" within agreed frameworks to meet the global challenges we face.

It goes without saying that Iran cannot address these challenges alone. But I believe that the simple, but radical partnership mechanisms now emerging will not only allow Iran to transcend sterile arguments and competition, but to do so in a way that integrates her eternal values with an optimal economic model which will cure the "Anglo Disease".

Finally, to those in Iran who advocate reform, I have this advice: the last thing Iran needs is to reform itself to achieve a "Western" financial market model which has demonstrably failed. Indeed, Iran is fortunate that circumstances have prevented her from going down this road.

Instead, I believe that Iran should examine - from first principles - how a market economy might operate collaboratively to develop Iran's productive economy, rather than being operated as a casino for the benefit of financiers at the expense of the productive economy.

I look forward to working with my Iranian friends to achieve an economy fit for the 21st Century

And a hat tip to Jerome, whose "Anglo Disease" receives an honourable mention....

Only in Norwegian so far, but the Iceland Prime Minister was just on TV to say that the government is taking control of the banks, but may not have the resources to save them.

He said that it is too risky for Iceland as a nation to bail out the banks, and therefore there is a real possibility that the Icelandic economy will collapse...

Update [2008-10-8 11:46:51 by ChrisCook]:

The Icelandic Central Bank has announced that it has given up supporting the kronur - which was always a bit like resisting tanks with a pea-shooter

The Swedish Central Bank has apparently offered a SK 5 billion loan to prop up Kaupthing's Swedish operation - Kaupthing Bank Sweden AB - where 25,000 Swedes put their money in the last year alone in search of a 5.55% interest rate...

In the UK, Kauthing's UK division, Kaupthing Singer & Friedlander has been put into administration, and the retail deposits of Kaupthing Edge have been shifted to ING

As they say, if something looks too good to be true, then it probably is...

Which sums up Iceland's economy in recent years pretty well...

Credit worries slow OTC oil trading

which illustrates that the credit ripples are spreading....

They said credit worries were also spurring a shift to clear over-the-counter oil trades, such as price swaps, on NYMEX Clearport, which offers clearing for some OTC derivatives.

"It's driving a lot of people toward doing cleared OTC business, we've seen that to quite a degree," said Christopher Bellew, a broker at Bache Commodities Limited.

On the face of it, that has to be a good thing in terms of regulatory risk and transparency to the regulators.

But as I have pointed out elsewhere, I don't think either market participants or regulators appreciate that clearing houses are as much a "single point of failure" as Fannie Mae and Freddie Mac are.

They have in common the fact that they both support a pyramid of price risk supported by a sliver of capital. As I have recently said - again - the risk of "Black Swan" events wiping out that capital is far higher than is generally appreciated

Oil markets: an accident waiting to happen

Moreover, the ongoing move by the Intercontinental Exchange to clear their own business

Ice Clear Europe

(and thereby make more money from what is known in the trade as a "vertical silo" approach) is temporarily on hold

Clearing transition postponed

during the current market turbulence.

No doubt the FSA is asking them very searching questions about their risk management.

But the bottom line is that the pool of capital supporting these transactions after the transition must - as far as I can see - be less than it is when the risk lies in London Clearing House's risk pool of capital which covers several other markets beyond oil.

Another classic case of the profit motive acting to increase systemic risk,

In praise of free markets

and was moved to write the following LTE, which will undoubtedly go the way of most of the rest...

Dear Sir

Further to your leader yesterday, as a former market regulator - I recently gave evidence to  the Treasury Select Committee in relation to oil market regulation -  I naturally advocate a market solution.

But to borrow language from Dr Yunus of Grameen Bank, I advocate a market which operates "Not for Loss", rather than "For Profit".

The UK bit the bullet and chose the "Public" solution of nationalisation : the US twists and turns to find a "Private" or  "For Profit" solution, albeit a genetically modified one.

I propose a "Not for Loss" synthesis in the form of a "Capital Partnership" within the framework of a UK LLP or US LLC.

A Bradford & Bingley Partnership would operate as follows:

Step One: B & B assets are put into the hands of a "Custodian".

Step Two: existing B & B Equity is exchanged for proportional "Units" in B & B gross revenues eg billionths.

Step Three:  the B & B "rump" now stripped of finance capital remains as "human capital"  which receives an agreed proportional allocation of Units as a "Managing Partner",

Step Four: the Treasury introduces Public investment as necessary and in exchange receives Units from the Investor allocation, thereby diluting existing Investors.

Such a "Capital Partnership" is a simple, but radical "hybrid" solution, but transcends the "Principal/Agency" conflict between the interests of owners and management which both the UK and US leave intact in different ways.

The interests of B & B management and B & B investors - whether public or private - are now aligned in a simple, radical, and, believe it or not, Islamically sound, way.

It's not Rocket Science.

Yours faithfully

Chris Cook

The "Glasgow Herald" published today a slight variant of my FT LTE

Introducing a new market solution for banking crisis

Probably too radical for the FT!

The plot thickens: is there to be white collar crime in the White House?

Hagen to breakfast with Bush

Our recycling Norwegian shirt hero Stein Erik Hagen and his wife are to have dinner tonight with President Bush, and breakfast in the White House tomorrow - between bank collapses, no doubt.

The background for Hagen's Washington visit is that Hagen has for years been on the advisory board of the Library of Congress.

Hagen did not wish to comment on the meetings when journalists met him at Oslo airport on  Thursday.

....but it is confidently expected that he will appear in the White House in new shirt collars, and with new soles on his shoes.

Surely the Library of Congress is a cover for something more sinister, since everyone knows Bush doesn't read, and Hagen only reads balance sheets.

Is this in fact a meeting of the Illuminati, or the Bilderberg shirt working group?

The People must be told!

Shirts.

Stein Erik Hagen is - or was - one of Norway's "nouveaux riche" financial engineers.

He is notorious for giving highly public advice to the curent "Red/Green" Government in relation to economic policy, inevitably from a perspective somewhat to the Right of Genghis Khan.

He has been somewhat surprised - a bit like McCain's ignorance as to his private housing stock - that Joe Public (sorry... Ole Nordmand...) did not appreciate the economic sacrifices he recently said he was making.

That's right.

Stein Erik Hagen is surprised about the shirt scandal

about how he sends his shirts (which apparently cost over NOK 2000 or £200.00 each) to London to have new collars fitted, rather than buying new ones.

Don't people know sacrifices have to be made??!!

Nordic and global shirt news - afew

LQD: Central Banks and Unintended Consequences

I had a quick look at the proposition that current Bank of England policy - based upon conventional thinking about money and inflation - is diametrically wrong and can only lead to the outcome they are aiming to prevent.

More evidence is gathering daily that liquidity is draining out of the system despite what appears to be the valiant efforts of the Fed to maintain it.

A case in point is Norway, and a few others, who have been "bailed out" (honestly!... you couldn't make this up...) by the Fed because they have been running out of dollars to settle inter-bank dollar borrowing.

U.S. Fed Agrees to $30 Billion Swap With Four Central Banks

In fact, on one day last week virtually no Norwegian bank could give a price on NOK/$ at all....

Norway's central bank, or Norges Bank, yesterday supplied $5 billion in one-week dollar currency swaps to ease liquidity in financial markets. The bank also swapped $5 billion to ease dollar shortages last week.

The point is that, as Geoffrey Gardiner pointed out in that LQD there is a big difference between "pro inflationary" printing of dollars "unfunded" by T Bills, and "anti deflationary" printing of dollars to replace the catastrophic destruction of dollars by defaults.

If the Fed continues on this course they can only make a bad situation worse. They have forgotten - if they ever learned - the lessons of deflationary times which is, counter to conventional thinking, that the printing presses must roll to replace the money destroyed.

As I understand it, Gardiner is saying that the Banks are unable to create credit because of a shortage of "high-powered" money.

Now, as Thomas Edison said

"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good."

That is as true in the age of electronic bills as it was in the age of paper ones. Why should it not be the case that the users of a pool of Treasury credits, which cost nothing to create, actually pay no "inteerst" but instead pay a provision for the use of the Treasury guarantee, and a service charge to the banks who would manage the system?