ChrisJCook

How About Gold Backed IOUs for Ireland?

Here's what could be done in Ireland

Create a NAMA corporate body entity - call it the NAMA Partnership akin to an LLC, or a UK LLP.

All distressed property would then be transferred to a custodian member of the NAMA partnership.

An index-linked rental would be charged in respect of the land and any buildings constructed on it.

The resulting Pool of rentals would be divided into proportional "Units" eg billionths and these would be issued to the relevant banks in exchange for their debts.

Investors of money or "money's worth" in goods and services would then be invited to invest in the relevant sites and would share in development gains which thereby increase the Rental Pool.

For Occupier members it's then a simple (and affordable) "Rent to Buy", in that although they never technically own the land (any more than institutional securities in custody are technically "owned") they can invest in it until their income matches their rent.

For investors it's a REIT with the interesting quality that it's redeemable against land occupation - so that even if there are no Investor buyers, then if the Unit price falls, occupiers will buy for redemption.

The outcome is a sort of Debt/Equity swap - as Taleb was recently advocating in the FT....just not Equity as we know it.

It would work in California, too. They would simply keep on printing warrants (undated) and buy properties from banks and/or distressed/underwater sellers at prices that no-one with debt funding can ever match. Then they rent them at affordable index-linked rentals.

Long term investors would love index-linked, property-based, pretty secure revenues streams from Units like this.

Housing Bubble, The Sequel

There's another way of doing this

seekingalpha.com/artic...

Properties are transferred to and held in perpetuity by a "Custodian" (like the entire institutional securities market is already) and an affordable rental is set which is then index-linked.

This creates a "rental pool" which is simply divided into proportional Units eg billionths.

Occupiers who pay more than their rent automatically buy Units and hence Equity (ie it'sa variation of rent to buy") - and if they maintain the place themselves they get a "sweat equity" allowance in Units for doing so.

The outcome is essentially a REIT, but one where the Units are reeemable against property occupation. Investment comes form long term investors looking for property-based; index-linked; secure (because affordability=certainty) revenue. eg pension funds; soverign wealth funds; Islamic investment (this is genuinely Islamically sound, unlike most of it which is just putting lipstick on a pig).

As Taleb said in the FT recently, we need to move from debt to equity: well this is Equity -just not as we know it, Jim.

What's not to like?

Laying the Foundations for a Post-Oil Age Economy

derryl

In fact Marx saw the Abolition of Property and the Abolition of the State as being consequences of what he called the Abolition of Labour (so that people no longer work FOR capital rather than with it).

It was Stalin came up with centralisation and the State, not Marx.

I think it was the US political economist Henry George who had the right idea about land IMHO - he believed that those who have exclusive rights of use of land (how can anyone "own" land /location?) should compensate those they exclude.

So if you improve land over which you have exclusive rights you should keep all the improvement value. But if improvements by society increase the value of your location you should pay something in respect of that change in value.

IMHO most of the cost of public transport can and should flow from the capture of a small part of the increased land rental value in the area served. Both Hong Kong and Denmark get this right, and a few US areas have also in the past until landlord interests got their way and moved taxes to income and expenditure.

Income Tax, Not Wealth Tax: That's Another Story

I'd get rid of most tax on earned income and knock it right back to a few % flat tax, with no allowances etc etc collected through the clearing system.

Then I would tax privilege.

First, a Location Benefit Levy. ie a tax on land rental values. This captures a part of the unearned gains made by individuals from the spending by society which raises the value of their land.

Note here that if Hong Kong did not operate this painless approach to land tax the taxes on income would be 35% higher.Similarly In Denmark, similar taxes account for 30% of the tax take.

On the other hand, the investment made by an individual in the land/location he exclusively occupies should not be taxed.

Secondly a levy on exclusive use of common resources like non-renewables and water.

Third, a Levy on Limited Liability collected from gross corporate revenues.

All other taxes eg Corporation Tax, taxes on dividends, sales taxes, value added tax, I would get rid of, as well as Inheritance tax, and property taxes.

Then I would get rid of all means tested benefits and the bureaucracy that goes with them (noting that we have already blown away the entire public tax system and its related legion of private sector service providers) and simply give every citizen as of right a National Dividend.

Nice to dream....

How $30/Barrel Oil Could Save the World

I wasn't aware that it was (Shi'ite) Iran funding the (Sunni) Al Qaeda and Taliban. I had thought it was the Saudis.

And what makes you think that western democracy and Anglo Saxon property rights/ deficit-based money has anything to offer in the Middle East?

The same values underpin Juda'sm, Christianity and Islam and it's a shame that Israel and Iran's governments alike appear to have forgotten them.

Will Gensler Curb Manipulations in Futures Markets, or Is It Just Smoke and Mirrors?

"So if large control of energy commodities exist in the futures markets, it is acknowledged as manipulative, but if a very similar scenario exists in gold or silver futures markets, then such accusations are illogical conspiracy rants? LaSala’s argument that banks would hold huge short positions against silver (and gold for that matter) in the futures markets because they own the most significant portions of gold and silver stocks and warrants simply holds no water if you apply the same arguments to oil."

Tom LaSala is a good man IMHO. The situation in oil is entirely different form metals: it's like chalk and cheese.

Storage available to financial players in crude oil is de minimis compared to the market flows.

Sad to say, but these days - the trend has been continuing for years - NYMEX is the tail not the dog in the global oil market.

Medium and even long term manipulation has been (Goldman's alleged pillaging of Semgroup was very short term) running for many years and is institutionalised in the "Brent Complex" of contracts as it has evolved over time.

The dominant ICE market platform has of course been essentially owned and controlled by Morgan Stanley and Goldman Sachs since the outset. I heard that Gary Cohn and John Shapiro basically dreamt ICE up over dinner during the Dot Com boom.

Their brilliant execution strategy was that they picked up a technical platform (Sprecher's) that worked after a fashion.

Then they brought in all the other traders (BP - who were first of course, Shell, SocGen etc) on a deal of equity in exchange for liquidity (it was only MS and Goldman who put in money).

Finally, they acquired the market base of customers (after NYMEX told them to get lost) by making IPE an offer they could not refuse. The IPE broker members got totally shafted.

Morgan Stanley have made their own, relatively transparent (I have respect for one or two of their top people) arrangements to be able to make and take physical delivery month to month, but I think that the key relationship throughout the last fifteen years has been an opaque loose partnership/understanding between BP and Goldman Sachs.

BP of course stores its oil in the ground free of charge. I think that we have seen in recent years the sort of manipulation which went on undetected for five years (and THEN continued for five more!) in the copper market by Sumitomo/Hamanaka and was brilliantly described by Mike Riess here

www.materialsmanagemen...

My suspicion is that these days their main strategy (there were other ways of making money before) is that the GCSI fund and any other funds who follow are essentially supporting the market price off-exchange through the opaque and aptly named "Brent Complex" of:

(a) ICE Europe's BFOE (Brent, Forties, Ekofisk, Oseberg) cash settled contract;

(b) the BFOE forward 600,000 barrel contract (note that BP sold some or all of their North Sea production but retain the pipeline network, and know about virtually every barrel that moves);

(c) the "dated" BFOE price (which comes about when the BFOE contract goes into its delivery cycle -- (which is the actual global benchmark for most oil these days) NB WTI is irrelevant and is dragged in BFOEs wake by a massive arbitrage market;

(d) the pretty opaque market in "Contracts for difference" and similar exotica which link the above three.

I think it is possible that the BFOE price is massaged and hyped upwards and is held as high as possible by "buying in" cargoes (there are only 70 a month or so) for as long as losses made on these cargoes is less than the profits made on the other contracts based upon these prices.

This is not dissimilar to the way in which a cartel supports a commodity price (cf Tin) until the money runs out.

In this case the producers get a free ride - they will hardly complain about the middlemen making a few billion when they are making tens of billions.

This "bezzle" - JK Galbraith's term for an economic loss where the loser isn't aware he's losing - is of course being applied to consumers.

Now it's true they have a good idea they are being screwed, but in fact they are looking in the wrong place for the screwer.

Gensler will be quite happy to look at putting limits on exchanges, because that's not where his (former) colleagues are making their money.

As a purely hypothetical question, does anyone really ever leave Goldman, or are they just on long term secondment?

Is Excessive Speculation in Oil and Commodities Markets Actually Occurring?

Nate Hagen's post re CFTC and futures position limits at the Oil Drum was good....

www.theoildrum.com/nod...

I made a long comment, from the perspective of someone who used to regulate energy markets for a living (I used to be Director of Compliance & Market Supervision at the IPE...now ICE Europe), and the CFTC part follows...


"....Secondly, I believe that the CFTC are barking up the wrong tree.

For a deliverable contract, the futures market converges on the spot market, and not vice versa, and while position limits are useful coming in to the spot month, they are not really necessary even there because any clearing member who goes in to a delivery month without ensuring that either he, or his clients, are in a position to make or take delivery in accordance with exchange rules is in deep shit.

In my view, and this was the tenor of my evidence to the UK Parliament Treasury Select Committee last year, the big problem lies in the (rightly named) Brent complex ("Brent" is of course now BFOE - Brent, Forties, Oseberg, Ekofisk).

The hugely traded ICE BFOE contract is of course cash settled and therefore can have no direct influence on the physical or "spot" market price any more than a bet between me and Nate.

It is settled against a price calculated against trading in respect of the BFOE 600,000 barrel forward contract, but even this price is not that against which most of the global oil price is calculated. It is the Platts assessment of "dated" BFOE contracts to which we must look for that, and the relationship between the ICE futures price, the forward price, and the dated price is what makes the Brent complex...well, complex. It is also a licence to print money for intermediaries at the expense of end user producers and sellers.

Moreover, although it may not be easy for US politicians to accept, WTI is, through the existence of massive arbitrage trading between BFOE and WTI, almost entirely irrelevant as a pricing benchmark other than in the US. The ICE BFOE tail wags the NYMEX WTI dog, and a great part of NYMEX trading continues to be locals feasting on order flow.

I have long believed that a good starting point - and indeed the basis of a new global energy architecture is a global trade repository.

www.theherald.co.uk/bu...

Such a registry, through an exclusive user group ("International Energy Trade Association"), gives both a mechanism for transparency, and also a tool for enforcing and maintaining agreed market standards - ie suspension or termination of membership of the user group, and hence of the right to register transactions.

I digress.

For as long as we have a financial system dominated by intermediaries intent on maximising profits - and moreover a system in which these profits are accounted not in Units of value but in Units consisting of claims over value asserted "ex nihilo" by credit institutions - then we are stuck on the current treadmill.

I believe that the key is to create a partnership-based framework within which end users transact directly, and where intermediaries transition to service providers. In fact we are already seeing this trend writ large in the way that producer NOCs are taking back ownership on reserves from NICs, and re-engaging with them as service providers.

As I outlined here, my proposal is essentially for the creation of simple but radical new asset classes, which are to all intents and purposes new currencies. In particular, these would be units redeemable in gas, electricity, and other carbon-based fuels but priced against a Unit of Measure or "Value Standard" consisting of a fixed amount of energy.

It is only by bringing to bear a full global market price of energy to bear on those nations profligate in its use that we will see a serious reduction, and through monetisation, we may compensate the citizens of these nations with Units redeemable in energy which have a global value in exchange.

Within a partnership framework it will be possible to address resource use, apply a carbon levy, and much else on the basis of sharing gain and pain.

My take on what has been going on these last 15 years in the oil market is that we have seen three periods:

Firstly, from the mid 90's to maybe 2002/3 we saw the dominance of investment banks and oil trading intermediaries who routinely and systemically created artificial levels of price volatility. They profited from this, and from information asymmetry at the expense of end user producers and consumers who were using the market for its intended primary purpose - ie hedging.

Secondly, from 2002/3 to last year was the era of the hedge funds, who began to lead market volatility, but the investment banks morphed seamlessly into making money from prime brokerage, and privileged knowledge of order flow and positions.

Finally, and more recently, we have seen the flow of money into "safer" ETFs and the likes of the GCSI.

Pillaging these big fund positions has been going on for years. I blew the whistle on it 9 years ago and lost everything I had - livelihood, home, family - as a result, but it has long since been accepted that such conduct is a fact of market life.

The FT's John Dizard wrote tellingly about "Goldman's magic commodity box" here...

www.gata.org/node/4787

Hell, if you make the rules, you can't break them can you?

Finally, and apologies for such a long post, I think that what is happening in the market is that funds such as GCSI are essentially being used to prop up the market price through long term manipulation of the BFOE complex.

I am reminded of the way in which the International Tin Council kept the tin price artificially high for years - until production ramped up, they ran out of money, and the price collapsed overnight in 1985 in the "Tin Crisis".

I am also reminded - and this is probably a closer analogy to current shenanigans - of Hamanaka's long term manipulation of the copper market which went on for 10 years, and for five years was undetected.

Of course, the producers who are coining in hundreds of billions aren't going to complain about a few billion to middlemen, and the consumers don't know that they are losing.

This brilliant article by Mike Riess is a must read in the context of

www.materialsmanagemen...

What is needed IMHO is a new global energy settlement at a Bretton Woods II where a new architecture, pricing mechanism, reserve currency denominated in energy and investment distribution allocation is made in respect of energy. "

The Backwards Robin Hood Effect in Crude Oil Trading

Bob

I think you'll find that you share a general misconception that NYMEX WTI is particularly relevant these days to the way the market is being screwed. The futures market has very little to do with it IMHO.

My suspicion is that the big boys, particularly the likes of BP and Goldman (probably in collaboration) are able to manipulate the underlying Brent/BFOE (= Brent, Forties, Oseberg, Ekofisk), forward contracts because there are only about a max of 70 cargoes (each of 600,000 barrels) per month of BFOE loaded these days. That's only about $3bn per month at current prices.

It is the price of the "dated" physical BFOE contracts to which these give rise which actually sets the global price of crude. The ICE BFOE contract is cash settled against the prices reported in the forward markets and then WTI follows BFOE via massive arbitrage trading.

So WTI is the tail, not the dog.

I gave evidence to this effect to the UK parliament's Treasury Select Committee last year. As a matter of interest I was interviewed in London by a couple of people working for Senator Levin about 10 years ago when he was looking into the Brent market, but the senate changed hands at the crucial moment....

What is going on IMHO is that Goldman's GSCI fund is essentially lending money - via J Aron - to BP to keep the BFOE price artificially high. It's pretty similar to the way that the International Tin Council used to buy in stocks of tin to keep the price supported. Until the money ran out and the market crashed in 1985 that is.

My thesis is that BP and Goldman have been "friends" since the early 90s and have routinely jerked the market around for years, profiting at the expense of end user hedgers from the excessive volatility and superior market knowledge. I blew the whistle (I was until 96 director of compliance at IPE) on the systemic manipulation going on with the IPE Brent contract and associated market in 2000, and lost everything I had as a result, although I think people now realise that I had the truth of it.

That's why the current people rose to the top in Goldman, and also where BP also made a great deal of money, fairly opaquely. Just look at who was on whose boards etc

From around 2002/3 that game changed as hedge funds became too big in the market, and they then made their money from prime brokerage and superior knowledge of positions etc.

Now the game is pillaging ETFs and the hedgies still left, and also using ETF etc money to lean on, backed by a never ending stream of market hype and over reaction to news.

Not forgetting "Date Rape" of course....

eg www.gata.org/node/4787

Still, I might be wrong and it's all kosher and above board....

There's No System of Controls Capable of Eliminating Rogue Trading Altogether

"Gee, I wonder if they’ll ever catch the rogue trader who ran it up to $148 last year? "

Even if they did, they are Too Big to Punish

Renewable Energy Finance Forum: Looking to Washington for Guidance on New Financing

www.slideshare.net/Chr...

Renewable Energy Finance Forum: Looking to Washington for Guidance on New Financing

"Innovative capital structures are the new reality"

I couldn't agree more.

This proposal to unitise and hence monetise energy went down very well recently at the All Energy Show in Aberdeen, and we are working on pilot schemes.

Energy Pool

Plan Orange for Mortgages: Immolate the Crisis

Debt is sooo last century....

1/ Transfer distressed or underwater properties to a Custodian (the entire securities market is held by custodians).

2/ Set a reasonable and "affordable" rental, and index link it.

3/ Divide the resulting "Pool" of affordable index-linked rentals into proportional Units eg billionths, and then find investors in the resulting new asset class.

The outcome is close to a REIT, except that the Units in this one are actually redeemable against property occupation.

Anything occupiers pay more than the rental buys them Units (analogous to equity) and if they maintain the property they get an allowance of "sweat equity".

Unitisation is not Rocket Science, and it's not debt either.

Side Effects, Collateral Damages, and Unintended Consequences.

Absolutely first rate analysis and insight. Unfortunately very few on this site will have a clue what you are talking about.

In my view we need to look again at the assumptions which underpin economics and build a new political economics from the ground up.

eg

nordicenterprisetrust..../

Cap-and-Trade Plan: Climate Change Reactions

I have been saying since 2004 that carbon emissions trading and carbon credits are complete nonsense. They are a Millennium Bug scam brought to us by the same people who brought us the Credit Crunch.

Rather than monetise something with no intrinsic value, we might instead look at monetising the energy value of carbon, as reported in the FT Alphaville blog

ftalphaville.ft.com/20.../

Producers simply issue Units redeemable against electricity and/or carbon-based fuels, and price these Units against an "Energy Standard" unit of measure.

Then a carbon levy will fund a Carbon Pool fund, which may be invested in renewable energy production (MegaWatts) and even energy savings (NegaWatts). Units in the Pool would then be distributed equitably and the effect is that fuel prices may be gradually ramped up through an increasing carbon levy, and citizens will be compensated with Units they can redeem against fuel or other energy.

They can then carry on wasting fuel, or exchange their Units for something else of value.

It's not Rocket Science.

Why Solving the Credit Crunch Is Key

There is no solution IMHO to the Credit Crunch in a deficit-based paradigm. The only solution lies in a new approach to Equity, though thye creation of new asset classes which "unitise" land and property rentals, and while retaining a return (and being redeemable against actual property occupation), dispense with the debt obligation.