It then secures that credit against assets and future income from projects "owned" by governments or companies, who tend to invest as small an amount of capital as they can in conventional "Equity".
Such a "deficit-based" but "asset-backed" solution is not what I am proposing, as I am sure you are aware.
I am proposing the "unitisation" of future energy production using as a framework simple new legal vehicles other than the existing "Corporation" so that productive assets may be "Co-owned" and production and/or revenues shared between the user of the finance and those who provide finance and development expertise either through:
(a) the use of "proportional" Equity shares/ "partnership interests";
(b) interest-free "energy loans" - whereby energy units are simply sold forward; or
(c) both.
The partnership-based model which makes this possible is already emerging in the commercial sector in the UK and I set out in a couple of recent articles in "Energy Risk" an alternative structure for the UK wholesale electricity market.
The business of credit creation which you are in is part of the problem, not part of the solution IMHO.
Your Bank's role should in fact be as a service provider bringing investors together with investment,on the one hand, and managing the creation of bilateral "trade credit" on the other.
There is simply no need for your Bank to put Capital at risk by creating credit based upon it, so why continue to do it?
The world has moved on, and the first banks to realise this will IMHO wipe the floor with their competition.
Just because you've been working within one model for years doesn't mean that you couldn't apply your skills and experience to an alternative.
Or is that entirely unthinkable?
Standing on a one line assertion like that is not really what I would have expected. You forget I have 20 years' experience in the market, too albeit from a different perspective.
If I am wrong, tell me in what respect? "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
And no, the constructors do NOT want to take project risk - they just want to be paid right away to build what they are supposed to build. They are not investors, not banks, and they won't take energy IOUs or whatever else, just cash right away.
So someone needs to cough up that money at the beginning. In the long run, we're all dead. John Maynard Keynes
Money doesn't build you anything: "Money's Worth" does.
There are manufacturers prepared to build on credit terms on the basis that they, or related companies have long term supply contracts at an agreed market pricing formula.
Equally, there are other manufacturers, who maybe build to better standards, who insist on money now. I don't see why any supplier should not be expected to operate on the basis that they cover costs - on an "open book" basis - and receive what would otherwise be their "Profit margin" as a piece of the future production flow - particularly if they are operating the asset, too.
Thereby aligning the interests of the manufacturer with the customer.
In that case, yes, a "rump" of development credits are necessary to cover costs, possibly from investors, ideally from a pool of development credits (eg from a carbon tax) in public ownership, and built up over time.
"Commercial" Partnership Equity requires a return on investment commensurate with risk, like any other equity. The difference being that Partnership Equity is less risky than conventional Equity because it will be alongside a management partner, as opposed to after the manager or developer's cut as an intermediary. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
This is quite simply false. Manufacturers are, very occasionally involved as sponsors of projects, but they try to sell as soon as the contract with them, as contractor, is in place. They want cash, now.
If you have manufacturers willing to be paid in cubic meter of gas or kWh, you should start a business, because you'd make a lot of money. This simply does not happen. In the long run, we're all dead. John Maynard Keynes
As for being paid in gas or KwHr I'm talking about entitlement to units in a pool of future production. Once a project is complete, that is an asset which will have a market price.
If a manufacturer wishes to sell his rights to those units that's fine, as if he had conventional Equity in a PFI or similar.
Quibbling about the source of development credits is rather beside the point. The world is awash in credits, why does it needs a bank to create them?
My principal point is that there is no reason at all why units in pools of energy production in completed projects should not be a completely new asset class capable of forming an "asset-based" "carbon dollar" currency.
In particular, no reason why existing projects should not be refinanced in this way to create such an asset class.
I can see the value Banks can provide as service providers, but:
(a) what value do Banks add as intermediaries other than an implicit guarantee of the borrower's credit? and
(b) what has a Central Bank's interest rate got to do with the cost of that guarantee to the Bank? "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
the Chinese will build pretty much anything on low or no interest trade credit provided they get their hands on the output. No doubt that's wrong.
It's not the same Chinese that build and that buy the output.
But that's the problem. The builder does not want to be paid only if the project is complete, or if it performs, or if the market price is high enough. It wants to be paid the agreed price, full stop. Why do you insist on making it takes risks it does not want to take??
what value do Banks add as intermediaries other than an implicit guarantee of the borrower's credit?
Please go check what "project finance" is. Please. In the long run, we're all dead. John Maynard Keynes
Project Finance
is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, and debt is repaid using the cashflow generated by operation of the project, rather than the general assets or creditworthiness of the project sponsors.
Do banks create the "project debt" = credit that finances the project or not? Or am I imagining that?
It's not the same Chinese that build and that buy the output
What difference does it make? They are all arms of the State to a greater or lesser degree.
I already said up-thread that if a builder needs his costs paying because he cannot afford to invest then that's fine: development credit will be necessary.
But an agreed profit margin, with an "open book" approach and consensual partnership negotiation, can and should be "invested" so the contractor has "skin in the game" and a stake in the outcome.
When the project is complete he gets a proportional share in the flow of property rentals, energy, or other production, and he is free to sell this proportional "Equity Share" off on the open market in the same way he could sell off equity in a PFI -except that forward production should be considerably "cleaner" and easier to value and more attractive than shares in the net profits or a PFI company.
That's why Income and Royalty trusts are so popular in Canada.
Anyway, I'm tired of going over the same ground. I should know better: I shouldn't expect you to agree with what is in effect an existential criticism.
As you will know, I believe that the deficit basis of "Money as Debt" is simply unsustainable and that the global economy is in the process of breaking down terminally in the face of the conflict between finite resources and infinite monetary claims upon them.
I believe that I have identified an "emerging" alternative enterprise model to the current "broken" ande conflicted mixtures of debt and equity.
I aim to demonstrate this by working with like-minded people to develop and implement pilot schemes and build upon them.
So I'll just leave it at that. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Hmmm...a click too fast. I am imagining that. The SPV issues both debt and equity.
OK, point taken: that means the form of banking you practise is not as a credit intermediary.
Which is fine: I have no difficulty with banking as a profession. It's credit intermediation which is the problem.
But you could still use a simpler SPV. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
development credit will be necessary
So one entity will have to put their skin in the game.
Now we have another entity with skin in the game.
The first: the financiers; the second: the builders.
Jerome suggests that the investors (the financiers) want a different thing to the contractors. The contractor wants "cash on delivery"--hence the investment. The investors want "the product", which they guess (they gamble, maybe a very educated guess) that the product will be worth more than the contractor charged to build the means of production.
He says: if you don't pay the contractor upon completion, you won't get any contractors.
Contractors refuse to put their skin in the game. They don't gamble. They build a thing and get paid just as soon as part a) of the thing is built; and then part b). Or maybe they agree to build the whole thing before getting paid, so that's their risk--and, he's saying (if I'm reading this right--) that they don't want to go any further.
Okay, you say, so we need "development credit" to pay off this contractor. That's what the financiers offer.
Where does that credit come from? A person, people, organisation or organisations with money (no matter where the money came from originally--let's pretend their mobsters looking to launder some drug cash--the nephew of a capo is big on "the green thing" and another capo was talking about how his garden's gone crazy and this global warming shit, we should take notice--so they decide to launder launder, and when the money's clean they invest it in a wind farm.
So there's your money. The contractor builds and gets paid off. The product appears and the dirty money is now making clean money and renewable energy.
You think it is advantageous for both parties to take the same risk. Or have I got that all wrong?
You think it is better for the financiers to become partners rather than owners. You think it is better for the contractor to become an owner rather than an "odd jobber".
?
%:8) Don't fight forces, use them R. Buckminster Fuller.
Please go check what "project finance" is. Please.
I have to check up with the university what you are supposed to study to get into this field. :) Peak oil is not an energy crisis. It is a liquid fuel crisis.
We tend to recruit people with good formal education (graduates, post-graduates, etc - and mostly from the grandes Ecoles for French people).
Work is mostly based in London, with a few big teams in Paris, and a few others in places like Frankfurt, Munich, Dublin. In the long run, we're all dead. John Maynard Keynes
