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Sad. They rig the system, make money off of financial disasters hands over fists, and then when they get caught using illegal methods...nothing. Real hard not being cynical about change...

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia
by whataboutbob on Mon Jul 13th, 2009 at 07:08:09 AM EST
[ Parent ]
In my experience GS don't break rules.

If rules are inconvenient they get them changed, or instead get waivers quietly issued that then surface years later.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 07:54:43 AM EST
[ Parent ]
Tobin tax, anyone?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jul 13th, 2009 at 08:26:50 AM EST
[ Parent ]
Cart and horse problem.

Here's a question - what would it take in practice to change the game and eliminate the influence of the likes of GS?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 09:01:29 AM EST
[ Parent ]
Abandoning the fetish of liquidity. From and old thread:
As long as the "units" are liquid there will be bubbles. And if they are not liquid it will be very difficult to find investors to sell them to.

Here's Keynes on liquidity (with my emphasis)

Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind  by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of an investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance whichh envelop the future. The actual, private object of the most skilled investment of to-day is 'to beat the gun'. as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.
He then proposes a Tobin tax, or high barriers to entry to capital markets
These tendencies are a scarcely avoidable outcome of our having successfully organised 'liquid' investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmonton Street is, compared with Wall Street to the average American, inaccessible and very expensive. The jobber's 'turn', the high brokerage charges and the  heavy transfer tax payable to the Exchaquer, which attend dealings on the London Stock Exchange, sufficiently diminish the liquidity of the market (although the practice of fortnightly accounts operates the other way) to rule out a large proportion of the transactions characteristic of Wall Street.[4]   The introduction  of a substantial overnment transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.
However, there is a dilemma: liquidity leads to speculation but you cannot have investment without liquidity.
The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only. But a little consideration of this expedient brings us up against a dilemma, and shows us how the liquidity of investment markets often facilitates, though it sometimes impedes, the course of new investment. For the fact that each individual investor flatters himself that his commitment is 'liquid' (though this cannot be true of all investors collectively) callms his nerves  and makes him much more willing to run a risk. If individual purchases of investments were rendered illiquid, this might seriously impede new investment, so long as alternative ways in which to hold his savings are availale to the individual. This is the dilemma. So long as it is open to the individual to employ his wealth in hoarding or lending money, the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive (especially to the man who does not manage the capital assets and know very little about them), except by organising markets wherein these assets can be easily realised for money.
Unitisation cannot solve the dilemma. It can do away with default risk and default/recovery costs, but it cannot do away with the liquidity/speculation dilemma.

The facts that

there is no such thing as liquidity of investment for the community as a whole
and
each individual investor flatters himself that his commitment is 'liquid' (though this cannot be true of all investors collectively
is behind my diary How much is $172 trillion worth? from March 24th, 2008.
later revisited.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Mon Jul 13th, 2009 at 09:13:03 AM EST
[ Parent ]
I think the model is fundamentally broken.

Money = leverage is not a sustainable foundation for an economy. Taxing it slows down its velocity and constrains its influence. But it's still a broken model because the aim is almost always zero sum personal aggrandisement, not synergetic creative contribution.

There's nothing wrong with the concepts of social sponsorship and risky adventuring. But it's going to take some completely new political and economic metaphors to make stable non-insane development possible.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 09:27:23 AM EST
[ Parent ]
... zero-sum claims on existing production rather than on the process of creation ... that's more deeply embedded than leverage. As long as there is a decentralized system, there's an incentive to focus on extracting tolls from occupation of strategic intersections rather than on creation of new product.

Progressive income taxation swings the incentives in the favor of going productive concerns ...

... but then we have just seen five decades plus of gutting the intellectual basis of economics as a social science, just as a side play in the fight to undermine progressive income taxation and protective regulation in the finance sector.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jul 13th, 2009 at 09:34:26 AM EST
[ Parent ]
Unitisation cannot solve the dilemma. It can do away with default risk and default/recovery costs, but it cannot do away with the liquidity/speculation dilemma.

What this statement misses is that redeemability of Units massively increases liquidity.

Conventional Units can only be sold to Investors, and Unit prices therefore diverge from the underlying.

REITs and Investment Trusts invested in relatively illiquid investments are cases in point and the Unit prices therefore usually trade at a discount to the underlying pool of assets.

But when the price of the redeemable Units I advocate drops below the "physical" price, it will be in consumers' interests to buy them and redeem them against physical consumption, either immediately (or if at a discount to the spot price) in the future.

That is why the "unitisation" I advocate is in fact "monetisation".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 10:00:23 AM EST
[ Parent ]
ChrisCook:
redeemability of Units massively increases liquidity
Subject to the issuer having enough "product" in stock at any given time to redeem the units on demand.

If you monetize several years' worth of production there will be trouble if everyone decides to redeem their units at the same time.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Mon Jul 13th, 2009 at 10:27:41 AM EST
[ Parent ]
to redeem the units on demand.

You've still not quite grokked it.....these Units have no "demand" built in, as futures contracts have.

They may be presented for redemption against supply or consumption, that's all, but that's still pretty powerful.

What Units do is decouple speculation from the physical market.

It means that if you can't consume now, you would require a discount against when you CAN consume. It's a forward purchase - a hedge, but 100% margined.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 11:02:21 AM EST
[ Parent ]
Suppose I find myself in possession of an Ecuadorean crude oil unit. Can Ecuador refuse to sell me the equivalent volume of oil in exchange for my unit at a time of my choosing?

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Mon Jul 13th, 2009 at 11:46:35 AM EST
[ Parent ]
Yes. But I don't see crude oil as being the source of these Units directly.

I see crude oil producers entering into processing partnerships with refiner/transport infrastructure service providers, and thereby having entitlements (through "equity Shares" in the flow) to Units redeemable in carbon fuel Units.

These are much more homogeneous, and with a fixed price by reference to an energy standard.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 12:52:56 PM EST
[ Parent ]
What happens if they're presented and they can't be redeemed because the supply to redeem them doesn't exist?
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 11:47:21 AM EST
[ Parent ]
You mean as when the US ended redeemability of US dollars in gold?

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Mon Jul 13th, 2009 at 11:50:37 AM EST
[ Parent ]
I was thinking more in terms of wanting to buy electricity for the house and not being able to because the instantaneous demand for redeemable e-units exceeds the available supply.

But otherwise, yes.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 11:54:21 AM EST
[ Parent ]
In that case whether you want to pay for your electricity with a redeemable e-unit or with currency is no different.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Mon Jul 13th, 2009 at 11:57:42 AM EST
[ Parent ]
Yes it is, because you can always buy other things with the currency.

And the e-unit may be tied to a single supplier, which the currency wouldn't be.

So you have these units which on the one hand are supposed to be redeemable in a specific way, but in another are a kinda sorta stand-in for 'real' currency. At the same time, the e-units may be influenced by physical failures, and also limited by contractual specifics.

There's a lot wrong with money, but I think people are getting confused by the purely transactional accounting function of money, and the political and social side-effects of money-ism.

They're close, but they're not synonymous. E-units will have different features, but unless some of these specific questions can be answered they won't necessarily be better.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 12:15:25 PM EST
[ Parent ]
e-units would be units in an energy pool with a common custodian.

Producers would supply the Pool, and consumers would receive from the Pool, with the electricity "spot" price being a market price - a continuous auction maybe - set periodically without any middlemen being involved.

ie direct peer to peer electricity between producer and consumer.

The current middlemen would morph to service provision in return for a share in the flow.

Speculators could buy and sell Units in the Pool, but their doing so would have no effect on the underlying "physical" market price.

See

Energy Pool

particularly slides 59 to 70

Units acquired by consumers are essentially a "hedge". if people want a geared investment/speculation, then they can borrow to buy Units, but it won't affect the market price of physical electricity.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 01:03:20 PM EST
[ Parent ]
That doesn't answer the question.

If I have a credit balance of X units then - presumably - I can use them to pay for electricity to heat my house.

But what happens if all of the physical output of the pool has already been claimed by others?

What happens if speculators see a particularly good hedging opportunity and try to buy up as many units as they can?

How does this work if you have tens or hundreds (or thousands) of different units in a market with tens or hundreds (or thousands) of commodities?

Are they interconvertible? How are exchange rates set?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 06:13:02 PM EST
[ Parent ]
Good questions.

You need service-providers-formerly-known-as-banks to manage issue/do due diligence in respect of producers, and a quasi-monetary authority by way of quality control.

That ensures that there aren't more sold than are capable of being produced.

You also need transparency in relation to the number in issue.

If speculators buy up and hoard units - which does not affect the physical market price btw - then they run the risk that when they want out the price they get is way below the spot price, because it will take years for buyers to consume that much, and they therefore require a discount in order to buy.

Units are Units are Units: KiloWatt hours are KiloWatt Hours. There is a common market custodian, and a single homogeneous pool of electricity production.

Re lots of different commodities it's no different to what we have now, except that instead of being exchanged for Units redeemable in intrinsically worthless fiat currency, we have a Unit redeemable in something with an intrinsic use value, that would be pretty much universally acceptable.

The exchange rate is whatever the market arrives at.

IMHO Bob Hahl makes a good case here for such a currency here

KiloWatt Cards

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 13th, 2009 at 06:34:48 PM EST
[ Parent ]
So the simple peer to peer scheme now has due diligence management (who are the former banks answerable to?) and a quasi-monetary authority which has to count every unit created and redeemed.

This is starting to look a little more complicated than it did originally.

This is more or less practical for something like electricity, which is relatively predictable. It's not so practical for farming or anything which is weather-dependent and inherently riskier. Sometimes it simply won't be possible to guarantee supply, which means that it won't be possible to guarantee that units will be redeemable.

This seems like it might not be an entirely good thing.

ChrisCook:

If speculators buy up and hoard units - which does not affect the physical market price btw - then they run the risk that when they want out the price they get is way below the spot price, because it will take years for buyers to consume that much, and they therefore require a discount in order to buy.

But won't a supply intermediary want to do exactly this, or something like it? The consumer suppliers will need a guaranteed share of the pool to guarantee customer supply, and the only way to create that will be by locking in and hedging a set number of units.

If there isn't a mechanism for this, consumers will effectively be trading the pool directly, which will be an interesting thing to watch.

Re lots of different commodities it's no different to what we have now, except that instead of being exchanged for Units redeemable in intrinsically worthless fiat currency, we have a Unit redeemable in something with an intrinsic use value, that would be pretty much universally acceptable.

The exchange rate is whatever the market arrives at.

Firstly, cash is universal. It may be monopoly money, but its unversality is recognised and useful. (Arguably, abstraction and universality are the one real advantage of fiat currency.)

Exchangeable units would not be universal. I may be able to exchange my kWh unit for a bread unit, but I won't be able to do it by going into a shop - or even online - without a huge currency exchange machine to manage the relative values of every traded unit.

If exchange isn't practical and everything is unitised, that means everyone has to carry around a huge inventory of different units, people would be paid in unit mixes, and so on - which certainly won't be workable.

Secondly, if exchange values aren't stable, they can be gamed, which will attract speculation, sharking, and the rest.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 13th, 2009 at 09:10:34 PM EST
[ Parent ]
If you have been reading what I have been writing you will know that a transition of banks from intermediary to service provider has always been a cornerstone of the architecture I advocate.


If there isn't a mechanism for this, consumers will effectively be trading the pool directly, which will be an interesting thing to watch.

Consumers buy physical electricity from the supplier at the market price. They pay for it either with £ or Units. What's difficult about that? If consumers think Units are good value, they buy them from the Pool or from their mates: if they don't they won't.

Re units as currency generally, I am proposing unitising location rental value and certain forms of energy, particularly electricity.

That's it.

Unitising other commodities etc would not necessarily result in fungible currencies - probably wouldn't.

The former are domestically fungible/ acceptable in exchange. They may be acceptable elsewhere, but would not be redeemable elsewhere of course. ie an element of exchange control is pretty much built in.

The latter are pretty much universally acceptable.

The "Value Standard" or Unit of measure would IMHO best be a unit of energy, rather than an arbitrary abstract £, $ or € with no basis on anything.

What is more stable than a unit of energy as a reference point? A currency consisting of units redeemable in electricity would be pretty much universal,I think, and for a transitional period, and possibly longer, since carbon fules may be synthesised, Units redeemable in carbon fuels will also be universally acceptable against an energy standard.

A Peer to Peer financial system - like any other - needs some form of quality control or framework of trust. How that may be accountable and democratic in a participative way is a matter for agreement between the users of the service and the providers.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jul 14th, 2009 at 09:48:08 AM EST
[ Parent ]
Consumers buy physical electricity from the supplier at the market price.

Bzzzt, wrong. There is no such thing as an "electricity market."

Thank you for playing. Please try again next week.

Re units as currency generally, I am proposing unitising location rental value and certain forms of energy, particularly electricity.

A megajoule/square meters double standard, in other words, with 100 % reserve requirements.

How is this different from a fiat currency (essentially a "tax standard" currency) with 100 % reserve requirements? Except that public policy will have even less ability to control the money supply than it has today.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 14th, 2009 at 02:29:41 PM EST
[ Parent ]
Bzzzt, wrong. There is no such thing as an "electricity market."

Of course there is. By definition. If you buy electricity from any supplier you pay a market price.

You appear to mean an Exchange. And no, there isn't one, for retail customers anyway.


A megajoule/square meters double standard, in other words, with 100 % reserve requirements.

What on earth are you talking about?

Proportional Units - eg billionths - in Pools of land/location rentals will change hands in exchange for whatever buyers and sellers agree, and by reference to whatever value standard they wish to use, fiat or energy.

If a location rental is charged by a community in respect of land of which they have custody then what are essentially local Treasury branches would be in a position to issue redeemable credits based upon this rental.

It's not difficult to value land/location rentals. You should know, the Danes have been doing it for years.

So it's not difficult to manage the issue of Units redeemable in location rental value.

And it really isn't difficult either to manage the issue of Units redeemable in energy by (say) a renewable energy producer or any other producer, come to that. A damn site easier than attempting to measure carbon dioxide emissions.

Both of these would be currencies backed 100% by value. They are consensually acceptable, or not, and are not imposed by fiat.

The key point is that Units of location rentals, and Units redeemed in renewable energy, or out of energy saved, both allow value to be received now in exchange for Units to be redeemed later with intrinsic value created at nil cost.

Unlike units of fiat currency, which is redeemable for......more fiat currency with no intrinsic value.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jul 14th, 2009 at 08:38:50 PM EST
[ Parent ]
  1. Your definition of "market" is not one that appears in any economic school of thought that I am aware of. (Discounting the Austrians, who make a point of claiming that every private enterprise operates on a competitive market. Because in theory another enterprise could start up and challenge them, so they have to behave as if they were actually competing. Yes, the Austrians are insane, that's why I'm discounting them.)

  2. Fiat currencies are backed by real value: The control of the economic production by the state, and the ability to leverage said control into taxes. The easiest way to realise that there is something substantial backing fiat money is to look at a country in which there is nothing substantial backing the fiat currency, whether because the state is too weak to effectively tax the economy (think a dollarised flag of convenience country) or because the local economy has ceased to exist (think Zimbabwe).

- Jake

Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 15th, 2009 at 02:19:33 AM EST
[ Parent ]
1/ A market is defined by the transactions entered into.

So the electricity market consists of the sum of all electricity transactions.

These may be one to one (Peer to Peer): one to many; many to many and so on.

In the electricity "market" there are "sub-markets": including a wholesale market (entered into on specific wholesalemarket terms) and a pretty fragmented retail market. There is competition (sometimes) between wholesale distributors, and retail customers may buy at an agreed price from distributors for an agreed period.

There is typically no homogeneous "market price". Whatever the price a buyer has agreed for his physical supply, he would - if the supplier is a member of the Pool I propose - be able to pay in fiat currency, in Units, or in anything else acceptable to the seller. (eg Tesco Points).

2/ Fiat currencies are backed by the power of the State to collect taxes.

The State is one of a chain of credit intermediaries, and like all intermediaries, redundant. The State as a facilitator and service provider is another issue.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 15th, 2009 at 04:52:22 AM EST
[ Parent ]

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