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?

Gang 8

The banking expert Geoffrey Gardiner has this counter-intuitive advice for the Treasury and Bank of England....

Another ridiculous twist in this farce is that the central banks are lending like fury to raise the 'liquidity' (really assignable government debt) of the banks while stripping the 'liquidity' out again by funding government debts.

The public's 'flight to quality' ensures this, and the result is that US government bonds are higher than since 1940. I was at a lunch with the woman who runs the British National Savings schemes a few weeks ago and she said that the Northern Rock affair had caused her organisation to be overwhelmed with applications for National Savings products.

So the savings of the public are going to the government which is lending them back to the banks at extortionate rates of interest. The Bank of England's profits in the main go straight to the Treasury. One can imagine that some Treasury official, desperate to cover the government deficit might regard this as a good wheeze, but in the long run it must be ruinous to the country.

The 'liquidity crisis' could be solved by a suspension of issues of government bonds and National Savings products. Savers would have to put their money in the banks and central bank loans would be repaid.

Government borrowing would for a while remain unfunded and the government's new borrowing would therefore be reflected in large deposits by banks at the central bank, which in turn would be anxious to lend them out for a better return. They would do so but of course the liquidity level would remain high, and a multiplier effect would take place.

This is the obverse of standard anti-inflationary strategy. What governments are doing is pursuing standard anti-inflationary tactics at a time when the horror of deflation is close at hand. No-one in government remembers what deflation is like; they are too young. Nor do they understand that this is the way to deal with it.

What Gardiner did not say here, but has pointed out before, is that one of the key problems is structural.

Quite recently, the Treasury took over from the Bank of England - after 300 years of relatively trouble-free operation - the department that deals with debt management - the "Debt Management Office".

Since that point the DMO has been run by a Treasury which knows bugger all about the banking system, and even less about managing an economy, due to their use of the literally insane "Washington Consensus" monetary policy framework.

I pointed out here in the context of Northern Rock that far from losing the tax payer money, the tax payer was making £20 million per week from the mad strategy Gardiner refers to here, and said at the time was stripping the system of the true liquidity it needed. (Albeit, some of these profits are now being eroded by defaults).

The Treasury is of course rationalising its greed with the position that to issue new money in this way is "inflationary". They therefore miss the crucial point that the purpose of issuing new money is to prevent deflation, by replacing money destroyed by defaults. It therefore never enters the system at all (remaining "static" through being "tied up" in secured loans) and cannot create inflation.

An Accident Waiting to Happen

ET regulars will know there's been a lively debate here about whether or not the run up in the oil price to $147 per barrel and back down to the low $90's constituted a "bubble" or  "large volatility".

My view is that sooner or later the oil market will go through a speculative bubble/ large volatility and a rush for "crowded exits" will cause a "market meltdown".

In this article, I am only referring to the problem. I hope shortly to get another article published with a proposal for a market solution.

Anyway, here it is ( I retain the copyright).

The title I provided, and which I prefer, is "An Accident Waiting to Happen".

Oil Market Collapse Waiting to happen
After a phenomenal "spike" in oil prices to US$147 per barrel, the price has declined to just over $90. In the US this led to a "spike" to $4 per gallon of gasoline and placed energy prices right at the top of the US political agenda.

Moreover, this political interest rapidly crossed the Atlantic since British trading of US contracts was believed to be instrumental in a speculative oil market price "bubble".

In view of my background in energy markets - I was for several years director of compliance and market supervision at the International Petroleum Exchange (which is now ICE Futures Europe) - I was asked recently by the British parliament's Treasury Select Committee to give evidence to them in relation to regulation of oil markets. Such an inquiry is a new direction for the committee, and following this initial hearing they decided to commence a full-blown Inquiry - in the finest US tradition - in October.

I told the committee - and their subsequent initial questioning that day of British regulators implied that my message was understood - that to follow the US approach to regulation of oil futures markets would be to try and solve today's problems with yesterday's tools.

The New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil market price has become almost entirely irrelevant in the real world of physical and forward oil trading, which largely takes place, believe it or not, in Yahoo chat rooms. While NYMEX members still provide a massive pool of trading capital or "liquidity", the inconvenient truth is that oil market pricing power has moved across the Atlantic to the price of North Sea crude oil.

Brent benchmark
The price of North Sea (Brent) crude oil is now the direct benchmark for over 60% of global crude oil pricing, and, through the mechanism of massive "arbitrage" trading between Brent and WTI, it also constitutes an indirect benchmark for most of the other 40%.

Most people - including virtually all mainstream press reporters - believe that it is the price of futures contracts that is used as a benchmark. In fact, it is the reported "spot" market price of "dated" Brent/BFOE (see below) cargo transactions that constitutes the direct and indirect benchmark for most global oil transactions. The massively traded ICE Futures Europe Brent/BFOE Crude Oil contract is merely a financial bet on these underlying prices, and these financial contracts are settled in cash, not oil.

For many years, the production of the Brent oil field has been in decline, and the production of other North Sea oil fields has therefore been amalgamated with it to ensure a sufficient number of transactions to give a credible benchmark price.

We now see four fields - Brent, Forties, Oseberg and Ekofisk ("BFOE") - together supplying the BFOE "Brent" contract whereby 600,000 barrel "cargoes" of these qualities of oil may be bought and sold forward for eventual physical delivery.

The problem is that even this extended North Sea BFOE production is still only running at less than 70 cargoes per month, which is a total monthly production of little more than 40 million barrels. Even at $150 per barrel that represents a value of only $6 billion, and at current prices less than $4 billion.

Sitting on this base of physical trading is an off-exchange complex of price risk consisting of the simple forward BFOE contracts themselves, a host of derivative contracts, and an increasing number of "structured finance" transactions. It is estimated that in total, some $260 billion was recently invested in oil markets one way and another, and this pool of funds was superimposed as an inverted pyramid of risk on this relatively tiny base of physical crude oil.

Could these transactions have been instrumental in causing an oil market speculative bubble?

The answer is obvious: of course they could, and in all likelihood, they did. Unfortunately, because the transactions directly affecting the BFOE price took place off-exchange, not only does no regulator know, but none is in a position to know. Worse than that, even if regulators did know, there are no agreed market regulatory standards to enforce, and any offenders are for the most part smugly immune from enforcement action in offshore jurisdictions in any case.

Don't shoot the piano player
As I pointed out to the Treasury select committee, to blame national regulators, such as the FSA in Britain and CFTC in the US, for problems of a global marketplace does not help, other than in providing a useful scapegoat. This is because the problem lies both in the global scope of the market and in its conflicted structure, where the interests of trading intermediaries or middlemen are diametrically opposed to those of end-user producers and consumers of oil and oil products.

In the absence of a new approach to market structure we will inevitably see repeats of the recent spike in oil prices as waves of hot money swill in and out of the market. In my opinion, that will inevitably lead, sooner rather than later, to a market meltdown - similar to the literally overnight collapse of the tin market in 1985 from $800 to $400 per tonne.

The conventional wisdom is that the "central counterparty" clearing houses of futures exchanges, which guarantee the performance of transactions, backed by a pool of capital and margin, are a strength of these markets.

In my view, they also constitute a single point of failure, where oil price risk is concentrated in exactly the same way that Fannie Mae and Freddie Mac were massively exposed to house price risk.

I made a presentation a couple of years ago in Lausanne to an audience of high-level security experts at a seminar covering the subject of economic terrorism. This fascinating seminar covered the subject of the susceptibility of global markets and commerce to acts aimed at causing economic destruction, rather than physical destruction and death.

I pointed out that current levels of gearing and risk, and the concentration of risk in single points of failure, together mean that the only difference between "economic terrorists" and proprietary traders such as hedge funds is motive. The former would destroy a market deliberately: the latter by accident.

While the oil market survived the recent storm surge of money, the inevitability of future waves of speculative money sweeping into the market, mean that an oil market meltdown is an accident waiting to happen.

Feds to take over Fannie and Freddie

Of course, this is not technically nationalisation, but to all intents and purposes a Fed "SIV" like Northern Rock's "Granite" vehicle.

The plan, which would place the companies into a conservatorship, was outlined in separate meetings with the chief executives at the office of the companies' new regulator.

The executives were told that, under the plan, they and their boards would be replaced and that shareholders would be virtually wiped out but that the companies would be able to continue functioning with the government generally standing behind their debt, people briefed on the discussions said.

The interesting thing is that it appears that all of the Equity would be wiped out.

Under a conservatorship, the common and preferred shares of Fannie and Freddie would be reduced to little or nothing, and any losses on mortgages they own or guarantee could be paid by taxpayers. Shareholders have already lost billions of dollars as the stocks have plunged more than 80 percent this year.

A conservatorship would operate much like a prepackaged bankruptcy, similar to what smaller companies use to clean up their books and then emerge with stronger balance sheets. It would allow for uninterrupted operation of the companies, crucial players in the diminished mortgage market, where they are now responsible for nearly 70 percent of new loans.

If this is so, it will certainly give a lot of banks a major headache since many are heavily invested in these Preference shares, because they are counted towards their base capital. So they'll be looking for more capital....

Ellen Brown had an interesting take on it here

Take a Load off Fannie

She refers to Roubini's support for nationalisation

". . . [L]et's call a spade a bloody shovel: nationalise Freddie Mac and Fannie May. They should never have been privatised in the first place.

 . . . Increase taxes or cut other public spending to finance the exercise. But stop pretending. Stop lying about the financial viability of institutions designed to hand out subsidies to favoured constituencies."

but suggests that there are alternatives to nationalisation, such as the reprise of the 30's Home Owners Loan Corporation ("HOLC") referred to by Alan Binder in an article in February 2008 in the NYT...

"The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks . . . and then issuing new loans to homeowners. The HOLC financed itself by borrowing from capital markets and the Treasury.

The scale of the operation was impressive.  Within two years, the HOLC granted over a million new mortgages. (Adjusting only for population growth, the corresponding mortgage figure today would be almost 2.5 million.) Nearly one of every five mortgages in America became owned by the HOLC. Its total lending amounted to $3.5 billion. . . . (The corresponding figure today would be about $750 billion.)

As a public corporation chartered for a public purpose, the HOLC was a patient and even lenient lender. . . . But times were tough in the 1930s, and nearly 20 percent of the HOLC's borrowers defaulted anyway.  So the corporation eventually acquired ownership of about 200,000 houses, nearly all of which were sold by 1944. The HOLC closed its books in 1951, or 15 years after its last 1936 mortgage was paid off, with a small profit. It was a heavy lift, but the incredible HOLC lifted it.

Today's lift would be far lighter. . . . Given current low interest rates, a new HOLC could borrow cheaply and should find it easy to earn a two-percentage-point spread between borrowing and lending rates, for a gross profit of maybe $4 billion to $8 billion a year."

She goes on to point out that it is equally valid for governments - like Pennsylvania in the 18th Century - to create the necessary credit directly.

Why do we need debt anyway?

I recommend a different approach - reinvent "Equity".

Rather than using debt either conventional or unconventional, I recommend a new approach to "Equity" - through the use of partnership and trust frameworks - and a Debt/Equity swap on a grand scale.

All secured borrowers - whether "distressed" or defaulted - would be offered the chance to refinance their secured borrowing by transferring their property to the Custodianship of a Land/Property Pool.

All secured debt would be exchanged for a new class of redeemable Equity in a massive, "pooled" network of "REIT's" with a common "Custodian".

There would be no debt obligation, but a reasonable - index-linked - "rental" would be charged for the use of the Capital invested ie the value of the land and buildings.

Occupier "Co-owners" may acquire equity in their homes simply by acquiring redeemable Units from the Pool at the market price.

I reckon this would bring the cost of financing down to maybe 1 to 2% pa on the "Investment" necessary.

It can be this low, because it is:

(a) a "Real" return - because the rentalflow unitised is index-linked - note that investors are currently accepting a negative real return on "risk-free" Treasuries;

(b) virtually risk free - because it is based on land ownership in the Pool, and the affordability of the rental makes payment more certain.

The outcome would essentially be a  "land-based" money consisting of Units redeemable against land/property rentals.  John Law proposed a not dissimilar "land-backed" (credit secured against land) currency for Scotland in 1705 - here

Money & Trade Consider'd....

I think that the time has come to update that proposal for the 21st Century.

Our hero, Arkady Renko, is a Moscow-based policeman who has come from Russia - post Communism - to Cuba in order to establish whether a decomposed body found floating in Havana Bay is that of an old friend.

A passage in the book, between Renko, and one of the protagonists, O'Brien, stimulated some thought on my part as to the nature of gambling and speculation.

My highlights.

"Do you gamble, Arkady?"

"No"

"Why?"

"I don't have the money to lose".

"Everyone has the money to lose. Poor people gamble all the time. What you mean is, you don't like to lose."

"I suppose so".

"Well, you're unusual, most people need to. If they happen to win, they keep on playing until they do lose. Right now around the world more people are gambling than ever in the history of man."

O'Brien shrugged to show that the phenomenon was beyond him.

"Maybe it's the coming millennium. It's as if people want to shed material things, not in a church but in a casino. People are willing to lose everything as long as they have fun. They can't resist. It's human. The worst snub in the world is a casino where they won't take your money".

I would define "investment" - which is arguably a medium and long term and relatively risk averse activity - as the acquisition of ownership of productive assets.

"Speculation" or "Gambling", on the other hand is relatively short term, and transaction based risk taking, whereby something - it doesn't really matter what - is bought and sold (not necessarily in that order) in the expectation of profit.

Is there an increasing propensity to gamble?

And is it an analogy to a "Death Wish"?

A "Loss Wish", maybe?