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Thursday, January 22, 2009
Extracting The Chaos From Finance

Investing In Real Capital Environmental Infrastructures

With the arrest over the last month of the financier Bernard Madoff in New York, and the reports that the investment fund that he ran was a Ponzi scheme, it has opened questions about how much more scam is yet to be revealed out there? Leading into the Madoff fiasco, was the entire sub-prime mortgage crisis, which in itself appears to have been a scam at the highest levels of investment banking, where trading fraudulently rated mortgage backed securities and inflating their value became more important than the underlying equity valuation itself.

The question that remains is to what degree the truth is untold about the corruption in finance, and when will justice prevail, so that regularity will actually return to the markets. Was Madoff the top of the Ponzi pyramid, or was he part of an even bigger Ponzi scheme? Where was the morality in bilking two humanity foundations out of their money?

If we look at the sub-prime mortgage crisis, and the underlying Sarbanes-Oxley rules that exist for corporate governance and corporate reporting, one must determine how many people seriously broke the law by either knowingly signing-off on false accounts, or actively profiting from or instigating fraud. Rooting these answers out is essential to repairing the financial markets, because without this knowledge, and corresponding swift judicial reactions, the house and its foundations are destined to crumble further. Trust and integrity are what convinces people to assign their money to others for safekeeping and no investment instrument can stand without this.

The United States in its 700 billion 'TARP Bailout' cash injection has already thrown 350 billion into what is virtually a black hole of non-capital related paper obligations. President Obama has got it right in many respects about spending the further 350 billion on job creating capital infrastructures. Obama needs the support of many in Washington, D.C., and the other good people throughout the world, who are willing to put their countries above their own self enrichment. The "what's in it for me?" mentality needs to become "what is my social responsibility to others?".

Government investment needs to create leveraged real capital creation through valid investment in infrastructure creation. For instance, the technology perfection and the efficient mass production of solar thermal CSP Tower energy plants with allocation to the States of Nevada and Arizona will create technology parks and new solar industries for the future. The United States and most other nations, need sustainable energy implementation plans that look beyond the next twenty years and into the future. The technology is there, but the coordinated willpower is still very weak to implement sustainable energy solutions quickly.

New all-country agreed international regulations that protect the global environment, and substantially reduce pollution levels, are essential for both the recovery of financial markets and the continuation of life itself. Global commitments to sustainable energies like wind and solar power, will create the expectations that growth is possible for investors and hence promote long term infusions of capital into global markets and related industries. There has to be total agreement, however, amongst all nations to create a level playing field for global environmental regulations and globally observed compliance, and the United Nations Environment Programme (UNEP) must drive the agenda along with ISO (International Organisation For Standardisation).

Moving back to the structure of finance itself, humanity needs to restore honesty and trust to the global financial transaction space. Real capital investment invokes real capital creation that multiplies and spurs the economy to grow. Objective third party audits of all involved financial accounts brings trust. Real capital and real capital backed instruments must form the greater majority of global wealth and related financial trading, because this what is truly verifiable in physical terms and provides real stability. A leveraged position is fine provided it 'sits' on a real capital instrument that has value and is honestly valuated. The leverage ratio needs to be proportionate to the risk volatility and the underlying absolute guarantee of supporting deleveraging cash flows.

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