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Introducing the PetroTrust A New Approach to Energy Investment. Chris Cook – International Oil Refining Conference Teheran October 2008. We live in Interesting Times…. ….some say, “the end of the financial system as we know it”.
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Introducing the PetroTrust A New Approach to Energy Investment Chris Cook – International Oil Refining Conference Teheran October 2008
If the global system of credit creation is indeed in terminal decline……
....but the Credit Crunch has made worse the existing problem of US sanctions
The PetroTrust may help Iran in obtaining that investment….
…and the “Trust” approach could allow Iran to lead the creation of a viable alternative….
A Bank is a Credit Intermediary – or “Middleman” Borrower Bank Depositor £ £
Now, if you think about it, a bank’s true economic function….
Interest is charged for the use of the guarantee Borrowers Interest Bank
..from which Interest is paid to Depositors.. Borrowers Interest Interest Bank Depositors
..Default and Operating costs deducted... Borrowers Interest Interest Costs Bank Depositors
..and a profit to Investors normally results Borrowers Interest Interest Costs Bank Depositors Investors
So Banks create a Pyramid of Credit, on a base of Equity Bank Credit Bank Equity
….that Banks began to “outsource” their guarantee to rid themselves of risk.
Banks outsourced risk totally – through “securitising” debt and sale to investors….
…temporarily – with “Credit Derivatives” (a time-limited guarantee)….
…and partially – using credit insurance from insurers such as AIG
The Result is a bigger Credit Pyramid than Banks alone could sustain… Credit Investor Equity Bank Equity
…and an opaque “shadow banking system” of Investors holding “sliced and diced” risk… Credit Investor Equity Bank Equity
This extended Pyramid of Credit funded the “Mother of all Bubbles” in US property prices….
…and servicing this credit finally exceeded the financial capacity of the US population.
In August 2007, the Bubble started to deflate and attention turned at last to defaults …
..but by now no-one knew where the Risk lay… Credit Investor Equity Bank Equity
Banks started to think, “if this is what our balance sheet looks like…..”
The problem is not shortage of money - liquidity – Central Banks can handle that….
…..it is shortage of Equity - a Solvency problem – which Central Banks cannot handle…..
The Result? Credit Equity
….and drain money out of the system in a “deflationary spiral”....
So we will take a new approach to “Equity” investment instead.
