1. A Flight to Simplicity
Chris Cook Kansas City
23 July 2012

2. About me - Trading Places

3. “21st Century problems cannot be solved with
20th Century solutions”.

4. Market 1.0 – decentralised & disconnected

5. Market 1.0 – physical market presence

6. Here: Market 2.0 - centralised & connected

7. Market 2.0 - presence via intermediaries

8. There: Market 3.0 - decentralised & connected

9. Market 3.0 - network presence

10. Here - at Twin Peaks

11. Peak Credit - financial demand on people

12. Peak Oil - demand on a finite resource

13. Peak Credit – intermediary Banks create
credit pyramids on their bases of Capital
Credit
Capital

14. Banks outsourced credit risk

15. Freeing Capital to support more credit creation

16. Totally – securitisation and sale of debt to
'shadow bank' investors

17. Temporarily – Credit Derivatives
(CDS - a time-limited guarantee)

18. Partially – using credit insurance from
insurers such as AIG

19. Radioactive cocktails of all three, like
CDOs, structured finance and so on

20. The Result was a bigger Credit Pyramid
than Banks alone could sustain…
Credit
Investor
Capital
Bank
Capital

21. …and an opaque 'shadow banking system' of
Investors holding sliced and diced risk
Credit
Investor
Capital
Bank
Capital

22. This pyramid of Credit funded the Mother of
all Bubbles in US property prices….

23. …and servicing this credit finally exceeded
the financial capacity of the US population

24. Maybe the end of cheap oil spiked the bubble?

25. Peak Credit – was the point when the
Property Bubble began to deflate

26. But by now no-one knew where the Risk was
Credit
Investor
Capital
Bank
Capital

27. Banks started to think, “if this is what
our balance sheet looks like…..”

28. “…what does everyone else’s look like?”

29. The problem is not shortage of money -
liquidity

30. It is shortage of Capital - solvency

31. Solvency of Banks is one aspect
Credit
Capital

32. The other aspect is the solvency of populations

33. And a secular decline of purchasing power

34. Loans which cannot be paid, will not be paid

35. Non-performing loans drain money out of the
system...

36. ...threatening a deflationary spiral...

37. ....which requires periodic transfusions

38. ...to avoid Depression

39. Quantitative Easing – increases quantity of
money and prevents deflation

40. This dilutes the value of money, and causes
inflation of financial asset prices

41. Money will only inflate retail prices if lent or
spent into circulation

42. But at the Zero Bound of 0% dollar interest
rates strange things happen

43. Investors buy anything but dollars whether it
carries a return or not

44. Investors buy Structured Products from Banks
and Units in Exchange Traded Funds

45. The motive is Fear: investors aim to avoid loss,
not to make speculative transaction profit

46. Financial demand – not consumption – has
caused correlated commodity bubbles

47. Markets have suffered a cardiac arrest

48. So Investors have actually created the very
inflation they seek to avoid

49. Funding – long term investment in
productive assets

50. Financing - short term investment in creation
of new assets......

51. ....and trade credit necessary for the
circulation of goods and services

52. Resolution & Transition - Getting from Here to There

53. “21st Century problems cannot be solved with
20th Century solutions”.

54. In fact, the answers lie prior to the 18 th Century“

55. Community Partnership Enterprise Model
Structure - Stakeholders
- Custodian
- User
- Manager
- Investor
Legal framework – Nondominium
Investment instrument - Stock

56. User
Payment
Custodian
%
%
Investor Manager

57. Legal Framework – 'Nondominium'
Two complementary agreements
Collective agreement between stakeholders jointly
Associative agreement between stakeholders
individually or severally

58. Collective Agreement
Governs creation, issue and exchange of Stock, holds
bank accounts and title/transaction registries
Stakeholders have negative veto rights
Interfaces with people and organisations (legal
persons)

59. Associative Agreement
User – pays for the use of productive asset (land,
energy, IP)
Manager – receives a proportional share in the flow of
use value
Investor – acquires Stock consisting of 'unitised' use
value sold forward at a discount
Complementary to the collective agreement – akin to a
'for profit' limited company's shareholder agreement

60. Nondominium - Outcomes
A consensual non-statutory 'development corporation'
Neutral – removes ego and politics
Collaborative - stakeholder interests aligned – no
principal/agent problem
Social Business – shared surplus/ 'not for loss' -
relationship-based not transaction-based
Sustainable - everyone has an interest in minimising
cost of use over time

61. Investment Instrument - Stock 1.0

62. Stock 2.0 – Back to the Future
Stock - an undated credit returnable in payment for use
value of productive asset
Sold at a discount – eg £1.00 of Rental Stock sold for
80p gives an absolute return of 25%
Rate of Return is literally the rate at which Stock may
be returned to the issuer
Rate is not fixed, but depends on whether there is a
flow and what it is

63. Stock - Outcomes
Competitive - no compound interest
Secure – no default risk, and the more affordable the
rental, the more secure the return
Liquid – single asset class, not fragmented by date or
interest rate
Liquid – Manager will always buy Stock on behalf of
Users for redemption at best offer < or = to £1.00

64. A Flight to Simplicity