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Triple Crunch Log                                                                                                            

“Basel: the mouse that did not roar”: a 7% capital ratio assumes bailout, says Martin Wolf in the FT. “To celebrate the second anniversary of the fall of Lehman, the mountain of Basel has laboured mightily and brought forth a mouse. Needless to say, the banking industry will insist the mouse is a tiger about to gobble up the world economy. Such special pleading – of which this pampered industry is a master – should be ignored: withdrawing incentives for reckless behaviour is not a cost to society; it is costly to the beneficiaries.”The latter must not be confused with the former. The world needs a smaller and safer banking industry. The defect of the new rules is that they will fail to deliver this. … the new standards are also to be implemented fully by 2019, by when the world will probably have seen another financial crisis or two. This amount of equity is far below levels markets would impose if investors did not continue to expect governments to bail out creditors in a crisis.”843

“We must press on with breaking up banks:” John Kay in the FT. “The pledges of co-ordinated international action to reform global finance made in the immediate aftermath of the crisis have proved empty. … The Basel regime based on capital controls proved useless in averting the crisis: indeed it was a principal cause of the regulatory arbitrage that led to the proliferation of complex debt instruments. In any other industry, we would see these measures for what they are – an officially sponsored cartel to raise prices by limiting supply. … The lesson is obvious, but ignored. A financial system populated by smaller institutions with diverse business models monitored by other market participants with skin in the game is robust; an oligopoly of conglomerates ineffectually regulated by a public agency that lacks either technical competence or political authority is not. But this time it is supposed to be different. The system that failed to apprehend Bernard Madoff will be beefed up to second-guess the risk management strategies of Goldman Sachs. Unfortunately, that hope is what we must rely on to avert the next crisis, and such a crisis is therefore inevitable. The basic mechanism of financial meltdown – herd behaviour leading to asset price mis-evaluation, which generates temporary profits and is then corrected imposing substantial collateral damage, remains intact.844

Fears £9bn clean coal programme could be drastically scaled back. Guardian: “Senior sources within the energy department believe the plan for four new clean coal pilot plants – funded by a £9bn levy on consumer electricity bills – are the most vulnerable to cuts. The number of plants could be halved or staggered so that the third and fourth projects are not up and running for more than a decade.”845

Climate scientists making progress on their potential for “groupthink”, and the need to build trust, Fred Pearce reports. “I have heard a genuine responsiveness to the criticisms: a realisation that "groupthink" had led some scientists to become blind to the uncertainties inherent in their work; an understanding that they will have to share their data more swiftly, even with non-scientists; and a realisation that public trust in climate science will require a change of tone and a touch more humility on their part. Anyone who doubts how far we have come should see this month's report of the InterAcademy Council into the workings of the IPCC. This breaks strongly with the old mantra that "one bad paragraph" should not undermine 3,000 pages. It too attacks groupthink. And it notes, for instance, how the IPCC has tended to "emphasise the negative impacts of climate change", many of which were "not supported sufficiently in the literature, not put into perspective or not expressed clearly".”846

Banking reforms will give Mervyn King too much power, warns Myners: the government's planned banking reforms are too complicated, fail to address key issues and rely too heavily on one institution, the Bank of England. Guardian: “Bank governor Mervyn King will chair the fiscal policy committee in addition to his role as chair of the monetary policy committee. Hector Sants, currently the boss of the FSA, will become deputy governor and chief executive of the prudential regulatory authority. The fiscal policy committee will be responsible for monitoring the entire industry and trends in credit and wholesale funding while the prudential committee carries on the work of the FSA monitoring individual firms. A consumer protection agency will be housed outside the bank under the plans.”847

Jeff Rubin in Huffington Post: governments are hiding their peak-oil concerns from their voters. “While oil production may not have peaked in a geological sense, it may already have done so in a more important economic sense. Geologically, production can be boosted by accessing ever more costly and environmentally problematic sources of non-conventional supply, like tar sands. But as we have seen from the last recession, the global economy can't run on the prices needed to bring that oil out of the ground. The German study paints a bleak picture of the post-peak world: political power quickly shifts from major oil-consuming economies to major oil-producing economies. Less and less oil is traded on the open market, while more and more is traded between nation states, with national oil companies entering into long-term supply agreements that are tied to broader political and military considerations. And military alliances coalesce around the security of energy supply, rather than between countries with shared political or economic principles.”848

All but 1 of 48 Republican Senate candidates for November elections deny global warming. So says a report by theCentre for American Progress. (And he won’t get on the ticket).

15.9.10. Two years after its collapse, 800 staff are still unravelling Lehman’s tortuous affairs. Guardian: “In Britain alone, 800 people still toil each day on the administration of Lehman, which PwC partners hope they will never see the like of again as they fight to find the $17bn (£11bn) of assets claimed by clients such as hedge funds. Lehman Brothers International (Europe) – as the firm is formally known – held $29.8bn of assets for clients when it collapsed. Within a year PwC had redistributed $13.1bn to the original owners but had managed just $1bn in the six months to the end of March as the size of claims became smaller. …. The fees for administrators and lawyers are also mounting, estimated to be close to $900m. The costs in the US are even higher – they will top $1bn this month.849

World Bank invests a record $4.4 bn in coal projects: 40 times more than 5 years ago. Guardian: “US$3.4bn (£2.2bn) - or a quarter of all funding for energy projects - was spent in the year to June 2010 helping to build new coal-fired power stations, including the controversial Medupi plant in South Africa. Over the same period the bank also spent $1bn (£640m) on looking and drilling for oil and gas.” The figure is $4.4bn if you include a $1bn project in India which is funding power transmission networks for coal-fired power stations rather than the stations themselves. “The spending is 40 times more than five years ago The World Bank defended its payments saying that the figures for 2010 were distorted by two major coal projects in Botswana and South Africa, while over the five year period from 2005 the bank had spent US$4.5bn on coal power, and $12.5bn on renewable energy and energy efficiency - including a record year for these sectors also last year.”850

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