Notwithstanding objections that we do live in a democracy, regulatory affairs can tend to assume people to be guilty, having to prove their innocence.
The ERCB (Energy Resources Conservation Board), the petroleum production regulator acting on behalf of Albertans, has again announced a shut-in of natural gas production of gas reserves found over bitumen reserves in the Alberta oil sands.
The first time this was done, it shut in a major part of the production of one of Alberta's pre-eminent producers. That shut-in threatened and produced serious hardship for that company and others. While most of the gas was eventually freed for production, the producer had to throw massive resources to the effort to produce evidence that its production did not threaten access to the bitumen beneath the gas.
It had to make its case on a well-by-well basis.
It's therefore pretty clear that the bitumen lessee had to show no substantive evidence to bring about a shut-in order. It's also clear that the potential for bitumen royalty was considered greater than that of gas royalty. In this exercise of democracy, money did the talking.
This was a patently unfair process to the investors and employees of that company as it had purchased its lease rights as access to that gas in good faith.
When the ERCB shut that gas in, the regulations that it exercised enabled it to do so without having the Alberta government repaying any portion of the purchase price for those gas leases, much less the capital cost of the production improvements the company had added since then.
Now, some six years later, the Calgary Herald reported on October 16, 2009 in "ERCB orders gas wells shut in" that the ERCB has used basically the same process again. The oil sands lessees presented geo-physical theory that removal of the gas could plausibly make recovery of the bitumen more difficult.
http://www.calgaryherald.com/business/ERCB+orders+wells+shut/2109625/story.html
Again, the gas producers are expected to prove, on a well-by-well basis, that the removal of gas will not negatively affect bitumen recovery.
So apparently conclusive evidence supporting the claim one way or the other is available as has been proven in the previous round.
It seems to me that Albertans should be demanding a more open and fair process. I'm sure such a process is available.
As I understand the situation, the gas producers bought their gas leases at auction directly from the Crown or from another producer who had bought the leases from the Crown at auction.
The bitumen producers bought their leases, also at auction from the Crown or from others who bought the leases at auction from the Crown.
Were either set of producers alerted to the fact that the ERCB may shut down operations or allow operations that could threaten their ability to operate or at least operate relatively profitability?
Maybe that happened, at least it could be expected after the 2003 round of like-minded shut-ins.
The point is, there is a vested interest on behalf of the gas producers, the bitumen producers, and Albertans expecting royalty income from both sets of leases, in seeing the development process go ahead in a rational manner. Of course I am leaving out the contractors and employees who build, service and operate production facilities for both types of producers and the customers dependent on that production.
It seems to me the government has a responsibility to ensure the smooth working of the development process.
The rules, in geo-physical terms, need to be spelled out so that gas producers know which gas-over-bitumen leases might not be viable. This should be relatively straightforward as conclusive evidence of such is available as proven in 2003 and 2004.
Where an argument arises between bitumen and gas producers in any case, why can't the process be held in open hearing where the three parties can have their arguments on the table prior to any party making a capital investment in leasehold development.
Shareholders of the respective companies can marvel at their executives in action as they protect shareholder interests. Albertans can see the evidence supporting the royalty income for each type of lease taking precedence where precedence need be taken.
Production shut-ins, impairing royalty and corporate incomes, are minimized.
The scientific evidence can speak for itself.
The impact on royalties, jobs, environment, communities and so on can be described and where those visions compete, Albertans can see and understand the evidence entering into the decision-making process and supporting the final decision.
I think most of the cynical side of the politics of the situation can be removed with such a process.
Where the government does not show a willingness to undertake such a process, Her Majesty's Loyal Opposition as Government-In-Waiting, can invite the parties to participate in such a process intended to influence the decision while demonstrating the effectiveness of participatory democracy.
Albertans will realize that their interests are being considered, including Albertans as passive collectors of royalties and Albertans as active generators of royalties.
As much as possible then, even in the cases of leases granting access to resource reserves, there can be a meeting of the minds of Albertans and potentially competing producers.
The dispute mechanism can be open and transparent with accountability for judgments used in decision-making.
Most importantly, all Albertans' interests and thereby Albertans themselves are respected and encouraged to be respectful of each other because the regulatory process will assume good faith on the part of all parties and enable them to operate without penalty based on allegation alone.
The Government-In-Waiting can demonstrate what it means to live democratically where one is not assumed to be guilty, having to prove her or his innocence of allegations based on insubstantive evidence.
Tuesday, October 20, 2009
Tuesday, October 13, 2009
Vinegar to treat angst induced gut ache!
Have you noticed people living out their lives with an edge of anger, frustration, helplessness, hopelessness, anxiety, tension? It seems a lot of society lives with a permanent angry gut ache.
Is all this angst authentically based in how life is unfolding? E. J. Dionne argues that it is.
E. J. Dionne wrote of the authenticity of rage in the October 12, 2009 edition of the Washington Post in his piece "Responding to Authentic Rage".
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/11/AR2009101101556_pf.html
He describes how populations within society become hopelessly disaffected as the society of which they should be a part evolves and seemingly or really leaves them out.
I think there are likely few things worse than knowing your situation is bad and thinking you have learned it is impossible to improve the situation. Along with that is a sense of hopeless frustration and helplessness. Can you imagine living every day with that going on?
As a society we seem to ask people to accept their situation as conventional wisdom would suggest, "That's just how life is."
I like to use the statement, "What is, is." What I mean by that is don't pretend what is is something else. For example, don't ascribe motives to the cosmos that cause "What is" to come about and affect you as it does.
I had the joy of meeting with an aunt on her ninety-seventh birthday. It occurred to me that she has always been someone at peace. She seems to me to truly know how to accept what is. That's far from saying she resigns herself to her "fate". She knows where she's at and works to bring herself to a different state. Pretty amazing ability seemingly constantly reinforced by living.
Yet I meet people whose advice for people in unhappy circumstances is to accept their situation and get used to it. The people saying this, may not appear to be in the same sorry state as the people they are advising, but these "helpful" advisers' state is also one of hopelessness. I expect they live their own lives with that same cynical, fatalistic view.
I wonder how people who are apparently not in a downtrodden state; no major family illnesses, no deaths, gainfully employed in a chosen career - in other words - not living through fire, flood, tornado or earthquake, develop that same cynical sense of hopelessness and helplessness?
I wonder if some of these people, notably economists, philosophers, political leaders, theologians and other society leaders and shapers have set out to achieve a goal and have achieved it. For instance, they might have aspired to a Nobel in Economics, PhD in Philosophy, prime minister, published cleric, gold medal Olympian and now they're thinking, "Now what? Where do I go from here? There is no where to go from here because I'm at the end."
Ouch!
Are they now living without hope because there is nothing more for them to hope for that they can have any influence on? They have become passive "participants" in life. Any sports fan knows it's a fool's quest to allow your team's ability to win to determine the peace you experience in your life. Isn't it the same thing to wait for the economy, your employer, or the weather to bring you peace and happiness?
People have to learn that peace comes from within and we are empowered to bring it to our own lives.
"... have to learn ..." means an educational process is at stake. Our society as a political body evolving to democracy tends to see the world through a feudal or tribal perspective with leader as strong man. We tend to not think of ourselves as masters of our own destiny, perhaps partly because of that tribal view and partly because we almost always need others to help us realize our own destiny. In doing so, we have to collaborate with others to help them achieve their own destiny.
This can be hard work, especially if we don't believe it can work. That hard work is the threshold we must cross to achievement.
So what do we do?
I think we can take a practical approach. Let's find specific needs people have to meet. Pick one that seems a priority need. Lead by example by inviting people affected by meeting that need; people in demand, people providing to meet that demand and people supporting the activities of the other two. Political activists are well advised to look to the example of volunteer agencies, especially those built to serve people living with disease to begin to understand how that process works.
Let's use a transparent process where each party puts its own needs and abilities on the table. Let's work out how each party's needs can be met, then work out how that can be done collaboratively so as to not disable any one party from achieving what it needs to achieve.
Is this possible? I know it is. Is it easy? I know it is not. Is it worth doing? Consider the alternative. Live without peace and in misery, wondering what your neighbour is doing to keep your life from turning out how you need it to be. Live with hopelessness as no one has taken the time and effort to show that the situation is never hopeless.
My brother used to say, "You're not lost til you're out of gas."
The great thing is that we never need be out of gas. We never need to feel hopeless and helpless. We never need to feel angry at our fate. We never need to express ourselves through road rage. We never need to protest without having hope of amending the situation we are protesting against. We never have to abstain from voting because the situation is just so hopeless as "they are all the same". When we join the battle, "they" is us and we have no reason to feel defeated.
Importantly, we never have to accept the vinegar of negativity some political leaders, social commentators, and news and entertainment media offer as a treatment for a person's angry gut ache.
Is all this angst authentically based in how life is unfolding? E. J. Dionne argues that it is.
E. J. Dionne wrote of the authenticity of rage in the October 12, 2009 edition of the Washington Post in his piece "Responding to Authentic Rage".
http://www.washingtonpost.com/wp-dyn/content/article/2009/10/11/AR2009101101556_pf.html
He describes how populations within society become hopelessly disaffected as the society of which they should be a part evolves and seemingly or really leaves them out.
I think there are likely few things worse than knowing your situation is bad and thinking you have learned it is impossible to improve the situation. Along with that is a sense of hopeless frustration and helplessness. Can you imagine living every day with that going on?
As a society we seem to ask people to accept their situation as conventional wisdom would suggest, "That's just how life is."
I like to use the statement, "What is, is." What I mean by that is don't pretend what is is something else. For example, don't ascribe motives to the cosmos that cause "What is" to come about and affect you as it does.
I had the joy of meeting with an aunt on her ninety-seventh birthday. It occurred to me that she has always been someone at peace. She seems to me to truly know how to accept what is. That's far from saying she resigns herself to her "fate". She knows where she's at and works to bring herself to a different state. Pretty amazing ability seemingly constantly reinforced by living.
Yet I meet people whose advice for people in unhappy circumstances is to accept their situation and get used to it. The people saying this, may not appear to be in the same sorry state as the people they are advising, but these "helpful" advisers' state is also one of hopelessness. I expect they live their own lives with that same cynical, fatalistic view.
I wonder how people who are apparently not in a downtrodden state; no major family illnesses, no deaths, gainfully employed in a chosen career - in other words - not living through fire, flood, tornado or earthquake, develop that same cynical sense of hopelessness and helplessness?
I wonder if some of these people, notably economists, philosophers, political leaders, theologians and other society leaders and shapers have set out to achieve a goal and have achieved it. For instance, they might have aspired to a Nobel in Economics, PhD in Philosophy, prime minister, published cleric, gold medal Olympian and now they're thinking, "Now what? Where do I go from here? There is no where to go from here because I'm at the end."
Ouch!
Are they now living without hope because there is nothing more for them to hope for that they can have any influence on? They have become passive "participants" in life. Any sports fan knows it's a fool's quest to allow your team's ability to win to determine the peace you experience in your life. Isn't it the same thing to wait for the economy, your employer, or the weather to bring you peace and happiness?
People have to learn that peace comes from within and we are empowered to bring it to our own lives.
"... have to learn ..." means an educational process is at stake. Our society as a political body evolving to democracy tends to see the world through a feudal or tribal perspective with leader as strong man. We tend to not think of ourselves as masters of our own destiny, perhaps partly because of that tribal view and partly because we almost always need others to help us realize our own destiny. In doing so, we have to collaborate with others to help them achieve their own destiny.
This can be hard work, especially if we don't believe it can work. That hard work is the threshold we must cross to achievement.
So what do we do?
I think we can take a practical approach. Let's find specific needs people have to meet. Pick one that seems a priority need. Lead by example by inviting people affected by meeting that need; people in demand, people providing to meet that demand and people supporting the activities of the other two. Political activists are well advised to look to the example of volunteer agencies, especially those built to serve people living with disease to begin to understand how that process works.
Let's use a transparent process where each party puts its own needs and abilities on the table. Let's work out how each party's needs can be met, then work out how that can be done collaboratively so as to not disable any one party from achieving what it needs to achieve.
Is this possible? I know it is. Is it easy? I know it is not. Is it worth doing? Consider the alternative. Live without peace and in misery, wondering what your neighbour is doing to keep your life from turning out how you need it to be. Live with hopelessness as no one has taken the time and effort to show that the situation is never hopeless.
My brother used to say, "You're not lost til you're out of gas."
The great thing is that we never need be out of gas. We never need to feel hopeless and helpless. We never need to feel angry at our fate. We never need to express ourselves through road rage. We never need to protest without having hope of amending the situation we are protesting against. We never have to abstain from voting because the situation is just so hopeless as "they are all the same". When we join the battle, "they" is us and we have no reason to feel defeated.
Importantly, we never have to accept the vinegar of negativity some political leaders, social commentators, and news and entertainment media offer as a treatment for a person's angry gut ache.
Friday, October 9, 2009
Government in Waiting - Opposition has to act like it!
I watch opposition parties and marvel at their version of government-in-waiting.
It is truly revealing to be on such a party's email list. A lot of very well written and well researched stuff comes out opposing the governing party of the day in whatever jurisdiction.
The method of opposing is where my marvelling starts.
Opposition parties level a constant barrage of accusations of incompetence, ignorance, negligence, wrong-headedness, sneakiness and sometimes just plain old evil at the governing party.
I suspect that I am not the only person for whom a steady diet of righteous indignation finally has an effect opposite of what the senders intended. I finally think to myself, "Quit whining and do something about the situation already!"
Even if every little detail of government decision-making and activity or lack of it deserves condemnation, I still can't help but think, "Yeah, yeah, yeah. I get it. These guys are clowns. How did they get to control the levers of power anyway?"
Then I think, "Oops! They were elected! Oh no! Were those nincompoops elected by people of questionable judgment who the opposition now thinks will suddenly show great judgment and elect the opposition, the government-in-waiting?"
I really think constant attacks are counterproductive.
An opposition should act like a government-in-waiting instead of waiting and waiting and waiting until the governing party simply can't be stomached anymore and a mass protest vote throws them out. I think I might see some of that going on in Alberta.
No government-in-waiting has presented itself to the satisfaction of Albertans. The electorate seems to becoming convinced that a change is good. I mean look at all the examples of incompetence that have been endlessly pointed out by the opposition.
But whom to support? A strange new party has arisen that no one really knows very well. That seems to be in its favour as it seems to get to know a party is to learn to distrust it. This new party doesn't seem to be much more of a government-in-waiting than the old opposition party. But it is attracting people with previous government experience to itself. It has been saying it will do some specific things better than the current government. The electorate sort of know some of the people leading the new party even if they don't know the party.
It looks like this new party could become the de facto government-in-waiting, sort of by default.
On the federal scene, we have the same kind of opposition tactic - attack, attack attack.
You know, I think that all this attack stuff that the current federal government also used to do when in opposition and Alberta's current governing party has done even while in government, has soured the electorate to politics in general. The electorate and its media representatives have become extremely cynical. If a politician was to hand a bucket of water to a person whose house is burning, it could be refused. The person is likely to think some even greater tragedy will be triggered by taking that politician's bucket of water.
Lately we have had some interesting positive examples of government-in-waiting activity.
The Alberta opposition worked hard to understand what the energy industry in Alberta needed to have government do to support it in becoming successful once again. We have the opposition going around the province to see what the people need to have happen in the restructuring of healthcare.
Federally, the opposition put forward Bill C248 to support immigration to Canada that Canada has known it needs for the last thirty years. The opposition has also put forward bills S-241 and S-242 to change the regulation of credit and debit card transactions in keeping with strengthening financial regulations in response to lessons learned in the recent and current financial crisis.
These are thoughtful acts intended to remedy what the sponsoring parliamentarians see as serious shortcomings in Canada's statutory and regulatory infrastructure.
These are four examples of opposition acting as government-in-waiting.
What happens then?
Heard anything about the energy sector consultation in the form of proposed statutes and regulations or procedural changes to address the needs uncovered through that effort? Heard anything about proposals suggested for restructuring healthcare (not drafted as the process is still young) that can be shown to reflect the needs of the electorate and that are not already written up in a policy manual even before the public consultation process began?
Heard about the senators and their supporting parliamentarians engaging in public consultations in support of the proposed bills and any amendments to them? Heard about the opposition refusing to support its own proposed bill C248!
We almost had government-in-waiting! But not quite.
It's hard for me to understand why oppositions don't stick to their proposals to try to turn them into reality. That's the kind of tenacity and courage that I think the electorate can relate to. What if the government steals the ideas and claims them as their own? Who cares! Even the opposition has to remember that it has to represent all the electorate, not just those that elected them. It then has to pick a priority issue and stick to it until the desired outcome is achieved or the government quashes the effort against the interests of the electorate.
Opposition is government. Opposition has to act like it!
Mike
It is truly revealing to be on such a party's email list. A lot of very well written and well researched stuff comes out opposing the governing party of the day in whatever jurisdiction.
The method of opposing is where my marvelling starts.
Opposition parties level a constant barrage of accusations of incompetence, ignorance, negligence, wrong-headedness, sneakiness and sometimes just plain old evil at the governing party.
I suspect that I am not the only person for whom a steady diet of righteous indignation finally has an effect opposite of what the senders intended. I finally think to myself, "Quit whining and do something about the situation already!"
Even if every little detail of government decision-making and activity or lack of it deserves condemnation, I still can't help but think, "Yeah, yeah, yeah. I get it. These guys are clowns. How did they get to control the levers of power anyway?"
Then I think, "Oops! They were elected! Oh no! Were those nincompoops elected by people of questionable judgment who the opposition now thinks will suddenly show great judgment and elect the opposition, the government-in-waiting?"
I really think constant attacks are counterproductive.
An opposition should act like a government-in-waiting instead of waiting and waiting and waiting until the governing party simply can't be stomached anymore and a mass protest vote throws them out. I think I might see some of that going on in Alberta.
No government-in-waiting has presented itself to the satisfaction of Albertans. The electorate seems to becoming convinced that a change is good. I mean look at all the examples of incompetence that have been endlessly pointed out by the opposition.
But whom to support? A strange new party has arisen that no one really knows very well. That seems to be in its favour as it seems to get to know a party is to learn to distrust it. This new party doesn't seem to be much more of a government-in-waiting than the old opposition party. But it is attracting people with previous government experience to itself. It has been saying it will do some specific things better than the current government. The electorate sort of know some of the people leading the new party even if they don't know the party.
It looks like this new party could become the de facto government-in-waiting, sort of by default.
On the federal scene, we have the same kind of opposition tactic - attack, attack attack.
You know, I think that all this attack stuff that the current federal government also used to do when in opposition and Alberta's current governing party has done even while in government, has soured the electorate to politics in general. The electorate and its media representatives have become extremely cynical. If a politician was to hand a bucket of water to a person whose house is burning, it could be refused. The person is likely to think some even greater tragedy will be triggered by taking that politician's bucket of water.
Lately we have had some interesting positive examples of government-in-waiting activity.
The Alberta opposition worked hard to understand what the energy industry in Alberta needed to have government do to support it in becoming successful once again. We have the opposition going around the province to see what the people need to have happen in the restructuring of healthcare.
Federally, the opposition put forward Bill C248 to support immigration to Canada that Canada has known it needs for the last thirty years. The opposition has also put forward bills S-241 and S-242 to change the regulation of credit and debit card transactions in keeping with strengthening financial regulations in response to lessons learned in the recent and current financial crisis.
These are thoughtful acts intended to remedy what the sponsoring parliamentarians see as serious shortcomings in Canada's statutory and regulatory infrastructure.
These are four examples of opposition acting as government-in-waiting.
What happens then?
Heard anything about the energy sector consultation in the form of proposed statutes and regulations or procedural changes to address the needs uncovered through that effort? Heard anything about proposals suggested for restructuring healthcare (not drafted as the process is still young) that can be shown to reflect the needs of the electorate and that are not already written up in a policy manual even before the public consultation process began?
Heard about the senators and their supporting parliamentarians engaging in public consultations in support of the proposed bills and any amendments to them? Heard about the opposition refusing to support its own proposed bill C248!
We almost had government-in-waiting! But not quite.
It's hard for me to understand why oppositions don't stick to their proposals to try to turn them into reality. That's the kind of tenacity and courage that I think the electorate can relate to. What if the government steals the ideas and claims them as their own? Who cares! Even the opposition has to remember that it has to represent all the electorate, not just those that elected them. It then has to pick a priority issue and stick to it until the desired outcome is achieved or the government quashes the effort against the interests of the electorate.
Opposition is government. Opposition has to act like it!
Mike
Tuesday, October 6, 2009
Investment Safety - Part 2
Okay, I'd better clarify.
Yes, when a company fails, creditors will almost always get a greater percentage of their investment repaid out of the proceeds of liquidation than will equity holders.
I do wonder what motivates companies to take on capital investment and investors to invest in companies.
I think companies take on capital investment to enable them to realize business opportunities they have identified. It often takes capital today to enable earnings tomorrow.
So the company is taking on an obligation to combine its business acumen and productive ability with investors' capital to realize its goal.
The investors, meanwhile, commit to the company to help it realize its goal with the belief that their capital commitment will earn a reward arising out of the successful achievement of the goal.
So both the investors and the company are motivated by achievement of a common goal.
I then suggest that investors and companies alike work to arrive at a capitalization solution that does not threaten to turn the investment into a non-enabler, or worse yet, a disabler.
How can non-enabling and disabling happen?
Debt servicing can hurry a company along its way to failure when its best laid plans don't turn out as quickly as hoped because of errors in execution or slumping demand for the company's produce because of bad weather or a generally slumping economy.
Now the company finds itself required to keep digging when it is already in a hole.
Equity participation does not threaten the company unless the equity owners decide that the company team doesn't deserve their trust and they replace them. This is a dangerous situation as the vision may not be shared by the new team. The team may be "allergic" to the old vision thinking they maintain their positions by avoiding anything that had anything to do with the past.
But that's not the real point as far as the investors are concerned. Should the company fail no matter the best efforts of all concerned, the investors are probably not going to achieve either goal. The produce will not be delivered and they will not earn a reward for their involvement and they may even lose part or all of their capital.
We then need to work harder to come up with solutions that enable the goal of the desired produce to be achieved even though the first company fails in the execution. That failure should not have been a direct outcome of the capital investment.
Solutions are out there and we shouldn't need Scully and Mulder (of X-Files) to find that "truth" that's out there.
Mike
Yes, when a company fails, creditors will almost always get a greater percentage of their investment repaid out of the proceeds of liquidation than will equity holders.
I do wonder what motivates companies to take on capital investment and investors to invest in companies.
I think companies take on capital investment to enable them to realize business opportunities they have identified. It often takes capital today to enable earnings tomorrow.
So the company is taking on an obligation to combine its business acumen and productive ability with investors' capital to realize its goal.
The investors, meanwhile, commit to the company to help it realize its goal with the belief that their capital commitment will earn a reward arising out of the successful achievement of the goal.
So both the investors and the company are motivated by achievement of a common goal.
I then suggest that investors and companies alike work to arrive at a capitalization solution that does not threaten to turn the investment into a non-enabler, or worse yet, a disabler.
How can non-enabling and disabling happen?
Debt servicing can hurry a company along its way to failure when its best laid plans don't turn out as quickly as hoped because of errors in execution or slumping demand for the company's produce because of bad weather or a generally slumping economy.
Now the company finds itself required to keep digging when it is already in a hole.
Equity participation does not threaten the company unless the equity owners decide that the company team doesn't deserve their trust and they replace them. This is a dangerous situation as the vision may not be shared by the new team. The team may be "allergic" to the old vision thinking they maintain their positions by avoiding anything that had anything to do with the past.
But that's not the real point as far as the investors are concerned. Should the company fail no matter the best efforts of all concerned, the investors are probably not going to achieve either goal. The produce will not be delivered and they will not earn a reward for their involvement and they may even lose part or all of their capital.
We then need to work harder to come up with solutions that enable the goal of the desired produce to be achieved even though the first company fails in the execution. That failure should not have been a direct outcome of the capital investment.
Solutions are out there and we shouldn't need Scully and Mulder (of X-Files) to find that "truth" that's out there.
Mike
Monday, October 5, 2009
Investment Safety - Why ask the question?
Has anyone asked the managers of her or his pension fund which is a safer investment for pension funds, debt or equity?
This latest financial crisis presented an opportunity to make such an analysis.
As I see it, there is only a relatively small difference in safety between the two, with equity being the safer in a general economic downturn and financial crisis.
Debt investment typically expects relatively low returns in the form of regular cash payments for interest. The return of capital may be regularly paid in cash or in the case of bonds may be delayed until the end of the term of the contract.
Equity investment may yield cash as return on investment in the form of dividends, by definition, being drawn from profits. The equities, generally shares or stocks, remain with the investor as part ownership in the enterprise.
When the enterprise is financially successful the dividends might be higher. The investment market will tend to recognize the increased security of the investment by driving up demand for the securities, thereby driving up the share price and offering an opportunity to gain on the investment.
On the other hand, the debt investment will yield regular return on capital in interest payments and return of capital by virtue of the repayment schedule. An enterprise debtor's financial success will only be reflected in reliability of those fixed or nearly fixed interest payments. Sudden large gains due to price appreciation of the debt instrument are unlikely to occur, as they would with equities.
When the enterprise is financially unsuccessful, it will pay no or smaller dividends, limited by the amount of accumulated surplus. The investor will still hold claim to a portion of the enterprise.
For a time, the debt investor will continue to receive returns in cash, both returns on and of capital. However, those returns will themselves threaten the solvency of the firm and might bring about its eventual demise. Will the debt investor recover all the investment? Perhaps, but more likely will recover only some of the investment with no chance of ever recovering the rest.
Of course, the equity investors face the same situation. They may recover something upon wind-up, or not.
Why ask this question when nearly every investor with even a passing knowledge of financial securities already knows these answers?
I ask it because I want fund managers to think about the implications of their investment decisions within the economic environment.
Ideally, fund managers would look for investments that pay cash returns on and of capital, while not being lost to catastrophic business failure.
The returns might never be as great as they might be with equity investments.
On the other hand, they might never be lost either.
We had pension and other wealth funds feeding the bubble economy for quite a few years. How do we know that? The funds' income was in the form of cash, usually the savings portions of employee income. Many funds were becoming cash rich, actually over-burdened with cash. They had to earn rewards that matched the investment markets so the piles of cash were more and more heavily invested in real estate, mortgages and equities.
These were almost all market risks, betting that the managers could continue to buy low and sell high indefinitely to meet future obligations to beneficiaries.
Betting that it will always be possible to buy low and sell high is the essence of a bubble market.
Fund liquidity and solvency needed to pursue other avenues to returns on and of capital that came only in the form of cash. These opportunities needed to be generating returns during good and normal economic times. The investment also needed to at worst lie dormant until economic times improved and returns could again be generated through economic activity. Perhaps these opportunities could be neither conventional debt nor equity investments, but some other form of investment.
Did fund managers look for such opportunities? We can't be sure. Apparently they didn't find them as I have not heard of a single instance where some fund manager emerged from the depths of the financial crisis with performance indicating such an opportunity was found and successfully exploited.
Such a fund manager would have appeared as a sunlit diamond in the rubble.
Mike
This latest financial crisis presented an opportunity to make such an analysis.
As I see it, there is only a relatively small difference in safety between the two, with equity being the safer in a general economic downturn and financial crisis.
Debt investment typically expects relatively low returns in the form of regular cash payments for interest. The return of capital may be regularly paid in cash or in the case of bonds may be delayed until the end of the term of the contract.
Equity investment may yield cash as return on investment in the form of dividends, by definition, being drawn from profits. The equities, generally shares or stocks, remain with the investor as part ownership in the enterprise.
When the enterprise is financially successful the dividends might be higher. The investment market will tend to recognize the increased security of the investment by driving up demand for the securities, thereby driving up the share price and offering an opportunity to gain on the investment.
On the other hand, the debt investment will yield regular return on capital in interest payments and return of capital by virtue of the repayment schedule. An enterprise debtor's financial success will only be reflected in reliability of those fixed or nearly fixed interest payments. Sudden large gains due to price appreciation of the debt instrument are unlikely to occur, as they would with equities.
When the enterprise is financially unsuccessful, it will pay no or smaller dividends, limited by the amount of accumulated surplus. The investor will still hold claim to a portion of the enterprise.
For a time, the debt investor will continue to receive returns in cash, both returns on and of capital. However, those returns will themselves threaten the solvency of the firm and might bring about its eventual demise. Will the debt investor recover all the investment? Perhaps, but more likely will recover only some of the investment with no chance of ever recovering the rest.
Of course, the equity investors face the same situation. They may recover something upon wind-up, or not.
Why ask this question when nearly every investor with even a passing knowledge of financial securities already knows these answers?
I ask it because I want fund managers to think about the implications of their investment decisions within the economic environment.
Ideally, fund managers would look for investments that pay cash returns on and of capital, while not being lost to catastrophic business failure.
The returns might never be as great as they might be with equity investments.
On the other hand, they might never be lost either.
We had pension and other wealth funds feeding the bubble economy for quite a few years. How do we know that? The funds' income was in the form of cash, usually the savings portions of employee income. Many funds were becoming cash rich, actually over-burdened with cash. They had to earn rewards that matched the investment markets so the piles of cash were more and more heavily invested in real estate, mortgages and equities.
These were almost all market risks, betting that the managers could continue to buy low and sell high indefinitely to meet future obligations to beneficiaries.
Betting that it will always be possible to buy low and sell high is the essence of a bubble market.
Fund liquidity and solvency needed to pursue other avenues to returns on and of capital that came only in the form of cash. These opportunities needed to be generating returns during good and normal economic times. The investment also needed to at worst lie dormant until economic times improved and returns could again be generated through economic activity. Perhaps these opportunities could be neither conventional debt nor equity investments, but some other form of investment.
Did fund managers look for such opportunities? We can't be sure. Apparently they didn't find them as I have not heard of a single instance where some fund manager emerged from the depths of the financial crisis with performance indicating such an opportunity was found and successfully exploited.
Such a fund manager would have appeared as a sunlit diamond in the rubble.
Mike
Sunday, October 4, 2009
Eat Local - support accountability and safety
One of the great arguments in favour of our food production system in North America and other places in the world, is the remarkable cost efficiency characterizing our food production.
North Americans, in particular, pay quite a small portion of their income on food.
That's a desirable thing, to have more people able to afford food to support life.
The New York Times' Michael Moss yesterday reported the tragic case of Stephanie Smith of Minnesota:
While we could address all kinds of issues about corporate responsibility, personal responsibility, carbon footprint, market concentration, government responsibility and other large policy issues, I think we need to focus on a very simple issue.
What is the definition of food?
My Penguin English Dictionary 2nd Edition defines food as "material consisting essentially of protein, carbohydrate, and fat, along with minerals, vitamins etc. taken into the body of a living organism and used to provide energy and sustain processes essential for life."
In the case of the delinquent hamburger, it meets the definition right up to "sustain processes essential for life."
I like my dictionary, but I will quibble. I prefer this simpler definition, "Food is material taken into the body to sustain processes essential for life."
I suspect, as I have not taken any sort of definitive survey, that most of us believe that for food to be food, it must sustain processes essential for life.
It seems to me there is an effort here to see how close the industry can come to not producing anti-food and occasionally it slips over the line. It's not so much that the "food" is more or less effective at sustaining processes essential for life, but that the "food" does not sustain processes essential to ending life.
When that line is crossed, that "food" is then not cost efficient.
It is all cost, no benefit.
In fact, it creates new cost, the cost of health recovery or death. Let's add to that the opportunity cost of lost productivity of the sick person and her or his family. Let's also add the cost of redirection of scarce health care resources to look after someone made ill by believing that the "food" is food, not non-food or anti-food.
Now, Let's have another look at the cost efficiency of our food system.
I wonder if we don't have better assurance of food meeting its definition when we eat local, where the accountability is transparent and there is an added peer pressure to avoid contamination or spoilage that may threaten the producer's neighbours.
Certainly, local food must be prepared and handled properly to avoid the same disaster, but at least the chain of accountability has a much better chance of being short and transparent enough to be effective at putting effective preventive measures in place.
Mike
North Americans, in particular, pay quite a small portion of their income on food.
That's a desirable thing, to have more people able to afford food to support life.
The New York Times' Michael Moss yesterday reported the tragic case of Stephanie Smith of Minnesota:
E. Coli Path Shows Flaws in Beef Inspection
http://www.nytimes.com/2009/10/04/health/04meat.html?hpWhile we could address all kinds of issues about corporate responsibility, personal responsibility, carbon footprint, market concentration, government responsibility and other large policy issues, I think we need to focus on a very simple issue.
What is the definition of food?
My Penguin English Dictionary 2nd Edition defines food as "material consisting essentially of protein, carbohydrate, and fat, along with minerals, vitamins etc. taken into the body of a living organism and used to provide energy and sustain processes essential for life."
In the case of the delinquent hamburger, it meets the definition right up to "sustain processes essential for life."
I like my dictionary, but I will quibble. I prefer this simpler definition, "Food is material taken into the body to sustain processes essential for life."
I suspect, as I have not taken any sort of definitive survey, that most of us believe that for food to be food, it must sustain processes essential for life.
It seems to me there is an effort here to see how close the industry can come to not producing anti-food and occasionally it slips over the line. It's not so much that the "food" is more or less effective at sustaining processes essential for life, but that the "food" does not sustain processes essential to ending life.
When that line is crossed, that "food" is then not cost efficient.
It is all cost, no benefit.
In fact, it creates new cost, the cost of health recovery or death. Let's add to that the opportunity cost of lost productivity of the sick person and her or his family. Let's also add the cost of redirection of scarce health care resources to look after someone made ill by believing that the "food" is food, not non-food or anti-food.
Now, Let's have another look at the cost efficiency of our food system.
I wonder if we don't have better assurance of food meeting its definition when we eat local, where the accountability is transparent and there is an added peer pressure to avoid contamination or spoilage that may threaten the producer's neighbours.
Certainly, local food must be prepared and handled properly to avoid the same disaster, but at least the chain of accountability has a much better chance of being short and transparent enough to be effective at putting effective preventive measures in place.
Mike
Ethics Clash
Congratulations to Allan Markin for proposing an ethics centre for Calgary.
The Calgary Herald noted his proposal on October 2, 2009:
Nicholas Kristof posted an op-ed piece in the New York Times today that illustrates the importance of Mr. Markin's proposed development.
The insurance industry feels it has an obligation to protect each company's viability, thereby protecting employees, owners and the communities that rely on those jobs and the tax base of their businesses. They then feel their ethic binds them to protect that viability by avoiding taking on high risk policies, ones that have a markedly higher chance of triggering a claim than other policies.
The family Mr. Kristof talks about is trying to work together to save the life of the father. The family's ethic is preservation of the species, the family and the people they love.
As a society, the people of the United States have to decide which ethic must take precedence.
I happen to agree with Mr. Kristof. However, in a democracy, the ethic is that the electorate must decide which ethic takes precedence. Mr. Kristof is only one vote. I don't come up to that bar as I am not a citizen of that great country.
The citizens of the United States have hard work ahead of them. Ethics centres can't but help them in that effort.
An ethics centre! What an opportunity to develop critical thinking, wisdom and judgment!
Mike
The Calgary Herald noted his proposal on October 2, 2009:
Flames co-owner plans ethics centre for Calgary
by Mario Toneguzzi. http://www.calgaryherald.com/sports/Flames+owner+plans+ethics+centre+Calgary/2058076/story.htmlNicholas Kristof posted an op-ed piece in the New York Times today that illustrates the importance of Mr. Markin's proposed development.
Dad’s Life or Yours? You Choose
http://www.nytimes.com/2009/10/04/opinion/04kristof.htmlThe insurance industry feels it has an obligation to protect each company's viability, thereby protecting employees, owners and the communities that rely on those jobs and the tax base of their businesses. They then feel their ethic binds them to protect that viability by avoiding taking on high risk policies, ones that have a markedly higher chance of triggering a claim than other policies.
The family Mr. Kristof talks about is trying to work together to save the life of the father. The family's ethic is preservation of the species, the family and the people they love.
As a society, the people of the United States have to decide which ethic must take precedence.
I happen to agree with Mr. Kristof. However, in a democracy, the ethic is that the electorate must decide which ethic takes precedence. Mr. Kristof is only one vote. I don't come up to that bar as I am not a citizen of that great country.
The citizens of the United States have hard work ahead of them. Ethics centres can't but help them in that effort.
An ethics centre! What an opportunity to develop critical thinking, wisdom and judgment!
Mike
National Post October 3, 2009 The Most Hated Man in Mecca
At first I thought the National Post was reporting on a new Fox News reality show.
Have volunteers come forward vying for the title. Have the eliminations take place in Mecca with phone-in balloting and three judges adjudicating the contestants' performances.
You know,the American Idol thing.
Turns out it was the editors' selection only, along with the reporter/columnist.
I also thought the headline carried a certain amount of glee. "Whoopee, people hate us!"
I'm not sure that's the way to have influence in Mecca. While I disagree with the hatred of Kurt Westergaard, especially putting a price on his life, I'm not convinced stirring up hatred against oneself is an effective way to win friends among and influence the Saudi Muslims of Mecca.
I suspect the over-the-top cartoons were a bit of pandering to Islamophobia in Denmark and perhaps other European populations.
I can see how it might appeal to the ,"Whom we should hate today.", proselytizers like Beck or Limbaugh. But aren't they the same ilk as the condemners to death of Mr. Westergaard?
I mean, when was the last time hatred brought us peace, harmony and neighbourliness?
Mike
Have volunteers come forward vying for the title. Have the eliminations take place in Mecca with phone-in balloting and three judges adjudicating the contestants' performances.
You know,the American Idol thing.
Turns out it was the editors' selection only, along with the reporter/columnist.
I also thought the headline carried a certain amount of glee. "Whoopee, people hate us!"
I'm not sure that's the way to have influence in Mecca. While I disagree with the hatred of Kurt Westergaard, especially putting a price on his life, I'm not convinced stirring up hatred against oneself is an effective way to win friends among and influence the Saudi Muslims of Mecca.
I suspect the over-the-top cartoons were a bit of pandering to Islamophobia in Denmark and perhaps other European populations.
I can see how it might appeal to the ,"Whom we should hate today.", proselytizers like Beck or Limbaugh. But aren't they the same ilk as the condemners to death of Mr. Westergaard?
I mean, when was the last time hatred brought us peace, harmony and neighbourliness?
Mike
Saturday, October 3, 2009
Alberta's Bill 50
Thank Deborah Yedlin for her clear analysis of Alberta's electrical energy situation, the grid system in particular and the danger of Bill 50.
Good work Ms. Yedlin.
Find it at http://www.calgaryherald.com/business/Getting+bogged+down+flawed+Bill/2061330/story.html
I'm still a little confused by what the issue is with Alberta's Progressive Conservatives, however.
When Ralph was in, Calgary PC's told us he could do no wrong. A great many other Albertans had differing opinions. I always assumed it was a case of , "My Party, My Leader. If I disagree I probably don't have all the facts."
Now it seems that Mr. Stelmach can do no right. Yet Other Alberta PC's, especially rural members, seem to have a less firm opinion.
It can't be that old story, Flames - Great!, Oilers - Yuck!, Stampeders - Great!, Eskimos - Yuck!, Calgary someone - how to react to no one in particular is difficult, Edmonton's Stelmach - Yuck! When it comes to political leaders, Yuck wins by default?
It can't be that simple, can it?
So what's really going on?
Mike
Good work Ms. Yedlin.
Getting bogged down in a flawed Bill 50
Find it at http://www.calgaryherald.com/business/Getting+bogged+down+flawed+Bill/2061330/story.html
I'm still a little confused by what the issue is with Alberta's Progressive Conservatives, however.
When Ralph was in, Calgary PC's told us he could do no wrong. A great many other Albertans had differing opinions. I always assumed it was a case of , "My Party, My Leader. If I disagree I probably don't have all the facts."
Now it seems that Mr. Stelmach can do no right. Yet Other Alberta PC's, especially rural members, seem to have a less firm opinion.
It can't be that old story, Flames - Great!, Oilers - Yuck!, Stampeders - Great!, Eskimos - Yuck!, Calgary someone - how to react to no one in particular is difficult, Edmonton's Stelmach - Yuck! When it comes to political leaders, Yuck wins by default?
It can't be that simple, can it?
So what's really going on?
Mike
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