The Regenerative Economy

As I have mentioned, it was recently New Economy Week. We at the Alliance, busy with energy and water and food meetings and writing, are still getting caught up on our email. One report I recommend is, “Transforming Finance and the Regenerative Economy“, by John Fullerton and Hunter Lovins, October 16, 2013.

On a similar note, I have played and replayed the Bloomberg Surveillance podcast of Tom Keene’s October 22 interview of Bill Gross of PIMCO. The interview starts with Keene congratulating Gross on getting the “new normal” right. This refers to PIMCO’s 2009 call. A short excerpt:

All of those three in combination, to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change for the next – yes, the next 10 years and maybe even the next 20 years. We are heading into what we call the New Normal, which is a period of time in which economies grow very slowly as opposed to growing like weeds, the way children do; in which profits are relatively static; in which the government plays a significant role in terms of deficits and reregulation and control of the economy; in which the consumer stops shopping until he drops and begins, as they do in Japan (to be a little ghoulish), starts saving to the grave.

During my brief stint in the financial services sector, I found PIMCO to be one of the few large companies with admirable business practices. I would go so far as to say I saw them as consistent with the Elements of Regenerative Finance in the Fullerton-Lovins report. Of particular interest to me is their candor as social commentators; a candor Mr. Gross continued in the October 22 interview. To wit:

Keene:  How much can the haves get before society says no?

Gross:  At some point aside from our Sunday football and our Saturday college sports the 99 should wake up and smell the low wages and produce some type of revolt. We’ve seen that I guess with McDonald’s, and in some other cases where they simply say ‘Hell no we won’t go.’ They did go back, but at some point labor vs. capital is the future battleground for the United States and perhaps even the global economy.

It was therefore with some disappointment that I read this piece, also from October 22, on Moyers & Company (“Activists Confront Financial Titans Larry Fink and William Gross”). An excerpt:

Speaking from the audience before the official question-and-answer segment began, Shaffer asked Fink and Gross to explain why their firms are suing the city of Richmond, which is trying to help “underwater” homeowners by purchasing their over-priced mortgages and selling them back to them for the current fair market value.

“Why are you suing the city of Richmond instead of negotiating?” asked Shaffer, who can be heard on the CNBC video speaking over the hisses of audience members. “Your day of reckoning is coming!”

Fink and Gross — who are both alums of the UCLA business school — were clearly surprised by the question, as was Brian Sullivan, a CNBC financial journalist who was moderating the discussion. But the activists’ action diverted the discussion from the condition of the financial industry to the condition of everyday Americans facing financial hardship.

PIMCO and Blackrock backed a lawsuit recently filed against Richmond by Wells Fargo and Deutsche Bank after the city, hard-hit by foreclosures and with half of all homeowners still underwater, sent a letter to the investors offering to buy 624 underwater mortgages held by private-label security trusts. The city program is designed to help the homeowners by acquiring over-priced mortgages at their current value. The city will then reduce the loan balance and refinance those mortgages so that borrowers would end up paying significantly less every month.

The lawsuit challenges the city’s plan to use its power of eminent domain, if it proves necessary, as the only way to acquire and fix the mortgages if the banks and investors are unwilling to negotiate the sale of these loans. US District Court Judge Charles Breyer dismissed the investors’ lawsuit, explaining that the city has not officially exercised its eminent domain power, but the money managers and banks intend to continue the litigation after Richmond proceeds with the plan.

As always, there is more to the story than meets the eye. For example, there is a private company behind Richmond’s plan to help struggling homeowners. Mortgage Resolution Partners came under fire earlier this year after Phil Angelides, former chairman of the federal commission that investigated the causes of the financial crisis, sent a provocative fundraising letter. It could even be argued that Bill Falik, one of 12 founding investors in Mortgage Resolution Partners, contributed to the problem the company is now seeking to help solve (with appropriate profit, of course). KQED reports:

In the boom years of California’s real estate market, then-Assembly Speaker [Willie] Brown was a partner in a series of Falik-run real estate partnerships that helped turn thousands of acres of Central Valley farmland into new housing developments. In that case, the key was persuading local officials to rezone Sacramento River floodplain.

This observation — that there is usually more to policy stories than meets the eye — reminds me of a lecture I attended a few nights ago. Our friends at MN350 co-sponsored the local stop of Nicole Foss and Laurence Boomert’s U.S. speaking tour. Mr. Boomert is an excellent speaker, and it was a shame that his time was the second part of the evening, and was rushed. Ms. Foss is widely respected for her energy and financial commentary, but I had difficulty with her talk, which was heavy on assertions and light on evidence (strange, because Ms. Foss’s website is rich with facts). For example, though she did not address the point in her talk, one of her slides stated “Renewables do not scale”. This led me to do some research on the subject today, and I found this article from Yale’s Environment 360 project. An excerpt:

Although daunting, the challenges of installing new energy technologies on a mass scale are by no means impossible. In the first half of the 20th century, it took the U.S. 45 years to increase its use of oil until that fossil fuel represented 20 percent of the total energy used. At the same time, the U.S. built a sprawling gasoline-fueling station infrastructure, the rudiments of a national electricity grid, thousands of miles of telephone lines, airplanes and airports, interstate natural gas pipelines, and local delivery infrastructure for home heating — and rolled out all the appliances (refrigerators, radios, televisions, etc.) of the modern age — all in the same few decades, at the same time. In other words, the U.S. seems to have “scaled up,” in the parlance of engineers, pretty rapidly in the past.

This led me to think about recent coverage of renewable energy in Germany, and the increasingly used frame that it is too expensive, or only for the wealthy. I went in search of recent articles, and my first page of search results turned up a very fine piece on by our friend John Farrell at ILSR, “Three Reasons Germans are Going Renewable ‘At All Costs‘”. It’s a quick read, and well worth your time.