Forgive Us Our Debts

So I was doing some post-holiday reading (my son’s gift to me Invictus; my wife’s gift to me The Magna Carta Manifesto, and the FDIC’s 2009 Failed Bank List) and, while I know I’m biased, my family was far more in tune with “interesting” than our dear friend Ms. Bair. That said, I don’t want, for a moment, to have you think that there wasn’t a good dose of intrigue in the FDIC’s bestseller and I figured that the year wouldn’t be complete without one more FDIC moment of incredulity. I guess, in a strange way, as Congress’ actions on Christmas Eve showed us, we really should take our debt situation seriously. So, I thought, it may be worth one more visit with the Keeper of the Scythe into the Crypt of Failed Banks 2009 to see what tales the dead could tell.

In my desperate plea for someone to recognize that this involved some effort, I should point out that this journey involved reviewing, as best I could, the capital positions of over 120 banks, the FDIC’s stated exposure on each, and the identities of the financial institutions which stepped in to acquire the assets of failed institutions. Let me summarize some observations that will certainly lead to deeper inquiry on my own part and, with all luck, on the part of others.

First of all, I found it quite fascinating to see that the distribution of bank failures was anything but a normal distribution. Outside of Illinois, with 14% of this year’s failures, the FDIC found its primary prey in the southlands with Georgia (17%), California (12%) and Florida (10%) leading the nation in collapses. That’s right, four states accounted for over 50% of the nation’s bank failures. Arizona (4%), Texas (4%), and Washington (3%) were in the distant second tier. Banks failed in 31 states 43% of which would be considered Northern.

The assets of the banks reviewed were approximately $143 billion with 20 institutions listing assets in excess of $1 billion. But this is where it gets a bit murky. According to the data listing the FDIC’s exposure to these institutional failures, it appears that they hold approximately $32.4 billion in insured exposure but were “aided” or “absolved” of a total of $110.4 billion. Now, I realize that this appears to have a perfectly rational explanation – namely, that many of the assets were acquired by other institutions and therefore are not at an insured loss exposure at present. Eight institutions had no buyer of record whatsoever. However, in each of these instances, the nominal assets and the FDIC exposure were incongruous and the delta is worth considering. Almost $6.7 billion appears to have vanished. No one bought the assets and the FDIC doesn’t claim that it has an obligation to cover them. And there’s more. There seems to be discrepancy between what the FDIC thinks acquiring banks took on and what the FDIC outstanding liability may be.

The obvious conclusion that should explain this is that there are a number of deposits that exceeded the maximum insured benefit and therefore have no insured benefit. Maybe, depositors were just foolish and put way to much cash in bad banks. While all these questions may appear the product of blurry vision after reading too many spreadsheets, there’s a material reason why this really matters.

You see, to stave off it’s own insolvency the FDIC has decided to accelerate an advance-paid premium scheme assessed against insured deposits. And the scheme, per the FDIC’s most recent posting, is based on actual insured deposits at a variety of capriciously set times calculated against rather arcane actuarial assumptions. So, the $110.4 billion (against which premiums have been already paid by the now defunct banks) sits in a fascinating limbo from the standpoint of those who wish know the true actuarial position of the FDIC. To further confound the matter, the FDIC, through it’s actuarial and investment negligence, required the aid of other financial institutions to step in mightily and bail the insurer out of its own insolvent position. Therefore, the approximately $32.4 billion that is currently the responsibility of the FDIC does NOT conform to historical actuarial data with respect to secondary market recovery. It is “junkier” junk than was the case in the past meaning that the FDIC will be more on-the-hook than usual.

So, as we look through the soiled diaper on the little baby called 2010, we find ourselves realizing that the FDIC accounting creativity and actuarial acrobatics is merely the warm-up for what Congress will face between mid-January and the end of February at which time the mystery moves into the realm of trillions, not these pesky billions.

For all those who suggested that we weathered the storm and we’re coming out with a healthier financial sector, be cautious. Remember that the fee income that led to bank profitability in an era where NO meaningful commercial lending origination was going on was based on moving government money – commissions on TARP on the way in and commissions on TARP on the way out. Oh, sure, technically this couldn’t have actually happened but, remember, the same entities that jumped to aid the Treasury in managing bailout funds actually wound up being consumers of the very funds they were moving and, yes, they collected fees for moving taxpayer money. The automotive industry got its bite at the apple with clunkers. The real estate market got its bite twice with homebuyer tax credits and Freddie and Fannie illusory capacity. And the banks got the windfall by moving it all and collecting fees each time anything moved.

The Bretton Woods and Nixon debt currency experiment is ready for examination. The vaunted institutions that were promoted to “protect” the American citizen from the recklessness of the past and to insure that some perversion of Keynesian monetary theory persisted have lost their moorings. No new acronyms are going to rescue us from ourselves. Our reflexive response to Irrational Fear which has led us into countless, unconsidered yawning chasms, deferred accountability, and reckless excesses must be brought into refinement.

In the throes of the Cold War in 1956 (the year after Rosa Parks’ bold stand for equality which was met with oppression), we intertwined our national identity to our money enshrining as our national motto “In God We Trust” – a motto that was not derived from piety but from the presence of that statement on coinage minted to unify the nation during the Civil War. I think what we really meant was that in the debt dependent American Consumer Capitalism (and in the government institutions that are there to shield us from our own wanton excesses) we trust. Well both the unconsidered consumption and the prophylaxis for irresponsibility have failed us. What took the chosen ones in the desert 40 years of wandering to learn took us 50 years. Following an idol animated by fear and greed gets you nowhere. Our “promised land” – then defined as “not communism” – has been leveraged and the note has come due. So there’s some gallows humor in realizing that it is China – the last bastion of our greatest animating fear for which we had to proclaim our “Trust” in “God” – that now holds the Sword of Damocles over the great experiment.

As we peer into that which is coming, I am convinced that prudence dictates a careful consideration of precisely how we want to manifest a new future. And here, I’m inspired by my other two readings to which I made reference at the beginning of this piece – Invictus and The Magna Carta Manifesto. You see, these two books merge a most insightful narrative evoking the possibility of a more conscious, considered future. Whether it is the Springboks “One Team One Country” that helped carry South Africa past the certain ravages of bloodshed that was thought inevitable at apartheid’s end, or whether it was the truce embodied in the 1215 accords at Runnymede – the Magna Carta and the Charter of the Forest – in which economic, religious, and government tyranny were addressed by people dictating the terms under which THEY would be governed, the essential message of both is that we, the people, must first accept and then expect responsible actions from each other and then our governments. One way or another, we’re going to need to re-examine “In God We Trust” through the lens of E Pluribus Unum.

Happy New Year!

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A Lump of Coal, Carbon Credits or Christmas Cheer?

‘Twas the night before Christmas in the Washington’s halls;
Blankets of snow kept shoppers from malls;
The year that was closing was almost wrapped neatly;
But Congress had one toy that wasn’t boxed completely.

While Ma in her kerchief, and I in my hat;
Had just settled in for our last Yuletide chat;
A tiny default that would collapse the dollar;
Needed containment so markets wouldn’t holler.

You see, there was a matter that kept up Beijing;
The gold in our debt was loosing it’s ching;
Our debt limit pressed through a blizzard of spending;
Concerned Hu and Wen at the government’s year ending.

When through Senate halls there came a solution;
While no one was watching came economic evolution;
To fix the default and keep holidays jolly;
The Congress embarked on a February folly.

You see, in this year, when a problem arises;
The prudent solution that wins all the prizes;
Is to extend much more credit, abolish debt ceilings;
The future be damned, it’s all about feelings.

So down the chimney on Pennsylvania Avenue’s cold night;
Over self-righteous, duplicitous, Grinchy protests from the Right;
To $12.4 trillion the debt limit was raised;
A move that was sure to earn Treasury’s praise.

On Freddie, On Fannie, On Pensions and Banks;
On Goldman, and Citi and legacies of Hank’s;
We need not be burdened with debt default sorrow;
As long as we have our solution – Tomorrow.

In case you had too much eggnog and figgy pudding, you may want to recall that also in this year’s December stockings were:
- another 16 banks “protected” by the insolvent FDIC;
- a record of your neighbors officially no longer unemployed (we’re making so much progress) because now they’ve been without work long enough to no longer be unemployed – they’re the uncounted;
- fiscal conservatism immaculately conceived in the Republican party – the same folks that spent us $11 trillion into the hole – making the Virgin birth downright plausible; and,
- record non-compliance with Basel II for another year insuring that U.S. banks and financial institutions will simply compound the problems created by 2010’s arrival of Solvency II – the capital adequacy standards for the insurance industry that, you guessed, enjoy non-compliance at present.

Accountability does not find itself a frequent bedfellow of expediency. In 2010, I hope that fewer of you look for change to “believe in” but rather change that has the maturity to confront reality and deal with tough problems head on. When the February note comes due on the Christmas Eve debt ceiling limit charade, we will be confronting the consequences of deferral. And, if we don’t learn from the past year’s folly, we’ll have to choose between noses… will we follow a red nose through the darkening night sky or will we continue to look to a wooden puppet wishing he was real?




_P.S. More like the SAIC posting coming... stay tuned

Archimedean Theorem III – Obscurity’s Reign is Ending

AIG reassured its shareholders – the taxpayers of the United States – that, given more time, the probability of repaying bail-out funds increased. When AIG CEO Robert Benmosche informed the markets that it would take at least “two years” to sell enough company assets to repay taxpayers, I was struck with the incongruity intrinsic to the logic that sees that the strategy to “repay” the shareholders one should off-load value from the company to monetize a repayment. Did anyone stop to realize that, between now and then, to “repay” us, they have to devalue our stock by selling assets? What seems to be missing is that the American taxpayer continues to be swindled out of much more than the $182.3 billion provided to AIG to keep if from “failing”.

Just so we keep some semblance of accountability, I hope you all saw that the Federal Reserve Bank of New York (a private shareholder with no reportable financials) exchanged $25 billion in debt for preferred equity. The blatant nature of the lies that the public are being told is beyond the pale when AIG’s CEO characterized this transaction as a, “clear message to taxpayers: AIG continues to make good on its commitment to pay the American people back.” This, in any other country’s use, would be held as a case study in public corruption. Former New York Attorney General Eliot Spitzer, University of San Diego’s Frank Partnoy, and University of Missouri’s William Black had the decency to call for a release of information about the true beneficiaries of the bail-out in their New York Times op-ed this Sunday (December 20, 2009) – a call that goes part way. Their request for transparency MUST include a full disclosure of the nature (including fees paid but not reported) of the Federal Reserve Bank of New York’s debt conversion program.

When one considers the recent rush to repay bailout funds (or convert them into nonsense preferred equity), a clear question rises to the fore. With the approximately 750 institutions bailed out to the tune of approximately $450 billion in TARP alone, why are so many firms attempting to accelerate an exit before year-end? Regrettably, the answer is found in one word – accountability.

The public has been hypnotized by those who seek to continue to steal as much as possible from the public treasury before the music stops. However, those who believe that they control the illusion now face a certain, uncomfortable future. That future is comprised of a growing number of people who are seeing that to sit idly by and watch a bank being robbed is no longer acceptable. When Time Magazine picks Ben Bernanke as their Person of the Year, when the Nobel Peace Prize is awarded to a President who is expanding conflict in Afghanistan (and soon Pakistan and Iran), and when “repayment of taxpayers” involves converting public debt to private equity, the insanity is deafening.

"This is tyranny, which through stealth or force appropriates the property of others, whether sacred or profane, public or private, not little by little but all at once. If someone commits only one part of injustice and is caught, he’s punished and greatly reproached – such partly unjust people are called temple-robbers, kidnappers, housebreakers, robbers and thieves when they commit these crimes. But, when someone, in addition to appropriating their possessions, kidnaps and enslaves the citizens as well, instead of these shameful names he is called happy and blessed, not only by the citizens themselves, but by all who learn that he has done the whole of injustice."
Socrates in Plato’s Republic.

Just for the record, our collective, greatest example of the above didn’t receive much press but one day will come back to haunt our collective conscience. When Standard & Poor’s added SAIC to the S&P 500 Index officially on December 18, 2009, they rounded out the week of moral carnage. Those familiar with SAIC should recall that the company had difficulty going public in 2006 due to “accounting irregularities”. Among the most tedious and opaque were the mysterious missing funds surrounding the Greek Olympic security contracts – a matter that in its most recent 10-Q filing is still unresolved. Are you listening? A public company, now a component of the S&P 500, is still failing to have accountability for a contract entered in 2003 for work for the Greek Olympic security. Six years later and they’re protecting WHAT??? Where is the “missing” $120 million? What security did it purchase?

And what do AIG, the recent awards, SAIC’s entry onto the S&P 500, and Greece’s impending bankruptcy all have in common? Let’s just say that bankruptcy has a remarkable and negative impact on intentional obscurity – particularly those associated with missing money. The government couldn’t let AIG fail, not because it was vital to the economy. Rather, it was vital to preserving secrecy of transactions that the government and its shareholders never wanted in the light of day. SAIC, in their most recent financial statement (page 16 and following) has conveniently shared the spotlight of corrupt practices with Siemens building the case for the fact that they are potentially the victims (clearly not the perpetrators) of corrupt transactions associated with Olympic security contracts. And, when the EU has to review the financial transactions of the Greek government per euro policies, won’t it be interesting to see where SAIC’s $120 million showed up on the books?

I wonder if one of this weekend’s editorial writers has more knowledge of the contents of e-mails then first meets the eye. After all, Eliot Spitzer was New York State’s Attorney General on October 20, 2005 when Bulf Oil, that mysterious oil-for-food company was convicted of grand larceny. For those of you not familiar with it, the “Romanian Company” Bulf Oil – is one of the most fascinating untold stories of the run-up to the Iraq war. Even more fascinating is the Reston, Virginia trading company, Midway Oil Trading Inc., which wired funds through one or more New York banks to subsidize the oil-for-food scam. Midway Oil Trading Inc. reportedly had offices in Virginia, Switzerland and Greece. Wouldn’t it be interesting to find out whether any of the folks implicated in the web of obscurity actually were outed by bankruptcy?

Let me be blunt. The real story of the bailout is not one of “too-big-to-fail”. Rather it is one of “too-many-skeletons-in-the-closet”. So we arrive at Archimedean Theorem III – Accountability and Transparency are the ultimate arbiters of public good. As we have seen with carbon credit indulgences, Olympic security for games 5 years over, oil-for-food, peace through war, and Copenhagen’s absurd conclusion, when subterfuge and obscurity are utilities of choice, no public good will follow. Yes, we need the AIG bailout records. Yes, we need the Federal Reserve audit. Yes we need genuine accountability for the propagation of a war that has NOTHING to do with freedom. Obscurity’s days are numbered as long as you, the reader, decide to wake up. If not, this blog, and my efforts serve as an epitaph on us all. WAKE UP!

Relaxatio – Indulgences in Copenhagen

The Council of Epaon in Burgundy in 517 CE was the first step towards Copenhagen in 2009 CE. In its canons, the church legislated that altars must be built from stone rather than wood and it initiated the expedient dogma which opened the door for the suggestion that one could pay for sins and, in so doing, mitigate accountability. Embodied in its extreme, Johann Tetzel, the Dominican from Saxony was alleged to say that, “As soon as the gold in the coffer rings, a soul from purgatory springs.” Attempting to purchase our salvation as we wallow in our addiction to carbon, we feign abhorrence to the “breaking news” that over 5 billion euros of carbon credits have been based on fraudulent transactions. Say it ain’t so! You mean bad people are abusing this great utility which was designed to save us from ourselves?

It doesn’t take Martin Luther or a door in Wittenburg to see our systemic myopia. The reason why the Eco-Indulgences have been abused is because they are born of a corrupt logic. The notion that climate degradation, or any other human condition, can be mitigated through the sixth century madness embodied in the canon of Relaxatio – the facilitated transmutation of bad behavior for a lesser penalty by means of payment – is as subject to abuse now as it was five centuries ago. And turning the fraudulent conveyance into the news story is an unfortunate social commentary on the real moral bankruptcy. It is the faux credit, not the fraud, that is the original sin.

Copenhagen has, as many forecast, turned into a frenzy of Johann Tetzels. The poorest nations are going to get largesse from rich nations – in the form of money – so that they can cope with the toxification of the Earth. But while French Foreign Minister Bernard Kouchner calls for the “World Environment Organization”, Russia and the U.S. agree that humans are culpable for environmental threats, and the U.K. and Canada call for urgent action, I’m reminded of Tetzel’s currency – gold. After all, these recently converted eco-activists currently promote some of the world’s most horrific gold mining activities – owned by their shareholders, and listed on their stock exchanges – including sea-bed mining in the Pacific tuna breeding grounds, enabled by their publicly-financed technologies. While we claim to care about the toxins we’re pumping into the atmosphere, we ravage the land and destroy the water upon which life depends.

The path to reconciliation with the ecosystem will not be denominated with indulgences. We cannot carbon credit, cap, or trade our way to humanity. As I am surrounded by the cacophony of horns on the streets here in Sao Paulo and as I pass by the favelas filled with unimaginable color, my mind wonders when we will transcend the thinking that was state of the art in 517. When will we realize that accountability – not indulgences – are our collective destiny? When will we realize that to alter the course of our indulgences takes innovation of consciousness? Here in Brazil, we are suggesting that the compost of economic asymmetry can serve as the garden in which fruitful futures can germinate and grow. Our future humanity will be born not from our indulgence largesse but rather from our shared commitment to obsolete that which degrades and replace it with that which creates and restores.

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Copenhagen and UN Obscurity or Blindness?

Obscured under layers of soil, fossilized life forms and atmospheric carbon dioxide are heated and compressed into combustible material. Stripped from the tops of mountains or pumped from beneath the sands, this material is extracted, processed and transported over hundreds or thousands of miles by means of rail or ship to where it will begin its journey of reincarnation yet again. This carbon laden substance is oxidized (15% energy lost) under extreme thermal conditions heating water to boiling. Under pressure, the water vapor escapes past turbine blades which propel masses of copper converting mechanical energy into electrical energy (65% energy lost). The electrical energy is pumped onto an distribution grid (9.5% energy lost) so that it can be distributed to locations of consumption like homes, offices, or businesses. Once in the house, we can convert the AC electricity to DC (10% energy lost) to use the electricity to heat a thermal resistive coil (40% energy lost) to boil water to heat soup or heat homes (20% energy lost). Yeah, so let me get this straight. Our problem is with coal and oil, right?

What if, for one second, the experts assembling in Copenhagen decided that our supreme deity did not animate all creation with the single eucharist called electricity? What if, for one second, we considered the madness of our consensus dogma that holds that all that is energy must pass through copper? Yes, even those who are advocating for cleaner energy. Can you consider the futility of the reductionism that is the genuine opiate of the masses?

Remember, to refrigerate is to create variable pressure. Heat can as readily come from focused optics, from oxidation of fuel, or from the application of a charge to a resistive conductor or ceramic. Animation of mechanical parts involves selective gradients of friction and smoothness. You see, while we lament the destruction of our Earth and its ecosystem, we still obsess with our unifying principle that for anything to achieve acceptable modernity, it must be denominated in kilowatts.

Where is the ethical call for eliminating the outlet and the plug as the arbiter of advanced? When can we incentivize those who assemble appliances with rewards for linking power harnessing with end use with as few steps between production and use as possible?

Recent pronouncements have celebrated the amount of venture capital and private equity that has been invested in climate friendly technologies. As electricity is to our obscurity above, so is venture capital to our impulse to incentivize. However, let’s review, for the bidding. Venture capital deployed in new enterprises historically operates with a notoriously horrific efficiency (>90% failure). Not to worry, we are told. Because the less than 10% that make it make up for the 90% that fail. But do they really? Is this a tested hypothesis or is this consensus myth. The data, regrettably provides conclusive evidence of the latter. In fact, over the past seven years, bets taken on enterprise value erosion or full enterprise failure, exceeded all venture capital by two orders of magnitude and bets against future performance in the private equity markets outstripped forward fruitfulness bets 5 to 1. And these statistics are derived from markets where public offerings on stock exchanges and merger and acquisition liquidity is a mature market. How then, can any climate advocacy initiative have ANY credibility if it is suggesting that venture capital models are a key to helping the world escape its destructive tendencies? We are using the most inefficient form of capital to build the most inefficient appliances to feed from the most inefficient consensus utility created in our march toward evolutionary ecstasy. A pledge for $10 billion per year for 10 years to put in the hands of private equity in emerging markets is nothing short of another subsidy for the incumbent financial marketeers and is an affront to illumined social interest.

When will we deploy capital that is explicitly linked to taking to scale those technologies that are ecosystem aligned but grid incompatible? When will we invest not in usurious passive private equity (DC) which must be converted back into transmitted value (AC) so that it can be inefficiently consolidated for the utility of a few (DC again) but rather create innovative investments in forward purchase contracts on the production of future efficiency and the artifacts thus aligned? When will we think with more than one synapse at a time and engage our full creativity to free ourselves from our grid addiction on power (electricity) and power (capital accumulation)?

What we need is not the next commission laden bolus of cash from which private placement fees can further insulate those who have fed off the thermal loss of the systems that have empowered the last 100 years. When Edison and Westinghouse built the temple to whom all now must pay homage, few could have known the depth to which they would have enslaved even those who call themselves agents of change. As we look past the Klieg lights of Copenhagen (ironically, the illumination of carbon) and into the future of 2010 and beyond, I trust that at least a few understand that linking the source of energy to the intended use not only has merit for our appliances of convenience but also the appliances of our financial system.


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No One Gets Fired for Buying Big Blue… until this past week.

When Gene Amdahl left IBM in the mid 1970s he commented on the utility of Fear, Uncertainty, and Doubt (FUD) in the IBM sales process. Popularized under the adage “Nobody gets fired for buying IBM”, the FUD principle just showed the length of its reach this week in Dubai. In my posting today, I am honoring one of Dubai’s most interesting characters who, but for the weight of axiomatic conventional wisdom, would be a household name. Instead, he has become a recent casualty in the global financial crisis. However, as you read about this fascinating personality, I trust that you see that he is a metaphor for many others. In his departure this past week, I consider the inscription on so many of the tombstones in the cemetery of Trinity Church on Wall Street:

All you Good People
that here pass by
as you are now so
once was I, as I am
now so Shall you be
therefore Prepare
to Follow me.

The one about whom I’m moved to write is Dr. Omar bin Sulaiman. “Dr. Omar” – as he is known to most – is a brilliant professional in the Emirates. Rising to the rank of Governor of the Dubai International Financial Center and Vice Chairman of the U.A.E. Central Bank, Dr. Omar was, indeed, deeply dedicated to manifesting the vision of Dubai as a regional and global financial center. And, left to his own intuition, may well have succeeded. However, like so many of his contemporaries in places like Singapore, Qatar, Saudi Arabia, Malaysia, and much of Europe, intuition just a few years ago was jettisoned in favor of “Big Blue” – figuratively and, regrettably, following the acquistion of PricewaterhouseCoopers consulting practice, literally as well. And mind you, whether you’re looking at Saudi Arabia’s growing interest in being the next “Silicon Valley”, Singapore’s A*STAR, or Vietnam’s newest technology centers, the price for consensus thinking will include sharing consensus outcomes.

I first met Dr. Omar on a phone call arranged by business associates in the United Kingdom and a dear friend in Egypt. The substance of the phone call was a discussion of how the planned Dubai International Financial Center and Exchange (DIFC and DIFX, respectively) could become a differentiated financial market – one that offered a global, unique position. I discussed the rare opportunity that the DIFX’s creation had in the world of equity markets – an opportunity afforded no other exchange on the planet. You see, if you really wanted a transparent exchange in which the market was not subjected to information asymmetries (“ignorance arbitrage”, as I like to call it), what better a place to do this then a market sympathetic to Islamic Finance and its strictures on ethical disclosure and risk sharing.

To understand the opportunity, let me take you on an exemplary journey through an actual market case…

You see, when I started M•CAM in the mid 1990s, we started reviewing the intellectual property of the world’s largest companies – many of which were (and still are) publicly traded. In many instances, technology alleged to be “core” to enterprises, was either inadequately protected or not protected at all by means of proprietary assertions made in the marketplace. Representations about drugs, cell phones, power systems, materials, transportation technologies, business methods, and countless other technologies, were incomplete in most cases and were outright misstatements quite often. Earnings projected off of patent licenses were often based on completely fraudulent positions. Against that backdrop, M•CAM was asked to review patents held by competitors but not to look at any information that could adversely impact the prospective client’s portfolio. In short, if you wanted to damage someone else’s assertion on a proprietary claim, that was fine, but if you used the same methodology on your own, it would be devastating.

After the United States’ and the European Patent Offices found out that they were caught issuing counterfeit properties to industry participants who then went on to represent their proprietary interests to the market, they closed ranks to defend the industrial base. Unfortunately, what they didn’t contemplate was that many companies, realizing that their patent portfolios were smoke and mirrors decided to abandoned their useless innovation artifacts and some – regrettably for the tax-paying public, decided to throw them away by way of patent donation. This process frequently involved colluding with a third party – usually a research institution who would vouch for “valuation” – and donating the properties for 10s or 100s of millions of dollars in tax deductible “donations”. The recipient institutions generally abandoned these “assets” as soon as they had completed using them as evidence of corporate sponsorship justifying Federal sponsored research grants.

Many of these same companies continue to flagrantly violate U.S. Treasury rules with what’s known as the In Process Research and Experimentation Tax Credit which is supposed to reward companies for new R&D. This loophole – estimated to be the second largest tax fraud in the U.S. at present – exposes the public markets to enormous tax liabilities and fraud penalties should the government ever decide to tackle this abuse.

So, back to the DIFC opportunity. What if you started a public market for companies that DID NOT have massive fraud skeletons in their closets? What if you launched a market, we suggested, where transparency included things like compliance with tax, intellectual property, and financial accountability? What if you launched a market where mining and oil companies were required to report on their use of indigenous lands and lands taken from displaced people so that the market could see the real price and real profit of an enterprise? What if you really made market ethics and transparency a differentiator? What if you actually used Ethical Standards – as set forth in numerous fatwa – as a global market differentiator?

For the record, Dr. Omar actually deeply considered this. In many meetings in Dubai prior to and immediately following the launch of the DIFX, we sat with him and administrators at the Dubai Financial Services Authority (DFSA) and discussed standards for a different market. However, when one is confronted with the inertia of incumbency, the appetite for differentiation wanes. And so it was that the bright vision of Dr. Omar and his patron, Sheikh Mohammed Bin Rashid Al Maktoum vanished in the dust storms blown by easy credit, credit default swaps, and sukuks which were indistinguishable from financial products unmoored from any responsibility or risk sharing. In short, the sirens of convention and ease, fully engulfed one of the most promising market opportunities of modern times. And, by September 2005, one of the most promising global market opportunities relented to the “Big Blue”.

The DIFC and NASDAQ Dubai are not lost. In fact, in the face of this past week’s announcement of Dubai World’s massive liquidity challenge, we may actually see an opportunity re-emerge. What we know is simple. Dubai is not unique. It followed many. Raising Tokyo a ski slope as the Japanese were razing theirs. Out malling Singapore and Hong Kong as the high fashion retail sector was being mauled in the rest of the world. Building castles in the sky while the atmosphere was toxifying for commercial and high-end residential markets.

As we see the global market continue to reel, the world needs a market based on transparency and ethics. While Dr. Omar has been the professional casualty of the tectonic tremor in Dubai, his intuition was not off. He came closer to the next financial reality than anyone else. And with so many other GCC and North Africa efforts trying to mimic Dubai, there is a lesson to be learned here. And if learned, the world will be better for it.

Tribute to Caden

On Sunday, November 22, 2009 a young man named Caden joined the morning Light. I was deeply moved by this seven year-old both in his life and in his passing. And so, a few days late, this week’s InvertedAlchemy post is my way of sharing with you a story that bears retelling.

I met Caden on the same day I met my dear friend Bob Kendall. From that day to this, I learned that Caden would teach me, in a few short months, wisdom that I never aspired to know. I didn’t want to know what it feels like to stand in a hospital with beautiful parents while the details of a tumor are described and find the end of words where all I could do is be present. I didn’t want to know that there comes a time when McDonalds French fries and Chicken Nuggets are too exhausting to eat so that a Happy Meal cools with time and tears into an inedible mass. I didn’t want to know that the empathy that binds humanity could invade days and nights for months as child and parents implored the universe for one more day on the lake, one more ride in the forest and that this empathy would find its way to me whether I was in Virginia or on the other side of the world in Papua New Guinea. However, I needed to learn through these catechisms and needed Caden to be my teacher.

Caden carried light in life. He communicated with all of us and for all of us. As his voice failed, he took to drawing and began linking color and image in artifacts which will be long held in their cipher. However, Caden drew one image on the night of our first meeting which will live, for me, as the message of hope in these times of puzzle. The image is in purple marker. At first glance, one can make out a form that could at one moment be a tree branch and the next could be the wanderings of a caged bird. None of these. The image is of a bridge. The bridge has an anchor only on one side and juts into the whiteness of the page. It goes to? Nowhere? Anywhere? Everywhere?

Caden’s Bridge is a gift of wisdom. For in it, a child of six years invited a reconsideration on many planes. Does a bridge only have its identity and essence if it looks like a bridge? Does a bridge contain its utility only when it connects two identified points? Can a bridge merely be the beginning of a connector which is sufficient for others to draw their own destiny? Can any image drawn in purple be a bridge not to a destination but linking inquiry between planes, times, and understanding?

Caden has crossed. Lux Invictus. Peace.

_

The Voice of the Trees

One month from now we will be advised as to how humanity will tackle climate change. As the closing manifestos are being spun into the tapestry heralding the dawn of a new age of ecology, we will see many efforts to insure that those who have asked for too much cede “enough” for those who seek to preserve their lust for consumption. Extraction and consumption incumbencies already presage a win post-Copenhagen in which, no matter what, the models they have come to use will require marketing adaptation rather than systemic transformation. Following the innovation already rife in the carbon trading world – namely the present laundering of money and U.S. Treasuries for drug, terror, and arms trade using carbon credits as the unregulated utility of choice – alchemists will do their best to turn Copenhagen into gold. NGOs will raise money to champion their particular cause. Industries will hire marketing firms to create messages to insure that public knows they’re committed to bold initiatives. And in the end, I wonder, who will speak for the trees?

Not long ago, I was asked to explain carbon credits to a group of community elders and leaders in a land far removed from Copenhagen. Combined European Union and National Aid agencies had taken advantage of the Prime Minister of this place and his imposed mantle of being a “model for the developing world” as a collaborator in carbon trade. Communities were asked to enter into an agreement to sell their forest canopy for a fee in exchange for the industrial use of said canopy for carbon absorption.

After explaining photosynthesis, the Kreb’s Cycle, and combustion in a detailed level thought tedious by the most respectful of the group, one of the elders looked at me with the most puzzled of expressions. “But why have they picked the trees to clean up the mess?”

Together, we sat beneath a rain tree, with its branches spread wide against the humid skies. Its trunk and limbs held thousands of ferns, mosses, and vines. Bird, reptile, and mammal had sanctuary in every vantage point. What would these carbon buyers pay for:
- the pure water which the leaves condensed from the air irrigating the plants, animals and people below;
- the medicine that can be prepared from the leaves;
- the nutrition that can be derived from the bark and roots;
- the wood that is used to build homes when a branch falls;
- the animals that call the tree home;
- the soil that the tree’s roots retain;
- the leaves that the tree produces which provides fertile soil for crops; and,
- the promise of the new trees which sprout in the protection of this one tree?
The living being – the tree – it turned out, was worth more than its carbon consumption value. And the communities were being asked to indenture the tree for a carbon credit.

I was struck, in that moment, with the realization that our best intentions to save the rainforests, purchase carbon indulgences in a vain attempt to buy our souls’ redemption, and to create a monetary utility for development – all seemingly laudable objectives – actually had created a greater ecosystem tragedy. In the end, having fully addicted ourselves to our pathology of relentless consumption, we have now taken an interesting social psychotic shift. It appears that our environmental preservation impulses may actually be aligning with a concept attributed to David Bernstein called “Abusive Multiple Transference”. Here is the much repeated (though uncited) lay definition of AMT:

“abusers not only transfer negative feelings directed towards their former abusers to their own victims, but also transfer the power and dominance of the former abusers to themselves.”

Now, let’s consider the ecological impulse in light of AMT. Having consumed ourselves to the point of destruction, “we” (both as perpetrator, participant, and victim, we tell ourselves) need to “do” something. So, what “we” “do” when we are most awakened to a laudatory enlightenment is solve our social problem by making the trees consumers. Yes, that’s right, in an impulse to create a solution, we turn to the only utility we have – consumption. Only this time, we’re imposing our consumption on the trees. As if the trees, all along, have been slacking! Somehow, we rationalize, if we exchange money in their sight, we will induce them to consume more CO2. And the most vocal supporters of this advocacy are those who feel most victimized and helpless in the face of an extracting and polluting insanity!

In the run-up to Copenhagen, can we please consider a world, just for a moment, where we don’t project consumption onto nature? Haven’t we done enough damage? Can we consider that an alternative approach would be to look deeper? Why have the sum total of our utilities been reduced to consumption memorialized by an exchange of money? Could Brazil, India, China, Papua New Guinea, Vietnam, Peru, Indonesia, Argentina, Chile, Colombia, Costa Rica, Egypt, Israel, Malaysia, Mexico, Nigeria, Republic of Korea, Russia, South Africa, Thailand, Ukraine actually be united in an economic engagement in which they are not compensated for what they don’t do in terms of environmental destruction but rather lead as prime contractors for deployment of technologies and corporate models which are aligned to humanity and nature? Could the “Woods of Bretton” become the new paradigm where a systemic monetary policy could be freed from capricious extractive debt and aligned with stewardship of the Global Commons? And while we’re in the woods, could we take a few minutes to contemplate how the trees could teach us?

breathe, just breathe
let the life that you lead
be all that you need
let go of the fear
let go of the time
let go of the one
to try to put you down
you're gonna be fine
don't hold it inside
go ahead right now
and let it all come round
breathe, just breathe
take the world off your shoulders
and put it on me
breathe, just breathe
let the life that you lead
be all that you need

- Ryan Star “Breathe”

_

Archimedean Theorem 2 – “Worth Doing” Metrics

Increasingly I find myself engaging with individuals and communities who are tuned into the realization that we are on the precipice of a great transformation. Incumbencies on all fronts are evidencing voids where confidence was once thought to dwell. And while many stand in awe of the crumbling icons, a growing number now believe that they are both observers and actors on the stage of what’s about to be. In many respects, a sense of a community of stewards of that-which-is-to-come is bubbling up in all corners of the globe and the notion of individuated identity is fading.

However, as façade crumbles, a tragic irony has emerged. And this irony struck me quite profoundly in two conversations I had over the past week with two different groups of transformation advocates and prophets. As we discussed the hospicing of the old paradigms of power and values in the interest of affording the immanent transition some degree of grace and dignity, we began to discuss what tentative first steps could be taken into the dawning transformation. And then, like the Medussa from the mist, the phrase was uttered, “We could really get this started if we could find the funding.”

If we could get it funded.

When was the last time you heard this? When was the last time you said this? What manner of idolatry have we come to? An idea is good, but it’s only actionable if it’s funded. Addressing a social need or humanitarian crisis is laudable but it only rises to a level of action if it can be funded. Deploying new forms of development initiatives for the most marginalized states in the world would have merit if only an NGO would step up and fund it. An enterprise may achieve global impact but it only is successful if it accumulated monetary artifacts because, “that’s the only scorecard we can measure at the end of the day.” The UN Development Goals are only actionable if they are funded. Each of these statements has been made in my hearing in the last 7 days.

Well, I am here to tell you that anyone who speaks of transformation and punctuates it with “if it gets funded” is animating money with an insidious power that will perpetually obstruct and destroy every impulse preceding the statement. I have been overwhelmed by those who, in the run up to the UNFCCC event in Copenhagen, believe that we will transform our extractive degradation of the public commons of land, air, water, culture, and community based on a balance sheet argument where money is the final arbiter. We could address carbon emissions with green investments and government incentives if the right political forces just give us our funding. I often wonder if we have invited our "if it gets funded" invocation into such conversations for the explicit purpose of having the faux comfort that we've secured our moral plausible deniability. "After all", we argue, "we would have done the right thing if it had been funded." I am repulsed when I hear NGOs state that they will back off of principled social justice and the rule of law regarding matters such as food production, medicine delivery, and infrastructure support because they cannot threaten their donor base by challenging legal abuses such as trade and industrial property legal violations. When one of the world’s largest NGOs chooses to ignore agriculture and medicine technologies which exist in the open source so that their multi-national donor partners can “participate” in public-private partnerships which are tax-deductible and laden with goodwill marketing, where is the voice that speaks for the millions who suffer and die at the hands of the moral bankruptcy?

Down this bizzare inquiry we find Archimedean Theorem II. Worth doing is a condition in which an individual or collective response to human need persists to a point sufficient to conclude that, with money it would be “worth doing”. An important corollary to Archimedean Theorem II is that whatever exists in abundance in the community discerning “worth doing” is the resource that is required to initiate action and this will never be money. It will often take the form of reputation risk, vocal endorsement, courageous leadership, a prophetic voice, an organizing or catalyzing act or other resources of inestimable and undenominateable value. And it is quite likely that the first measure of integral engagement will actually be marked with an invitation to execute “worth doing” with less money as the first step is likely to be unrewarded with a monetary endorsement. However, when the monetary metric incumbency sees that “worth doing” persists, untold resources will align for subsequent activity.

Living in the realm of Archimedean Theorem II is “worth doing”. As an itinerant in such a land, I can tell you that the consequences are beyond your wildest, wealthiest, imaginations.

-

Global Innovation Commons receives pre–Copenhagen coverage; European Patent Office official minimizes violation of patent law

Global Innovation Commons receives pre–Copenhagen coverage; European Patent Office official minimizes violation of patent law

November 5, 2009 – Brussels, Belgium –– Innovation policy will be the fulcrum for many climate negotiations at United Nations Climate Change Conference 2009 in Copenhagen. Negotiators seek to extend existing intellectual property practices to vital issues including climate change technologies. M·CAM has provided the world's most comprehensive interactive archive of climate change technologies which have been opaque to the global market for decades – being brought to international visibility in the Global Innovation Commons (http://www.globalinnovationcommons.org). In a deployment partnership with the World Bank and International Finance Corporation's (IFC) infoDev, M–CAM has made available over $2 trillion of both revenue generating and research and development technologies for public, open-source, use.

In today's cover article in Der Spiegel – Patent Lies: Who Says Saving the Planet Has to Cost a Fortune – M·CAM's work on innovation ethics is highlighted. In addition, a now retired senior officer of the European Patent Office acknowledges, on the record, that the illegal practice of redundant patent filings is merely a "detail." "Sometimes patents are not worth what they claim they are in terms of innovation," Gerard Giroud, the recently retired international affairs director of the European Patent Office, told SPIEGEL ONLINE. "But it seems to me a detail. Patent offices should grant patents to encourage investment in a particular type of technology – because that investment is what will save the planet."

For the complete article, please download:

http://www.spiegel.de/international/europe/0,1518,628606,00.html

It is important to realize that every conversation about "innovation" as a key to economic "recovery" centers around the belief that somehow or another, the U.S. and Europe will emerge as the innovators of the next economic cycle. This assumption is unfortunate for a number of reasons. First, it presumes that the past 30 years of education of the world's best engineers, business people, and technologists didn't produce more Chinese, Indian, Korean, and Taiwanese professionals than the total of those from and residing in the U.S. and Europe. Second, it presumes that the past two decades of consumption have been based on innovation. Unfortunately, we have been seeing a growth of consumption - not innovation - in most industrial sectors. Finally, it fails to acknowledge that our conversion ratio of innovation to enterprise is less than 3% in the U.S. and Europe. We are good at building food chains for incumbent acquisition in M&A but we're not good at transformation and adoption of game-changers.

The new will be collaborative, open source, and borderless.

_

Transforming Values for an Alternative Destiny

Text for World Bank and IFC Plenary Address at:

infoDev Global Forum
Florianopolois, Brazil
October 27, 2009
Dr. David E. Martin
Executive Chairman, M•CAM Inc.


Honorable Governor Luiz Henrique da Silveira, Director Mohsen Khalil, Distinguished Guests, Ladies and Gentlemen,

We meet on this day in the land of the Tupi-Guarani to manifest transformations. At this Global Forum, we have assembled from every land not as explorers seeking conquest but as stewards of experience committed to building a more prosperous future for all. It is only fitting that we begin in this land of the mountain arising from the channel in the sea – the ancestral name for Florianopolis – with a moment of reflection for those whose feet have passed before us and who left the land beautiful for our enjoyment. Let us commit to leave this land, and all the lands from which we come, more beautiful than we found them for those who will follow us.

Today I would like to explore three transformations: Values, Resources, and Leadership and the role they play in our discussions here over the coming days. To do so, we must dedicate some time for honest assessment of where we are together with a consideration of our path to this moment. From that point, we can invite a dialogue about aspirations we have for the future. And finally, we can resolve to take the first step, enlivened and unfettered, into the future empowered by a vision which sees through obscurity into possibility.

What do we value? At conferences like this, it is often quite easy to begin with a series of unspoken assumptions – those untested, unspoken consensus beliefs to which all are presumed to assent. For example, we all assume that innovation is “good”. We are asked to believe that entrepreneurship is a modern ideal to which societies should strive. We are encouraged to hold as ideals the myths of the past 60 years of economic activity and all long for a “Silicon Valley” utopia in every corner of the globe. We are encouraged to speak of numbers and compare “ours” with “theirs” to see who is developed, who is developing, and who has the least. If it’s on a balance sheet, deposited in a bank, or traded on the stock market, it’s valuable. If it’s not, then we best ignore it. We agree, we presume, that it would be strange to speak of culture and indigenous wisdom and, instead speak of semi-conductors, nano-particles, and anti-retrovirals.

When did we lose our humanity? Let’s explore a couple of facts about values in the context of innovation.

Living systems have innovated as long as they’ve existed. And no, humans aren’t the only innovators. Ecosystems are filled with innovation. As trees’ roots respond to nutrients and water but grow to accommodate the pressures of wind and grade so to will the human seek to find sustenance and assurance. Unlike our ancestors, we often limit our use of the word innovation to things – usually things that require the non-replenishable consumption of natural resources, power, and labor – rather than seeing an ecosystem in which innovation has as much to do with how we do what we do as the artifacts we create. In our obsession with development, how many of us take the time to learn from the Heritable Knowledge of indigenous peoples who know how to use plants, soil, and water to live? How many of us have considered that we would benefit from innovation in enterprises and value exchange as much or more than developing the next ringtone on an iPhone?

Entrepreneurship should be encouraged, right? Well, maybe. How many of you remember that the modern corporation was established in Europe to shield individuals from personal responsibility. Would we really want to fly in an airplane built with limited liability wings? Would we want to drive a car with limited liability wheels? Yet we encourage our young entrepreneurs to participate in the prospective future employment for thousands on the foundation of limited liability. While we lament the breakdown of the markets over the past two years, have any of us considered that the very institutional foundations we seek to create – corporations – are expressly established to separate the person from the accountability of the venture?

Sixty years of success since the success of Silicon Valley. Really? Of course, you remember the World War II war reparations that lead to the birth of the computer and data industry now heralded as an American success. Magnetic tape, without which there would be no data storage industry, was created by Hitler’s Third Reich as a propaganda machine. Computers were created to decipher the codes of the Japanese and the Germans – codes that baffled the innovative minds of the U.S, the U.K., and Australia throughout the war. And the wealth of Silicon Valley half a century before came from Federal Government stimulus in the railroad industry and the banking sector – not from innovation. Without the Morrill Act for the railroads, there would be no Stanford University. We do no favors today by forgetting the truth of our past. Not a single element of what made Silicon Valley a success – preferential government procurement, national security technology transfer, trade incentives in the form of preferential tax concessions leading to effective anti-competitive pricing – would be legal today under WTO yet we see dozens of countries attempting to create that which didn’t actually happen.

Let’s visit the past to inform the present and future. Recall that the great trading empires which created the incumbent powers in the North were built on extractive trade. Sure, here in Brazil, coffee played a huge role with the Portuguese. However, the same drug trade which plagues our cities today was the currency of the empires just a century or two ago. Today’s cocaine is yesterday’s heroin. Today’s marijuana is yesterday’s opium. Friends, if the foundation of our markets was built on addictions and violence. Shouldn’t we consider transformation? Shouldn’t our conference be focused on a new morality rather than the next turn of the extractive wheel grinding up those who it leaves behind as consumables?

Today, we might reconsider values. How do we encourage creativity that rewards those who address society’s greatest challenges with prosperity and public confidence? Is it possible, in this conference, to commit to aligning our innovation impulse to meet and exceed Brazil’s visionary president’s call for rainforest preservation and carbon emission reduction? Can we see value in 8,200 cubic kilometers of fresh water in this great country and see this as a Commons Trust rather than an exploitable commodity? We can and we will transform values here today.

In his treatise on the economy, John Maynard Keynes codified a sense of resources that has enjoyed little re-examination until the present day. In Keynesian terms, Brazil is 90,000,000 laborer consumers, bauxite, gold, iron ore, manganese, nickel, phosphate, platinum, tin, uranium, petroleum, timber, coffee, grains, sugarcane, cocoa, citrus, and beef. Oh, and now, we need to be fashionable and throw in millions of hectares of carbon sequestration for the polluting world. How many of you would be happy to be told that your only worth on the planet was limited to the bank account you have, the car or bicycle you have, the number of employable children you have, and the house in which you live? That’s it. Nothing else counts!

Well, you are more than that. We are more than that. It is a tragedy that the last 80 years has reduced our mental capacity to see our land, our people, and our ecosystem for what others can take from it rather that for what it can generously provide.

My company, M•CAM, works with helping countries re-discover and reclaim their own story. In the wake of our discovery of the degree of abuse in the global market of carbon trading – including the growing use of carbon credits to launder drug money and finance terrorist organizations across the world – we decided to work with communities in Papua New Guinea to revalue their forests. Working with the Quachet in East New Britain province, I sat with elders and asked them what a rain tree was worth. They told me about the tree and its many functions. The rain tree supports hundreds of species of plants and animals in its expansive reach. Its bark, leaves and roots are filled with healing teas, pastes, and medicines. Its vast leafy canopy condenses rain from cloudless skies providing pure water to the land and life below. Its wood, when one of its limbs falls, is sufficient for several houses. So when I asked them if I could buy it for its carbon absorption, they laughed. “Why would you want only that from such a generous tree?” they asked.

Together, we worked to create the world’s first Heritable Innovation Trust – a new legal framework which renders obsolete the WIPO’s traditional knowledge paradigms. While here in Brazil and in many other parts of the world there is a growing sense of the need to “protect” indigenous or traditional knowledge, what local communities are not told is that by putting this knowledge into copyrighted form, they are really accelerating its loss into public domain. In 70 years, the information that is recorded by well meaning programs, like those here in Brazil working in Amazonia, will enter the public domain under industrial property laws in compliance with WTO’s TRIPS agreement. In the Heritable Innovation Trust, the community stewardship of community and ecosystem knowledge is placed in a perpetual Trust which can neither expire nor be taken by those who seek to exploit without community engagement.

Resources come in many untraditional forms and are often most prevalent where they’re least expected. Just a few months ago at the infoDev conference in Coimbatore India, many of you witnessed a commitment on behalf of my organization and infoDev – a commitment that is fully delivered today. For those of you who were not there, let me give you some background.

Since the modernization of the intellectual property system and sponsored research programs of the past four decades, economic development and exclusionary innovation property rights have gone hand-in-hand. However, as far back as 1980, these property systems were contaminated with a growing practice of using patents and other intellectual property regimes to block commercial access and market use. It is no accident that some of the largest patent estates were filed (and restrained from market adoption) by companies who had the most market share to lose. Oil companies filed and held thousands of environmentally desirable patents in fields ranging from solar and wind power to hydrogen and hybrid propulsion. Paint companies filed and held thousands of patents on alternative surface coating techniques only to continue using toxic metals in industrial production. Pharmaceutical companies and their agro-chemical allies filed and held thousands of patents on treatments and cures for disease and on land renewal technologies and insured that these options were not available for deployment. And the list goes on. However, in this “cold war” of innovation abuse, the most economically most marginalized states (a term we use in place of the conventional term “Least Developed Countries” or “LDCs”) were overlooked. Patents were not filed in markets that didn’t seem to matter. And this has created an unprecedented opportunity for bringing hope to us all.

Exemplified in the extreme in the area of climate-impacting energy and infrastructure technologies, an unhealthy alliance compounded the global failure to accept and adopt technologies which could have provided pre-crisis interventions in environmental technologies. Through infrastructure bond funding programs with their associated long maturities, economic incentives existed to blockade the acceptance and deployment of efficient – albeit obsolescing – technologies. After all, there was no effective way to install distributed power generation five years into a 30 year coal fired grid based electrical system. By funding things in extremely large, centralized scale, innovations that were made were not judged for their technical merit or feasibility but rather for their ability to be scaled into legacy inefficiencies. Compounding this economic impediment was the patenting practice, adopted by the majority of patent applicants throughout the 1980’s, called “defensive patents”. Defensive patents – representing an estimated 80% of all filings by industrialized nations – do not represent artifacts of innovation but rather utilities for litigation risk management. By extension then, when patents on litigation anticipation or financial obsolescing “innovations” were awarded, they not only precluded others from entering into research and development or market efforts, but they also froze much needed technology out of the market.

Out of this ill-conceived industrial policy emerges an unprecedented opportunity. Patents on environmentally necessary technologies born in the research and imaginations of energy shocks dating back to the 1970’s afford an amazing Global Innovation Commons which can serve to catalyze solutions for the climate crisis as well as the global economic disparities which have fueled acrimony between countries leading up to Copenhagen.

It is a violation of patent law to engage in “double patenting”. This practice is simply the seeking of a patent on something that someone else has already claimed. When Volkswagen received a patent for a hybrid electric vehicle that includes a rotating flywheel mass variably engaged by a series of clutches in 1979, their allowed claims are so broad as to describe virtually every hybrid electric vehicle built since. This patent expired in 2002 and is now in the public domain where anyone, anywhere, can practice every element of this invention without any fear of patent enforcement. That’s right, an automotive company in a marginalized country could use 100% of this information to design and build a car to compete with Toyota’s Prius. Today.

When policy-makers debate concepts like “compulsory licensing”, the problem is that they are masking a giant asset which exists disproportionately benefiting the Most Marginalized States (“MMS” or conventionally designated “Least Developed Countries”). They are attempting to reinforce, rather than reform, a patent system which has been failing all interests – including those in the industrialized nations.

In short, the perpetuation of the illusion that we still haven’t “innovated” enough has placed the challenge on the wrong dynamic. Over US$1.6 trillion in market innovation latency has been created over the past three decades alone which has been overlooked – not on its merit but rather on the fact that it would challenge incumbencies. Given the magnitude of the challenge before humanity, our clarion call is for the deployment and honoring of these innovation impulses which have been marginalized and the use thereof to seed enterprises in the Most Marginalized States.

Using a framework called the Global Innovation Commons, all innovation artifacts (patents, research publications, government or industry sponsored research reports, and technology procurement records) have been assembled and reviewed for their legal standing in every country on Earth. These innovation artifacts have been compiled so that jurisdictions of enforcement are easily assessed to avoid any infringement in any jurisdiction. This enables a business or government to know what can be developed for domestic use only, for limited export, or for general export. Wherever possible, using abandoned patents, global freedom-to-commercialize positions are identified for unrestricted commercial use and deployment.

At this conference, in a partnership between infoDev and M•CAM, you all will have access to almost $2 trillion dollars – more than the entire GDP of virtually all countries represented here today – of innovation waiting to be put into use. It represents the greatest assembly of innovation ever and it’s yours today! We have an opportunity to transform our view of resources to include a world of innovation which has been kept from deployment until today – a world of innovation that will lead to clean water, ethical health care, adequate food production and distribution, and renewable energy. And when we have ethical and open use of this innovation, we will be free to innovate exchanges of value which do not require wealth asymmetries which foster poverty, violence, and terror.

While conferences across the world lament the lack of financing for small and medium sized enterprises – they turn to venture capital as a solution. Why? Because that’s what the U.S. and Europe did, right? Did you know that here in Brazil and in most countries represented at this conference, the greatest available cash to start ventures is currently sitting, unused in the hands of your governments in the form of Trade Credit Offset obligations? You’ve probably never heard of these because you were being deafened by those who wanted to sell you inefficient equity models which have destroyed more enterprises then they’ve created.

When a government – like Brazil – purchases goods from a U.S. company, for example, a percentage of the value of the contract – often between 10 – 30% - is required to be “returned” to the country in the form of a Trade Credit Offset. The selling company may be required to set up a local manufacturing center for critical components. In the case of China, the company is required to transfer technology and training. In every instance, before the seller can book the revenue for their contract, they must reinvest in the country involved in the purchasing. So why, at a conference like this and at every innovation and entrepreneurship conference around the world, aren’t you being told to link your business incubators with your countries’ Trade Credit Offset managers? In a few cases, it’s because these offsets have become the source of corruption. But, in most cases, it’s simply because you didn’t know. Well, now you do.

Honorable delegates, what I’m really calling for is leadership. I would like us to invite a transformation of our view of leadership – away from the belief that the loudest voice with the largest crowd is leadership. In our CNN 24 hour flat-screen New York Stock Exchange view of the world, we’ve failed to realize that leadership comes from those who are worthy of being followed – not from those who demand attention and blind loyalty. In fact, the only place where leadership can emerge is from those who learn first to be good steward citizens. Our challenge here today and in the coming days is to evidence a humanity so inspiring that others will choose to follow.

When Professor Anil Gupta and Dr. R. A. Mashelkar and others in India chose to launch the National Innovation Foundation and other grassroots innovation initiatives, they embarked on a journey that was filled with challenges. In partnership with my organization and many others, we began working with grassroots communities – people in rural villages in India – to re-imagine a world where to be an innovator meant addressing real human needs. In its first year, only a few innovations gained a market however, in its second year, acknowledged by India’s President Abdul Kalam, over 2,500 innovations were serving as the basis for prosperous engagement across India. Mind you, many of the markets were not based on the exchange of money. Many of the grassroots innovators actually gave and received goods and services in exchanges ranging from barter to complex utility derivatives. In some instances, the value that was bestowed upon the innovator was a garland of flowers placed around the neck of the distinguished person by India’s President. While this is not “money” in your traditional sense, in many communities throughout India, honor from the President is a social value money could never buy and lasts far longer than a few thousand rupees.

When we work with small and medium sized enterprises in South Africa, the Kingdom of Tonga, or Chile, our goal has always been to look at a practical way to transform the past models into a prosperous future. I would encourage you to consider the following as a process to employ.

First, honor and value the innovator. Every person who has an impulse to change his or her life or those in the community should be honored. However, this does not mean that they must be pushed into a company. To the contrary, we need to transform the incorporation of a company into the incorporation of an innovator into the global community of like-minded innovators. When we see innovation as the inclusion into a community of creative people rather than an isolated event to isolate a hero, we will transform innovation.

Second, honor and value the community. In every innovation, many creative minds have come before and every one of their contributions must be included in the next step being taken. By using models which reward collaboration rather than proprietary isolation, we create value that impacts the lives and livelihoods of many rather than the wealth of a few.

Finally, reward that which replenishes rather than extracts and destroys. For too long, we have been told that we are a sum of our extractive parts. I am delighted to be here in Brazil – a country which spends 30% more of its GDP on education than on the military – discussing the transformation of value. While this government has served as a beacon for many others in calling for a “sustainable” future, I’m encouraging you today to innovate that vision. Take the next step and be the first country on Earth where we see consumption as one element of an economic cycle but where we also see stewardship and citizenship a value which is cherished in tangible and intangible ways. Transform the impulse to protect from outside abuse to a motivation to celebrate a Common heritage and destiny in which innovation serves to integrate a better future rather than isolate an unfortunate few. Today, let us all commit ourselves to a Common Future built on Transparency, Accountability, and Citizenship.







Dr. David E. Martin
Executive Chairman, M•CAM Inc
210 Ridge McIntire Road
Charlottesville, VA 22903
Web: www.m-cam.com
E-mail: info@m-cam.com


Batten Fellow, Darden Graduate School of Business Administration,
University of Viriginia

Archimedean Theorem 1 – “Reality” Metrics

One cannot escape the cognitive reductionism which is a constant companion in our recent economic paroxysm. “No one saw it coming.” “We are adequately capitalized,” immediately preceding business failures and bankruptcy. Triple-A ratings on investments that had no market or value. Bank stress tests. Earnings growth by slashing future productive capacity. Equity market euphoria over missed earnings forecasts. Without question, we are collectively measuring the wrong stuff, or applying the wrong metrics, or applying the wrong metrics to the wrong stuff, or we just haven’t a clue. While we bask in the nuclear winter light of what I’ve been told is our post-post modernism (come-on, we can’t even come up with a decent name for today so we just revert to a very, very, very, very old technique we last used when counting words for our first written assignment in elementary school in which the number of words was the objective), we seem to not only have lost our way, we seem to have no clue where Polaris is or how to use a compass.

When Sir Isaac Newton inadvertently set in motion our present economic calamity, he did so by postulating that to every action this is an opposed and equal reaction. He never knew that central banks, bound by his “law” would find themselves compelled to engage in manifold folly by falsely misdiagnosing the action (the mortgage crisis rather than a destructive, dehumanized consumer debt cycle propped up by careless leverage policy which turned real estate into ATMs) leading to an insanity where recovery came from further indebting the taxpayer by bailing out AIG and providing year end bonuses for bankers who actually made their earnings on fee income derived from moving bail-out funds between themselves! We have a malignancy of ignorance and, courtesy of the market reporting media, we have the evangelists for the cult of impulsive greed chanting incantations at such a frenzy that if you wanted to find the truth…wow, I’m exhausted.

Let’s take a breath. Let me take you to one of the first places we lost our way. To find the roots of our current value bankruptcy, we need to understand that our current debt-based view of economic systems has inextricable roots in the 13th century – specifically the Fourth Lateran Council and the funding mechanisms put in place by Pope Innocent III for the financing of the fourth Crusade. In his Papal Bull (why does this animal keep showing up? – and yes, I know it’s not that kind of bull), he details the establishment of taxation of the public, preferential dispensations for the central bankers, and a removal of all rights from those outside the faith – not to mention his ultimate creativity of accelerating mortality for those who didn’t play by his rules. All of this to fund a war and provide liquidity for the State. Sound familiar?

Ironically, the reason why I link Newton and Pope Innocent III is critical. Both of them were absolutely confident in their definition of “truth” “values” and “laws”. Both of them were greatly motivated to impose reductionist simplicity on a world filled with heterogeneous thought. And both set in motion those who would become sycophant adherents who would conduct literal and figurative inquisitions which would stifle enlightened, creative thought and inquiry. And they did so by what appeared to be an innocuous act. Pope Innocent III gave us reality in the form of transubstantiation where the paradox of St. Augustine and Aristotle was resolved by fiat – it was the body and blood for Christ’s sake! And Newton gave us reality by confirming that only that which can be measured and observed is, in fact, real.

In our collective evolutionary regression, we obsess with “real”. We want to measure things, count things, compare who has more, who has bigger or better. Our obsession with metrics has paralyzed our creativity. It has dehumanized value and values. When my friend Tony offers to buy happiness from a company because they say it has no book value, no one is willing to part with it for any price. If we have less, than others with more should move to action. If we have more, we want to keep it from those who have less and want ours or find our morality in self-laudatory generosity and sharing. Pope Innocent III gave us debt-based currency. Newton gave us metric-delimited reality. And the present moment has given us a wonderful opportunity to realize that we have no clue what we’re measuring anymore.

What is the value of gold? As we swooned to see our golden calf (there’s that animal again) leap over the $1,000 an ounce moon, did any of us realize that the all in cost of movement of ore for processing last year’s production of gold required the equivalent of 14 billion human year’s worth of effort? That’s right, just to move the ore from mine to refinery, it would take 14 billion people working 24 hour days every day for a year just to move the ore. If you’re reading this, you clearly weren’t carrying ore. Neither were most of your neighbors. No, thanks to technology that pollutes the earth, water, and sky, we’ve become more efficient. But did we ever pay for the land from which we’re taking the gold? Did we actually set aside value to repair the environmental, social, and ecological damage of gold? If we did so, would gold really only cost $1,000 per ounce? Is its value what it costs? What it will cost the future? Is it worth what someone pays for a certificate saying that someone, somewhere has a bar with your name on it? What is its value? We have NO clue.

What is the value of earnings? When Intel and JPMorgan reported better-than-forecast results, their stock was rewarded with a vote of confidence, right? No! They lost 2% of their value. IBM topped expectations but investors rewarded it with a loss of value.

What is the value of prosperous engagement in the workforce? Unemployment continues to rise. The Federal Government demonstrated this week that it cannot even track its own expenditures when it attempted to report on the jobs saved or created with the Recovery Act. Silver lining? The Recovery Board is spending a reported $18 million on updating its website so the stimulus recipients’ self-reports of economic impact are more prone to accuracy.

What is the value of public support of innovation? I just spent the past two days with an inspirational leader from South Africa. During our conversation, I was disheartened to hear yet another instance when the innovative value of a country was measured by the number of patents filed by its researchers. We measure the innovative contribution to the world by how much we block others from using creativity? How tragic.

I am repeatedly asked questions about how much revenue my company makes. How many employees do I have? Why don’t I turn our technology towards making massive wealth and, after amassing a fortune, use it for good causes? And these questions come not only from crass capitalists but by perplexed social activists.

It is time to understand the elegance of the Archimedean Theorem I. Reality is that which catalyzes, harnesses, releases or perpetrates action or stasis in one or more projections thereby evidencing energy, dimension, field effect, and consequence. The understanding and assessment of Reality can be described only when Perspective delimiters are honestly disclosed with sufficient clarity so as to evidence understanding in the observers. The fulcrum we need to open a new, more integral view of value and its exchange will include a dynamic, kinetic understanding of Reality. And our social challenge is to move our ontology from metric to metaphor – from finitude to infinite orthogonality. One step closer to the next…

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A Nobel Paradox – Orpheus in Detroit

In the space of 7 days, I journeyed between a glorious meeting with James Quilligan and a small cadre of social and financial luminaries in the Berkshires hosted by Tim Murphy, to a quixotic gathering in Detroit hosted by the Rev. Jesse Jackson’s RainbowPUSH Coalition vainly attempting to use outmoded tools to stem the carnage in the minority-owned automotive business sector in North America. I reflected, as I experienced this existential schizophrenia, that we are living out a paradox not unlike the one that warranted the 1972 Nobel Prize in Economics – Kenneth Arrow’s “Impossibility Theorem”. For those not familiar with the Arrow’s paradox, it is, in brief, the assertion that when presented with greater than three options for consideration, no voting system can accurately find an acceptable and stable representation of a social group’s values. In an effort to define a socially acceptable order of priorities around which consensus can be built, Arrow postulates, complexity of greater than three options renders any attempt largely futile.

I’ve given several speeches over the past few months where I have discussed my latest understanding of the word “impossible”. To understand impossible, it is helpful to consider what “possible” is. The word, derived from Middle English generally refers to that which may be done or that which is feasible. So, when one concludes that a thing is impossible, the imputed judgment is that it cannot be done or is impracticable. I’d like us to see “impossible” in a new light – an invocation or prayer of what is about to be. Remember, when we apply the term “impossible” in our present day, what we really are saying is that, with the resources, knowledge and time that we presently have, we are unable to see a resolution manifest in a time-frame or at a cost that is acceptable. And by judging a thing “impossible” we discourage others from threatening the finitude and truth of our judgment.

Well, no time like the present to re-examine the “Impossible Prayer”. We are a few short weeks from Copenhagen when, in December, it will be impossible for the leaders of the world to arrest our rush to self-immolation. While Wall Street and Washington bathe themselves in impossible greed celebrating a recovery to their bonus-laden excesses, while cities like Detroit hold the ruins and tombs of a productivity that is impossible to replace, while water, food, and energy crises form an impossible specter too hideous to address – we find ourselves drowning in a cacophony of impossible. As a result, we sit and wait for the next shoe to fall, crushing another unsuspecting glimmer of humanity. Impossible… we pray.

I was invited to participate on three projects to envision a way to answer the impossible prayer. To show a path forward in the face of all convention arriving at the terminus of its force and sway. And, in each case, what I’ve started with is the Archimedean Theorem (by the way, don’t try to find this one because you’re reading about it here first). While the world and its power models have abused and enslaved one half of Archimedes wisdom – the lever – too little time has been spent on the real genius of Archimedes which is the fulcrum. Over the coming weeks, I am going to begin building an Archimedean Solid (you can look this one up) which can serve as the foundation for a new future – one in which we show that Arrow’s Theorem is a lever model and lacks the kinetics of a well positioned fulcrum.

There is a way out for Detroit. It involves a conceptual shift from the legacy of entitlement and set-asides where manufacturers and their suppliers maintain an unsustainable obsession with the top of the levers and those objects in motion to an understanding that the future is about well positioned fulcrum where the inevitability of the future becomes certain. Detroit will not be rebuilt on Obama’s proprietary technology “green jobs” program because the U.S. abandoned its ability to build proprietary positions by abuses in the patent system since the 1980’s. It can rise on the wings of collaborative innovation commons funded by technology procurement receivables. We will not heal the ethnic, geographic, and employment injustice if we allow the >60% of FDIC watch list banks co-located with critical manufacturing entities to fail thereby extinguishing vital lines of credit for our production base. The private sector needs to see that the road to Copenhagen will pass through the ruins of Detroit because we must see an entirely new vision in which we answer all the “impossible” prayers. Stay tuned.


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Read This and Act - If you want to be part of the change...

If you would like to be part of the solution and you are in agreement with the following, use this text and sent it to the e-mail address below following the Federal Register response rules...


E-mail: Comments@FDIC.gov. Include the RIN number in the subject line of the message. [RIN 3064–AD49]


Under President George W. Bush, American depositors were encouraged to step in to bailout the balance sheets of banks with an enticement that extended FDIC insurance to $250,000 per insured bank deposit. American depositors obliged. They inverted the troubling trend of negative savings and began depositing cash. Ironically, while the Bush administration was desperately seeking to stabilize the financial sector, they did not heed my, or others’ warnings that this was neither a fix nor even a temporary logical step. Further, they were not carefully considering the now lamented decrease of cash-flow in the consumer sector now helping fuel the deepening recession. At the time of this ill-considered decision, we suggested that the FDIC consider a more appropriate action. By actually measuring the “real” assets of our economy, the risk criteria paralyzing banks could be modernized to reflect both present and future financial performance and the drivers thereof.

In its Federal Register publication on October 2, 2009 (12CFR Part 327, Vol. 74, No. 190), the FDIC has proposed a booking-keeping plan to raise liquidity which will have disastrous effects both prolonging the real reform of the financial service sector and actually increasing the likelihood that more banks will fail therby further impeding access to credit. Under a book-keeping manipulation which is meant to satisfy quantitative investors but do nothing to actually fulfill its statutory requirements, the FDIC is proposing a “pre-funding” of assessments due by participating banks based on estimated risk as of the fourth quarter of this year. These “pre-fundings” are to be paid on December 30, 2009 and are to cover insurance premiums for 2010, 2011, and 2012. This strategy would raise an estimated, paltry $45 billion. There are two fundamental loopholes in the language of the proposed rule which are clearly advantageous to the FDIC and its member institutions but disadvantageous to the public. First, by calculating the assessments on December 24, 2009 – not at the end of a reporting or fiscal cycle – neither the FDIC nor the financial institution will have confidence in the appropriateness of the real position of any member bank and its reserves. Second, by allowing the pre-payment to be credited for special assessments, the FDIC cuts off its own capacity to respond to immediate liquidity constraints as it will have merely an acceleration of recognized cash – not genuine new liquidity at such time as a special assessment is required.

I would like to renew my call from 2008, that the FDIC immediately pursue another option which would: 1) more adequately reflect the current U.S. economy and its drivers; 2) align with economic development strategies promoted by the President and the Congress targeting the expansion of new and high technology businesses and the capital required therein; and, 3) correctly account for the correct value of assets both in its own portfolio of distressed and toxic assets and those of insured institutions. Specifically, it is vital that the FDIC and its member banks establish a means by which the intangible assets (executory contracts, licenses, franchise agreements, copyrights, patents, and trademark uses) are actually counted as bankable assets. Representing an estimated 80% of the value of the S&P companies, at present, neither the banks nor the FDIC are authorized to view any of these assets as investment grade. The irony of this is staggering in the face of the FDIC’s present proposal in which they are using one of the least creative accounting manipulations to stem a short-term problem with a longer term calamity.

Should the FDIC’s recommendation be adopted as presented, the banking system of the United States and the depositors therein, will be assured of decreased confidence in the FDIC and greatly reduced incentive to place funds into savings accounts. This, in turn, will further impair an already dysfunctional link in the capital system that has underpinned the U.S. business landscape for decades. However, in the event that the FDIC has the vision and foresight to plan for the present and future by adjusting its arcane metrics to those that reflect present reality and future aspirations, it can expand upon the nascent efforts that the FASB took in its impairment testing rules and that the IRS took in beginning to instill discipline around intangible asset opaque accounting loopholes that robbed the Treasury of billions of dollars.

Do something! Copy the message above and send it, by e-mail, to the e-mail address above. Add your thoughts and join in an effort to begin bridging into the new rather than continuing to apply patches to an already popped balloon.

Make sure you read the preceding post which is part of this one...

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Investment Grade? Your FDIC deposit isn't "I" anymore

If you want to understand where I’m going with my next blog post coming this weekend, please take 26 minutes and listen to the most audacious accounting slight of hand pulled off by the FDIC board on September 29, 2009. This is the day before September 30 which happened to be the day that the FDIC actually fulfilled my forecast of becoming insolvent. (Remember that the Chairman of the FDIC said that it was "impossible" for this to happen just a few months ago) And yes, take heart, the “staff” are optimistic that they can be compliant with their statutory reserve balance in 2017! The Bush administration’s expansion of deposit guarantees – unaltered by the current administration – means that the U.S. depositor has an actuarially insolvent position and, as of October 1, 2009 – we’re all 100% exposed and effectively uninsured. So, how does it feel? The “full faith and confidence” of the U.S. banking system now hangs on an accounting game where banks will “pre-pay” their assessments on December 31, 2009 so that the FDIC can appear to have liquidity that it actually doesn’t have thereby creating the illusion of a guarantee that fails the most basic test of legally mandated fitness. Take the time to view this and let’s talk about a new future – one in which transparency and accountability are both expectation and responsibility. Here it is…http://www.vodium.com/goto/fdic/boardmeetings.asp. Download the file of the board meeting on September 29, 2009.

Where’s the Asteroid When We Need One

O.K. You’ve all been reading my blog long enough to wonder, does this guy ever just have fun? I mean, who seriously reads the fine print in thousands of pages of financial data just to find out who’s really behind the scenes? Well, let’s take a moment and enjoy a little levity. I was thinking, while on my carbon free 36 mile bike ride with my Earth Science teacher brother Tim, how could I explain our economic situation in terms that an eight-grader in his class would understand. On one of our particularly long hill climbs in Central Virginia, I began musing about last night’s conversation about “extinction events”. Apparently, an extinction event is when a luminous object hurtles through space and smashes into Earth significantly altering life as it was known immediately prior to said event. So… I started musing about Ben Bernanke’s Friday, September 25th comments about how we need to get consumers borrowing again and it hit me – we have an asteroid coming in and unfortunately for some, we have two species of beasts who have walnut-sized brains and extremely large appetites, who are running the show. I’ll let you decide whether I’m referring to Geithner and Bernanke or whether I’m referring to certain entities on Wall Street but, let’s agree that, at impact, it won’t matter. Oh, and the moral to this story is to be one of the little furry creatures who is smart enough to live in a community as far away from these characters as possible.


Veloci extractor (from Latin meaning playing a shell game so fast that the friction burns up whatever was under the shells but always slipping one loaded shell off the table into its own pocket while no one is looking.) This beast believes that the way to maintain power and control is to keep acronyms coming at unsuspecting prey faster than they can understand what’s really being done. It is sometimes referred to as a quant fund or a Goldman Sachs’ rapid trading platform so vital to profitability for themselves that they are in a quandary over exactly how vigorously to pursue the lawsuit against a mathematician who allegedly misappropriated the algorithm. Interestingly, the Veloci extractor has no concern for its prey and simply wants to devour any and all living matter so long as it can take calories from fresh or carrion alike.


Transactosaurus wrecks (from Latin meaning a belief that you solve a challenge by denying its root cause but coming up with a story that unsuspecting prey will believe long enough for you to eat them). This beast believes that the way to maintain power and control is to keep prey so focused on consumption at their miniscule level that they won’t see the carnage being wrought by its own kind. It is sometimes seen in the company of rating agencies, pension fund managers, or Government Sponsored Enterprises. Lately, the Transactosaurus wrecks has been hanging around the FDIC and the close to 1,000 soon to be failed banks in the company of Veloci extractors as they’ve formed a great scheme that takes statutory reserve funds (for banking, insurance, and pensions) and seeks to use them as long as they can do so with impunity. At the G-20 Summit (or as I like to call it G20assic Park), many of these beasts successfully got the leaders of the new 12 member countries to believe that the way to become globally powerful is to clone the same genus and species of walnut-sized brain inspired programs that took us to the brink. However, what they didn’t point out is that the Veloci extractors’ and Transactosaurus wrecks’ real motivation was to expand their feeding grounds with prey that they understand.

As the asteroid of illumination comes closer to us, you should see both of these beasts continuing to ravage unsuspecting prey like they do. You should assiduously avoid putting yourself within easy reach of having “prey” and “you” as synonyms and if you do, all I can recommend is the homonym.

The good thing about being one of the smaller furry creatures is that you can prosper with a smaller appetite. You can band together and create shelter and safety. You can keep warm and cozy with other furry things. And, most importantly, you can think! So start using the part of your brain above the stem, disengage the fear that the beasts have used to their advantage for a long time, and celebrate that change is that growing light in the sky!


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