If we make and operate more trading markets, how can that solve some existing social problems in our communities?
In one example, creating a new product in the swaps market, we could swap bundled consumer poverty debt for public-body, impaired asset-liability (toxic/polluted land). That then gives a pool of almost penniless people (or a poor country heavily in debt), an asset instead of an unpayable financial debt. The asset may rise in the future, but in the meantime, as well as collectively paying the ongoing running costs, they can collectively pay an annual insurance premium to limit their downside risk.
From the public body’s perspective, they :
- alter their custodial obligations (the shape of the land borders they physically manage),
- minimise any controversy with their auditors on property, plant & equipment (PPE) impairment values,
- swap a physical liability for a financial liability of the same NPV,
- significantly reduce PPE liability volatility,
- avoid ongoing various running costs, relating to maintaining the physical asset, including; regular valuations, impairment reviews & access management.
The public body can then re-finance (against other unutilised collateral sitting on its balance sheet) the financial debt (interest rates) and match future income receipts against that debt in the normal way, to progressively pay down the debt.
In another example – derivative creation, can we split off the impairment discount from the unimpaired net value for a land or building asset? This idea may be of interest to the Housing Sector e.g. large Church & Council housing estate owners. The impairment value could be traded publicly, once derivatives representing it are created, perhaps to be known as ‘impairment value derivatives’ or IVD’s.
Thereafter, a fall in IVD value might occur, as the outcome of legal cases (relating to similar types of impaired physical assets held by other parties) establish payment liabilities on the owners of such properties. A gain in IVD value would occur, as investors speculate that impairment value attached to such IVD’s over time becomes excessive. And speculate that emerging new technologies make asset repairs & land remediation cheaper and more viable, causing a contraction in the impairment value. In the meantime, IVD shareholders could hedge their downside holding-risk (legal liability risk in particular), using insurance policies that cap the liability to themselves (effectively an insurance excess) and transfer most of it instead to the insurance industry.