The TV documentary ” Addicted to Money” is produced by Andrew Ogilvie, directed by Simon Nasht and presented by Irish economist David McWilliams. It has been shown on the ABC and I have found it very interesting as it gives a good insight into how and why the economy collapsed in 2007. Below is a summary of the events.
In 1971 The US Government and Richard Nixon convinced the world to convert from the gold backed standard to paper money. The credit bubble was born and would come to bite us hard in 2007 when the Wall St Bankers came close to bringing the global economy down. Trillions of dollars have been wiped off the balance sheet.
When the Berlin wall came down in 1989, it was the end of Communism and Capitalism had triumphed, the cold war was over and the free market was the winner. A new mindset was created and governments moved out of the way of Capitalism. China and India transformed into large corporations and overnight there were billions of new players (consumers) in the free trade game. It didn’t need much regulation as the rules were simple, prosperity would build on to more prosperity. The consumer could borrow as much money as they wanted and invest those borrowing and the markets would rise and the markets would boom and everyone would benefit. This did not happen!
Lehman Brothers was the first to collapse. Easy Credit made a few people increadebly wealthy. Everyone made profits, the economy only went up. Easy credit made people manic, we went shopping, laying down the plastic credit card for the quick fix. 5 Billion credit cards were distributed to people that in most cases were given to people that could not pay the money back. Everyone was offered a credit card, school children, unemployed, etc. Credit card lending was more profitable by double than any other banking activity. At first everyone felt they could control this easy credit drug, we were invincible, the good times were in full swing.
On the eve of the economic meltdown in 2007 the German bank Hypo did a deal to buy the Irish Depfa bank for 5 Billion euros. Hypo did not know that Depfa’s profits were built on risky derivatives that turned out to be bad debts and Depfa was ruined. This triggered the largest banking collapse in Germany since the 1930′s.
People became addicted to paper money. Millions of people have lost a lot of money, their retirement funds, they have lost jobs, houses and other assets. We built an entire economy on a lie known as “Easy Credit”.
Our savings rate was zer0 in the US, people were spending more than they earned. It was a time bomb. It all started innocently, we all love the gadgets and toys. The trouble is we wanted it all now.
The suburbs became a neighborhood arms race, not only keep up with the Jones but get the next item first, large screen TV’s, new cars and bigger and better homes. Huge debts that could not be paid back. Cheap money for everything.
The new Ideology was how much money we could earn and spend as long as we could get our hands on the CASH.
EASY CREDIT – Buy now and pay later
The ones that benefited were the banks, they pushed the easy credit onto everyone, they have branches on every street corner. The criteria were loose and the bank managers became sales driven to get the cash out onto the street, into the hands of consumers so they could go on spending sprees.
Where did all this money come from? The flood of money came from the Nations of savers, Japan, The Middle East, Germany and China. On average it is reported that the Chinese people save nearly 50% of their income. Our banks took this stockpile of savings and distributed it to us in the form of easy credit.
It took 300 years for the world to save US$36 Trillion, but it in the first few years of this decade it doubled to US$72 Trillion. This is more money than we all spend in a year. This money was looking for a home. September 11, 2001 terrorism hit America and the US economy was starting to stall, the then treasurer Allan Greenspan, cut interest rates to 1% to stimulate the economy. This was the lowest interest rate for 50 years.
1% Interest is virtually “free money” and the banks needed to give it to everybody. Cheap Money = Easy Credit, this is the making of the bubble economy. Property prices increased as everybody became a home owner and/or invested in multiple properties.
The economic boom was in full flight, the property and share markets more than doubled since Y2K, however household savings were going in the other direction and wages were stagnating. These were the warning signs that someting was wrong, but we were all to wrapped up in it to see the obvious.
The banks took the saving Nations money and loaned it to the us and at the same time they applied a new technique called Derivatives. Simply put, derivatives are packets of debt made up from Mortgages that are payments spread out over time, such as House, Car and Credit Cards then they were bundled up and given the highest credit rating of “AAA, the gold standard” and then sold to investors. By 2008 the Derivatives market had reached US$683 Trillion which was 10 times the global stock market value. During the frenzy, there was a real lack of accountability as there was so much pressure to get the high volumes of deals done as the amount of money being made was huge.
The banks were bundling safe loans with “Sub Prime Mortgages” and there was no way the investor knew the real risk. These Derivatives were sold and then re-sold, everytime the middleman would take his cut, it was virtually a money tree.
Las Vegas, was considered the hottest investment opportunity on the planet during the early 2000′s. It was definitely the fastest growing state in the USA. This is an example of the now infamous “Sub Prime Mortgages”, they were a disaster waiting to happen. These loans were pushed onto people that could not afford them or did not have a job, so it should come a no surprise that they were unable to pay the loans back and therefore the only option was for them to default on the loan.
Many investors were now unwarily purchasing the most risky loans available known as unregistered “Credit default swap”. Think of a Credit default swap as an insurance contract on a company, if the company goes into default the investor gets paid off. But if the insurance company goes down then the investor loses his money 100%. During the economic boom this risk was unthinkable, let the good time roll.
Credit rating agencies who’s duty it is to warn investors of dangers were paid by the investment banks, so after rating the sub prime debt as “AAA”they were compromised. Now the general public, and our retirement funds were enticed by these gold standard investments and lead to the slaughter.
On the 28th April 2004 the banks sealed our fate. Since the 1930′s there had been a regulation that required the banks to hold a reserve of cash to cover riskier loans. At this meeting of the US regulator, the Securities and Exchange commission, that lasted less than 60 minutes, the world economic system changed forever. The meeting was lead by Goldman Sachs boss and now Treasury Secretary, Henry Paulson. The banks argued that restraints on their borrowing should be lifted and that they should be allowed to judge risks wisely. The people in this meeting stood to gain financially from the changing on the rules. At this point the banks have taken over control. History now tells us they were wrong and their gambling did not pay off instead it has caused mass hardship. The real kicker is that when they got into trouble, by their own doing, the taxpayer bailed them out and the executives kept all of the bonus money they had received. During 2005 and 2007, it has been reported that the seven largest US banks paid their executives US$95 Billion.
So when the easy credit comes to an end because everyone is in default of their loans, the outcome of this Economic collapse and Counties fail, banks go to the wall & currencies collapse. Right now there is a large pool of toxic debt owned by pension funds and banks.
I will discuss easy credit again in a later post, but until then think about this. The US has been printing money faster than ever before, if you have been reading my other posts you will know that to print money all they have to do is enter a one followed by many zero’ s into a computer, therefore the effects are instantaneous, there is no lead time for the money to hit the streets. How can the US pay back all of this debt??
The real question is, If it can’t pay back the debt when will they go into default?
Earthrace is a 24m (78ft) tri-hull wavepiercer that has been designed and built specifically to get the record for a powerboat to circumnavigate the globe. She is an advanced endurance vessel, capable of submarining up to 7m (23ft) underwater as she powers across oceans. One journalist recently reported “Earthrace is like a rally car but for oceans, with her ability to handle rough seas and storm conditions at high speed.” In 2008 Earthrace set a new world record by circumnavigating the world in 60 days, 23 hours and 49 minutes.
The horns:
There are a many features that stand out on Earthrace. Firstly the distinctive horns. These are actually ducts. Hot air from around the engines is expelled out the top of these, while cool air is sucked through the lower channel and funnelled under the engines. This however is not powered, it runs simply by convection. In big seas (waves over 8m (26ft)) the horns get submerged, however any water ingress is ducted out the sides automatically. Also, because Earthrace is only underwater for a few seconds at a time, the engine bay holds enough air to keep the 1080hp of Cummins Mercruiser engine roaring along.
Hulls:
Another feature about Earthrace is her unusual appearance, especially the extremely narrow hulls and flowing lines. She has this shape to allow her to pass easily through waves, rather than riding over the top like conventional designs.
Range:
The range of Earthrace depends on speed. At 6 knots she can go an incredible 13,000nm (24,000km) on one tank of biodiesel. That’s over half way around the globe! Of course your crew gets grumpy at 6kn when you’re in such a high speed vessel. At 25 knots she has a range of about 2,000nm (3,700km).
Helm:
Much of the Earthrace helm has has been modelled on race cars. In the image here you can move around the earthrace helm using your mouse. The file may take a few minutes to load, but it is really cool. Recent additions to the helm are custom carbon / kevlar racing seats by Corbeau and a custom made pre-preg carbon steering wheel by Reverie.
Wavepiercing:
Wave piercing technology was originally formulated for passenger ferry applications, and more recently it has been applied to military craft.
Wave-piercers have a very fine bow with minimal reserve buoyancy in the forward portions of the hull to minimize vertical motions. When a wave is encountered, the hull pierces through the water rather than riding over the top. The result is a dramatically smoother ride than traditional deep-V designs, minimizing stress on the vessel as well as the crew.
Wave piercing is a key element in getting the record for circumnavigating the globe. It allows the boat to run continuously at high speed in both flat and rough sea conditions.
One of the most eco-friendly boats ever made.
There are many eco-freindly elements to earthrace.
The Following are just some examples:
·Earthrace runs sustainably produced B100 biodiesel ( + more )
·Parts of Earthrace are made from hemp composite, a world first for boats
·The antifoul is a new non-toxic type (most are heavy metal or iso-cyanate based)
·Lubricants are made from vegetable oils
·Bedding foams are made from canola oil
·Bilge water is pumped through special filters to remove any oil or hydrocarbon
Structures:
Earthrace has undergone extensive testing and evaluation to ensure the structures will withstand the loads placed upon her when piercing breaking waves in storm conditions. According to the team at XC Engineering in Italy, the theoretical loads placed upon Earthrace, and especially the spars, are the highest they have ever seen. She has been designed for 15m (50ft) waves, and to go 7m (23ft) underwater with a factor of safety of 3. So at 21m underwater the hull will likely implode. Of course we hope we never get that far underwater. The most rugged conditions the crew have encountrered thus far were 12m (40ft) waves and 80kn winds, which saw the windscreen of Earthrace regularly up to 5m (16ft) underwater. One crew member described the experience as “by far the most brutal thing I’ve done.”
The hull has come through this, and a series of other storms in various oceans and seas, basically unscathed. It is a testament to the many organisations that worked on the initial desaign and subsequent structural analysis (such as Craig Loomes Design Group and Germanishe Lloyd). Earthrace is an amazing boat and she proves this to us every day!
Construction:
Construction of Earthrace commenced in February 2005, and 14 months later she was launched in the Henderson Creek, in Auckland, New Zealand. A total of 14,000 hours of paid labour, plus many more thousands of volunteer hours went into the build.
Construction went some US$500,000 over budget, due mainly to underestimation of the carbon spars, which required $250,000 of carbon each, not to mention the 3,000 hours of labor.
Hundreds of companes from all over the globe have contributed to get Earthrace launched.
·Air intakes: top of wings to remain above waves while piercing
·Windscreen: 17mm laminated toughened glass
*Max speed is dependent on fuel load, propellor pitch, and gearbox ratio.
Engines:
Cummins Mercruiser Diesel have supplied the engines for Earthrace. There are two QSC-540 engines producing a combined power output of 1080 horsepower. These engines use common rail technology, a quantum leap forward in terms of both efficiency and emissions, compared with conventional diesel injection.
The engines feature turbochargers with a boost pressure up to 45 psa (3 bar), an intercooler (aftercooler), and they are cooled via a raw water intake. So we suck up sea water, pass this through a heat exchanger, which then cools the coolant in the engines. Earthrace runs a wet exhaust, where our exhaust gases are mixed with waterm before being discharged. Even so, there is a nice throaty howl from these engines as you wind them up to 1080 horsepower.
Each engine has its own 10 micron Racor 75/1000 max fuel filter, plus a secondary 2 micron fuel filter on the engine itself. The engines are totally standard, and we run 100% biodiesel in them.
ZF Marine:
ZF Marine have sponsored the gearboxes for Earthrace. They are the ZF-305A single speed box. These provide us with forward, neutral, and reverse. The gearbox ration is 2.423:1. So for every full turn the propeller makes, the engine has done 2.423 rotations. The engine controls have also been sponsored by ZF. The most visible part of this is the throttles, which can run independently, or the two engines can be linked to provide identical engine speeds.
The prefered docking for Earthrace is stern to. This has the crew and public walking on and off via the transom step. For this we need a dock at least 9m wide (the beam of Earthrace is 8m). Earthrace will protrude 24m away from the dock wall. In most cases we need a floating pontoon. In areas with low tides, such as the Mediteranean, a fixed dock is OK, but if public are to board Earthrace, a floating dock is always preferred.
If a stern dock is not available, a side dock is OK. In this case we fender the sponson (either port or starboard) against the dock. We only need an 8m length to tie against, so most marinas and ports can accomodate this easily. The public walk across a walkway from the sponson to the transom step.
We will always prefer a stern to or side dock, however for refuelling or maintenance operations, where public are not boarding the vessel, tying up against a fixed dock or wall is fine. This is standard in most ports.
Earthrace dimensions:
Earthrace is 24m (78ft) long, 8m (25ft) beam, draft of 1.3m (4ft), and at her highest point she is 4m (13ft) above the water.
Pete Bethune – Skipper
Earthrace is now for sale;
78′ Calibre Boats Earthrace Super Yacht – World Navigator Wave Pirecer
