 All right, so here's the story. You will not hear anywhere else. Now you're going to have to be patient with me because this requires some explaining. But it turns out that there has been a scheme that has been promoted by certain environmentalists in alliance with certain investment banks to find ways to restructure the debt of developing countries, of what used to be called third world countries, in a way that commits those countries to environmental protection while reducing their debt load. It's called, and I didn't make this up, this is a headline in Bloomberg, it's called the debt for nature swap, debt for nature swap. And this is a new ESG qualifying, this is important, new ESG qualifying, money maker for the investment banks. It's a way for these third world governments to get reduced debt burden. And it's a way for a lot of the environmentalist groups to score a win. And I was reading this and I was going, wait a minute. I get a win-win-win, but there's no way a win-win-win can work here. Somebody has to be held with a bag. You can't restructure this debt and then commit the government committing a significant amount to conservation and nobody pay the price. There's a price to be paid here. All right, so I'm going to run through an example for you and we can together figure out who's paying the price and why they're willing to pay the price. And this is really, really important. Why are they willing to pay the price? And this has to do a lot with model high ground. It has to do a lot with feeling good about yourself. It has a lot to do with ESG qualifications. So here's how to work with Belize. Belize is the small country on the Caribbean in Central America. So the Nature Conservancy set up a Delaware-based subsidiary. So let's start off. Belize has this debt, $364 million. They're having real problems paying interest on it. They have people hold these bonds. So the bond, they actually have 553 million bond that the government holds, that it owes to investors. And it's struggling to pay this back. And Belize is a relatively poor country. But Belize is also an important country because it sits on beautiful coral reefs. It's got a lot of, I guess, tropical forests. It's considered environmentally, quote, important. All right, so here's what we do. The Nature Conservatory sets up a Delaware-based subsidiary, call it Belize Blue Investment Company, and raised $364 million from Credit Suisse. So the investment bank, Credit Suisse, gives this new entity Belize Blue Investment Company $364 million. This entity, we'll call it BBIC, the Belize Blue Investment Company. And Blue, by the way, is signifying green. But blue is green in the ocean, green in the sea, right? So BBIC takes this money and loans this to Belize. And Belize uses this money to pay back 553 million in debt at a 45% discount from the bondholders. Now, here's the first thing that you have to ask yourself. Why are bondholders willing to take a 45% discount? That's a big discount. That's a big discount. I mean, basically, these bondholders bought the bonds for $100, and now they're expected to sell them back for $55. Is Belize on the verge of bankruptcy? Is this really, you know, there's so much risk of bankruptcy? And maybe in bankruptcy, they'd get $10 on the 100 that they're willing to sell for $55? What's going on here? Why are they willing to write it down by so much? Now, part of it is that, yes, Belize is probably not the safest people to lend money to, and these bondholders are maybe happy to get some of their money rather than none of their money. But that's not the whole thing, because the probability of Belize actually going bankrupt is not that high. Not that high, I don't think. So what else is going on here? Well, the government has promised to use the savings that they got. So they're going to have to spend a lot less money on debt repayment, all those interest payments that they would have to spend. And they have saved 45% of the bond issuance that they will now not have to pay back. That's being written off. So they've committed to put that money away for environmental concerns. Let me just see. They are going to use it for conservation of the coral reef. They're going to use it for something about mangrove mangrove plants, whatever. They're going to use that money to beef up environmental protection and fragile mangroves and coral reefs in the Belize area. Now, why would investors care about this? Well, investors care because they get to say they're the good guys. They get to pat themselves on the shoulder. They get to declare to the world that they have been good citizens, that they have been moral, that they are willing. They've invested in green stuff. They probably get some ESG credits. Some of these investors, my guess is most of these investors are institutions. They're not individuals. And they get to put some kind of ESG gold star next to their name in the future. They get a lot of this good stuff attributed to them. And for that, instead of making a charitable contribution to some institution, they actually got to write down some debt instead, which some risk was associated with it. So they get, in a sense, a charitable contribution, which they write up in taxes. They get a gold star for being good environmentalists. And they get a little bit of cash from selling the bonds that might have been worth less than the cash that they raised. But probably not. They're probably worth more. So that's one half of the transaction. But now, Credit Suisse has $364 million. They have given a loan to Belize for $364 million. What's Credit Suisse going to do with this loan? Credit Suisse, then, creates a special purpose vehicle in the Cayman Islands. And it issues $364 million in blue bonds to finance the deal. Remember, every time the bond has a blue next to it, it gets that gold star. And it probably gets that ESG stuff. And it gets all kind of social environmental credit for what it's doing, because blue is green, just applies to oceans, something like that. So then, the special purpose operation then sells these loans. Now, the loan is smaller. So Belize only has to pay now back a loan of $364 million instead of $553 million, because the investors had to write off. Now, Credit Suisse, who owns this loan, now has to sell bonds to make up the $364 million on its book. So it then basically then, once that happens, the Belize now has new bondholders that bought the bonds from Credit Suisse, from the special purpose entity in Credit Suisse, in order to finance all of this. So Belize now has to pay back a new smaller loan from BBIC. Remember, there's Belize Blue Investment Company. Over 19 years, with an interest rate starting at 3%, rising to 6% in 2026. It must set up a $24 million conservation endowment. So this is what Belize has to do. It sets up this conservation endowment. And it commits the spending $84 million on conservation and to protect 30% of the oceans. Now, here's an important part of it. It turns out that Credit Suisse is having trouble selling this new debt to investors. Because, hey, what's behind this debt and how do they know it's going to pay back? Is Belize really behind it? Is Belize capable of paying back? Nobody really wants to buy this debt, even though it's blue. There's a real challenge. So guess who steps in here? So in order to facilitate this final piece of selling the bonds to other investors in order to fund this whole chain, this whole transaction, and free up all this money for conservation, what is required is that the US International Development Finance Corporation, I don't even know that you knew that such an entity existed. But the US International Development Finance Corporation, it's not the IMF and not the World Bank. This is a US entity directly US, insured the BBIC loan. So it sold insurance. It basically didn't sell insurance, provided insurance over the BBIC loan. Basically, putting the US government on the hook, it believes can pay. So if Belize can pay, the bondholders will sit at the end of this. Belize now owns $364 million, really, to this credit suites entity, which owes this money to the people who bought its bonds. If that chain is broken, you, most of you, not all of you, the US taxpayer are now on the hook for it. So this is beautiful. Belize cures a $553 million deficit with a plan that saves its oceans. And this is amazing. It cut the country's debt by 12% of GDP. It reopened the country's access to financial markets. Redirected money from destined-for-found creditors into the local economy, primarily into local environmental protection. Belize then promised to fund $180 million over two decades to protect its oceans. And investors were glad to have backed a worthy cause. They got the goldstone. This is beautiful. A combination of public funds, public private enterprise, private funding, public initiatives, win, win, win, win, win, win, everybody wins, except. The initial bondholders lost. They took a big right off off the debt without going into bankruptcy, without seeing maybe they could get a much higher amount. They might have been able to get 80% of their money back. Instead, they only got 55%. We, the taxpayers, got hit with insuring something, probably is going to be OK. But imagine this on scale. We're talking about now taking this model from Belize and going out there and offering this scheme to countries in Africa, to countries in South America, to countries in Asia, all over the world. Sri Lanka wants to do this on billions worth of debt. Is the United States taxpayer going to be behind all of this? And if not the US taxpayers, the IMF is the US taxpayer in the end, or the World Bank, which is the US taxpayer in the end. And this is not global. This is not global sovereignty, governance. This is US governance. This is the US doing all of this. This is ultimately the US government providing insurance. There's no governance here. This is a multinational deal involving many countries. But there's no, the governance is all going to be local governance. There'll be, you know, the bonds are going to be under the laws of the Cayman Islands, the insurance is going to be provided by the US. That's not global governance. There's no global entity here. Indeed, the World Bank and IMF are global governance. The IMF and the World Bank do what the United States tells them to do. It's the number one shareholder. It is the dominant player. It provides them with all the funding. I mean, there's this fallacy that there's some kind of global governance going on in the world. There is no global governance. It's whatever the US wants. And in some cases, what the Chinese want. Nobody cares what most other countries want. They can vote on it all they want in the United Nations. Nobody pays attention to the United Nations. Doesn't actually do anything. World economic forum is not global governance. It's a gathering. It's a think tank. They advocate for global governance. They would like to see global governance. But there is no global governance. They have no direct, legally enforceable in any kind of sense. All they can do is advocate for ideas and try to influence people through ideas. They have no power, zero, zilch power. I know. Catastrophizing. Keep at it, guys. Keep catastrophizing the world. It really helped. Anyway, this is a scary scheme. Not so much because of beliefs, but because of the potential of this to escalate and to grow and to become huge. By the way, guess who makes money off of this? Guess who does very well in a scheme like this? They make money no matter what happens. No matter what happens, they make money. Credit Suisse. Yes, the investment banks. Investment banks are facilitating this. The investment banks are taking commissions left and right. Now the investment banks might be buying some of these bonds or selling some of these bonds. They might not be making a lot of money on that. But they are making huge amounts of money off of the consultants and the lawyers and the people who say, all the people that came in Ireland who set up these entities, who monitor these entities, the people, and of course, believes did well. A lot of people make a lot of money here. Indeed, this is very, very, very expensive to set up. One of the complaints against this is how expensive it is. And some environmentalist groups hate it because they hate the fact that the investment banks are making money off of this and benefiting off of this. They view this as a sellout, a way to, yes, maybe it protects the environment, but it's a way of selling out. They're much easier, better, more direct ways to do this. Maybe believes could just default on the bonds and then take the savings and invest directly in it. Why give a bunch of third parties profits over all this? But I also want to emphasize here the power of this idea of getting a gold star. ESG is not without real implications to help people invest. But this idea that it's moral to sacrifice for the environment has a real impact on people and the way they invest and the way they allocate capital has a disastrous impact on allocation of capital. And this is an example where they feel good, they're willing to take a huge hit cut, they're willing to take a huge loss in order to pretend that they're better off. And there you have the power of moral persuasion. It's really quite amazing that this goes through and it's big and it's getting bigger. So this is a story, I think, from today or yesterday. I mean, no, actually late 2022, debt for nature swaps gained traction among developing countries. Green ESG, this is all under the Green ESG title, 58 of the world's developing countries, 58, most vulnerable to climate change, have almost 500 billion of debt servicing payment due in the next four years. 500 billion, imagine doing this at $500 billion and imagine if the United States actually, actually got guaranteed all this, 500 billion. Now that's the kind of news you're not gonna hear anyway and not gonna get critiqued. By the way, the subheading of this story, which was yesterday, this is so, Wall Street New HD Money Making Promises, Nature, Conservation Without a Catch, or With a Catch. The subtitle is, Belize is Home to a Threat and Call a Reef in Mountains of Sovereign Debt. It became a test case for a new kind of finance that mixes debt relief and environmental protection. The world is insane people, it's crazy. And this is just another headline, I don't have time to talk about this, this is another headline. Why fund managers started worrying about biodiversity? See that, you know, if I must realize that if they really wanna get an impact, have an impact on the world, they need to get the financial community behind them. That's the whole basis of ESG and here you get biodiversity, what's that gotta do with finance and it goes on and on and on. And these things get entrenched, you get whole institutions dedicated to these causes cause they make money off of them and it's almost impossible to fight at that point. Thank you for listening or watching the Iran book show. If you'd like to support the show, we make it as easy as possible for you to trade with me. You get value from listening, you get value from watching, show your appreciation. You can do that by going to iranbrookshow.com slash support, by going to Patreon, subscribe star locals and just making a appropriate contribution on any one of those channels. Also, if you'd like to see the Iran book show grow, please consider sharing our content and of course subscribe, press that little bell button right down there on YouTube so that you get an announcement when we go live and for those of you who are already subscribers and those of you who are already supporters of the show, thank you. I very much appreciate it.