BUBBLE #6 – GLOBAL WARMING
Fast-Forward to today. It’s early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs – its employees paid some $981,000 to his campaign – sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm’s co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits – a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.
The new carbon-credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.
Here’s how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There’s also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?
"If it’s going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we’re saying that Wall Street can set the tax, and Wall Street can collect the tax. That’s the last thing in the world I want. It’s just asinine."
Cap-and-trade is going to happen. Or, if it doesn’t, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees – while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.
Matt Taibbi, Rolling Stone Magazine 2/7/2009, "The Great American Bubble Machine"
Like Jared Diamond and Stephen Jay Gould, Tim Flannery has the ability to take complex ideas and – seemingly effortlessly – make them accessible. This book captures your imagination through its extraordinary range of argument, its vivid imagery, its wealth of research, quick wit and richness of detail. You need to read it carefully, twice.
Mr Flannery provides much more urgent, specific evidence of imminent peril. He also makes sure that you will never again look at an electric-light switch in quite the same way… "The Weather Makers" is detail-packed to the point of terrible fascination.
Newspaper Reviews on Tim Flannery’s, "The Weather Makers", by The Sydney Morning Herald and The New York Times, 2005
Most ministers’ ideas can be squashed by discrediting the facts they are based on. But if they are political ideas, facts don’t come into it.
From the 1989 diary of Sir Humphrey Appleby, Secretary to the Cabinet under the British Prime Minister, James Hacker.
INTRODUCTION
For purposes of this essay let us assume that climate change is real, and that greenhouse gas (CO2) is a major contributing factor. The dimension and urgency of the problem is something that we are not able to talk about, simply because we do not know. But we do sincerely believe that Messrs Rudd and Turnbull in their respective capacities as Prime Minister and Alternative Prime Minister are NOT providing real leadership on climate change. In fact, they are confusing the issues in their desire to be seen as nascent saviours of the world. Their motives are political and essentially counter-productive, and each in his own way is as bad and mischievous as the other.
EVEN IN OUR POSITION OF RELATIVE IGNORANCE
….. or lack of expertise, we cannot understand why Copenhagen is relevant at all. Australia can begin to solve its emission problems on a constructive timetable, and the rest of the world can follow later. We do not need an Emissions Trading Scheme (ETS). It seems to us that there are probably less than 2,000 significant carbon polluters in Australia. Why not simply give them a tax break on the expenditure required for them to create and/ or buy the technology that will reduce their emissions to agreed levels, and perhaps a bonus if they exceed their targets? In relation to households something can be done via direct subsidies and/ or tax relief, and education.
CARBON CREDITS
….. might cause the next bubble and be a significant factor in the next recession. The world discovered recently that America had a hidden bubble called ‘sub-prime’. Before that they had another bubble called ‘tech/ telco’. Every time America finds a new source of income, it manages to invent new sources of manipulation, embezzlement, obfuscation, fraud, or whatever name you wish to attribute to their bad behaviour. At the same time, China is something of a closed economy and they have a vast amount of $US holdings that might give them some advantages in a carbon credits market. Data can be manipulated, and countries are not always completely open and honest in their dealings with one another. Jack Lang, a former NSW Premier, famously said: "Put your money on self-interest; it’s the best horse in the race, because you know it’s always trying".
MATT TAIBBI’S ARTICLE
….. should be read in its entirety. The arguments are cogent and hence difficult to refute. Our editor is relatively convinced that Goldman Sach’s exaggerated many aspects of the ‘tech/ telco’ era and in more recent years led the cheer squad for ‘$200 per barrel oil’, whilst running major trading operations in commodities. It does not take much imagination to see that carbon credits becomes the next ‘growth’ industry. Eventually we could see carbon derivatives, collaterised carbon credits, and sub-prime CO2 certificates. The financial engineers could have a ball, a predators’ ball, at a ‘prime’ (not sub-prime) venue. Good intentions do not always translate into beneficial policy outcomes.
John Howard described many of the participants ostensibly looking after Aboriginal welfare as ‘the Aboriginal Industry’. Our editor, having visited ATSIC HQ in Canberra a few years ago, and from general observation, it seems that certain people in the ‘Aboriginal Industry’ are relatively well-off compared with vast sections of the Aboriginal population, drifting inexorably into squalor and hamstrung by significant lack of opportunity.
BARNABY JOYCE
….. is a seemingly clear-thinking and articulate spokesperson for rural Australia and, on many occasions, sounds eerily similar to Senator Peter Walsh, Finance Minister in the Hawke Government from 1984 to 1990. Prior to that Mr Walsh was Minister for Resources and Energy from 1983 to 1984. He was, and probably still is, a wheat and sheep farmer in Western Australia. Anyone who has spent time in rural Australia knows about the level of wise counsel and common sense utterances that come from this source. Labelling people ‘mavericks’ or ‘smart arses’ who disagree with the populist and alternative view is just nonsense and a denial of democratic rights. In our opinion, Senator Walsh is one of the unsung heroes of Australia’s current prosperity and global position. If Messrs Rudd and Turnbull are unsympathetic to regional concerns, then taxpayers should be concerned.
WHEN
….. are we going to see a full-page ad or government editorial that sets out the cost of the technology and the infrastructure that will reduce carbon emissions? At Ecinya we feel substantially uninformed, yet we sense that our taxes and operating costs will rise and emissions will not fall proportionately. Mr Rudd, giving a press conference on climate change and other matters as he leaves church, seems to imply that his god has ordained his view or at least confirmed the substance and tempo of his approach to economic, social, and global challenges.
IF CARBON EMISSIONS ARE SO DANGEROUS WHY NOT
….. seek a consensus with competing and supportive views represented in equal measure? Ross Garnaut is reported in today’s AFR (13 October, pg 5) as follows: "Meanwhile, Ross Garnaut, author of the federal government’s climate change review, said the rancorous political debate on an ETS was one of Australia’s worst cases of policy-making on a major issue. "It is a very difficult issue, so I suppose it was never going to be easy. But the way it has broken down is extraordinary."
We disagree with Mr Garnaut in that we find it totally unnecessary to have an ETS. Through the tax system at the corporate level and education at the household level, some electric cars, the acceleration of some alternative fuels such as ethanol, gas, solar and wind, we believe that solutions exist. We understand from recent readings that new and cheaper and more effective forms of nuclear are about 5 years away.
The bottom line is that our major polluters are in essential industries. Additionally, talking about the debate in per-capita terms distorts an absolute problem. On a per-capita basis our numbers look universally good or bad depending on the statistical point you wish to make. We have a lightly populated country (if you ignore water resource problems) with vast resources and per-capita stats always look meaningful.
HAS THE RECESSION BEEN FORGOTTEN?
A few weeks ago, a few months ago, the world was in a global recession, the worst since WWll. Governments have de-leveraged the private sector by running up huge amounts of public debt and providing stimulus packages from coast to coast, village to village. Somehow at some time, the taxpayer will have to pay extra taxes and suffer higher interest rates and perhaps just then the cost of carbon will hit with a ferocity of which we are totally unaware.
WE DON’T LIKE TO BE CRASS
but Mr Turnbull is an ex-Goldman Sach’s man. We hope that his information and insights are not being derived from this self-interested and self-indulgent source. We hope that local election coffers on both sides are not being filled by climate change industry participants.