CARBON TAX: Another Speculative Bubble Opportunity for the Banks?

At the end of Matt Taibbi’s punishingly concise article in the Rolling Stone, called Inside The Great American Bubble Machine, he wrote:

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.

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.)

By most any intelligent person’s judgment, this is undeniably a tag-team; mutual special interest operations digging into a guaranteed-by-law trough of unending cash from the tax-payer. What else could trillions of virtually inconceivable bailout dollars be? But here’s the bit that I don’t understand. Actually, I barely grasp any of it, so far from my instinctual interests.

Nonetheless, Taibbi goes on to say:

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 [Goldman Sachs] 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.

Can anybody explain that, and how it would speculatively work (pun intended), or post a good link? My pre-economic mind can’t understand it. Suffice to say, it’s no surprise that anything moving toward sustainable living, not directly tied to fossil fuels and growth—in fact quite the opposite—would be co-opted by certain interests.

Keep loving, keep learning,

Pete xoxo


9 Responses to “CARBON TAX: Another Speculative Bubble Opportunity for the Banks?”

  1. Karen says:

    After picking the brains of some financially enlightened friends, I think I’m beginning to get a grasp on how this all fits together. Let me know if this sounds right to you, because I want to make sense of all this confusion too. I found I needed to understand the Kyoto Protocol to really get what’s happening here, so please bear with me. Sadly, profits seem to have been written right into the Protocol.

    Under the Kyoto Protocol a cap-and-trade system is used between countries. Developed countries have emission caps and can earn, then sell, credits by keeping emissions below their assigned cap. Developing countries have no caps, but can earn credits by investing within their borders to reduce emissions and then sell those credits to developed countries that exceed their caps.

    Many governments use systems similar to the Kyoto Protocol’s system, but on a local or national level; however, they all do what we’ve done with money—shift everything to paper and a virtual system. To my way of thinking, as soon as you hear the words, “each corporation is given credits…” you have a board game. Monopoly. I digress…

    On a national or local level, each corporation is assigned a limit (its cap) for the amount of pollution it’s allowed to spew, based on air quality goals set for a given geographical area. Some will over spew, others under spew. Those that fall below the cap get a credit, usually per ton, worth the current market price for a carbon credit. Each ton emitted above a corporation’s cap becomes a liability, either by fines or taxes (which we know corporate accounts are masters at making disappear anyway).

    But all these credits, regardless of the system, can also be sold to anyone with the financial means to purchase them (i.e., financial investors with an eye toward speculation). Likewise, corporations or countries in need of additional credits can purchase them from anywhere (i.e., financial investors with an eye toward speculation). The game is afoot!

    To Mr. Taibbi’s point, and by way of example, the mortgage bubble was caused in large part by “bad-bet,” mortgage-backed collateralized debt obligations (CDOs), with banks bundling lots of bad-bets together (all loans are basically a bet a lending institution makes that you will pay them back) and selling the bundle to unsuspecting investors (mostly corporations for pension funds/401Ks). Now replace “mortgage” with any credit receivable.

    CDOs can be comprised of almost any type of credit receivable (mortgages, car loans, credit card debt), hedging the bet that some will go bad, but most won’t. Think safety in numbers or the law of averages. This works fine until you bundle a bunch of mostly bad bets (or debts) together, increasing the odds that larger numbers will default. (This was further complicated in mortgages when loans structured for folks whose annual income is expected to increase faster than the cost of living were given to folks whose annual income increase was never going to keep pace.) Oversimplifying this I’m sure, carbon credits in a cap-and-trade system can be turned into credit receivables and bundled into a type of CDO; however, the banks won’t have to drive the prices up. The government will push the price of a ton of carbon emissions up higher each year in its attempt to improve air quality.

    Am I correct in saying for this dollar-go-round to keep going, carbon emissions will have to stay at current levels? If everyone reduces carbon emissions, there will be diminishing need to purchase credits. The only way I see for this to actually reduce emissions is for governments to raise the price of a carbon credit while simultaneously lowering emission caps (you know, like how they handled auto vs. truck emissions!).

    On sort of another subject, I’m all for the spirit of the Kyoto Protocol, but here’s my question: What prevents the market from setting the price for a carbon credit so low, but the cost to earn a carbon credit so high that developing countries must spend say $1,000 to earn a carbon credit that’s worth say $500 on the international market? Not unlike developing countries that received loans structured so these countries can never afford to do any better than pay the interest and never touch the principal. Unfortunately the history is there.

    Please forgive my cynicism, but I remember the first Earth Day. I was in 6th grade. We haven’t accomplished much since then.

    So that’s what I got so far. If I’ve gotten something all wrong or just sideways here, let me know. I’m really trying to understand what happened to my retirement funds.

    I’m sure all this is nothing you don’t know, but sometimes when we agree that we all understand something, it gives us a foundation to understand further. I’m still learning and researching, but these annoyances called work and sleep keep taking up my time.

    Love to you and those you share the air we breathe with,

    This link is to an organization where you can purchase personal carbon offsets:

    This is to an article that helps explain how carbon credits are turned into profit:

    This is to an article that explains CDOs:

    Please file this 60 Minute segment under watch and be terrified:

  2. [...] my blog below, I asked what Matt Tiabbi meant by carbon-tax speculative bubbles, and wonderful Karen gave a clear and informative response, [...]

  3. [...] billionaires, direct from the tax-payer pocket (or from somewhere), and almost for sure in the coming speculative boom of waiting inside the Carbon Tax dynamic. Talk about going [...]

  4. [...] It’s known to many now that, unsurprisingly, Goldman Sachs (one of the grand bailout winners) was President Obama’s #1 campaign donor. #1 (must read, simple article to here). [...]

  5. [...] me, because as a non-scientist I’m truly confused by what is passing for science. And the possibility of ungodly profits for corporations via carbon-tax speculation make my belief in the proponents of man-made climate change less stable, on account of all the [...]

  6. [...] state or by corporate monopoly, when the difference between a vice and a crime is understood, when government and business are not interchangeable, when church and state are [...]

  7. [...] here’s Matt Taibbi (who I’ve written about here and here) given another example of how Wall Street is Looting Main Street, and how if all was fair at all, [...]

  8. [...] seemingly endless trough of energy, never stopping, never ending. This, of course, is false. But this is one of the reasons, among many, that the carbon tax idea is so dangerous, at least to my thinking. There is no real sacrifice involved. Just like fines for corporate [...]

  9. [...] “legal” thievary? The financial sector is built on countless speculative ponzi schemes, all the way to the present carbon tax. Further, both the financial sector and the mafia will always find a way to not have to pay that [...]

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