consistent with what's legal...I lived through this:
if you didn't manipulate the market and manipulation was accessible to you,
that's when you were yelled at.
-Former Goldman Sachs trader
New York Times, May 8, 2002*
From the junk bond caused S&L bailouts to Long Term Capital Management to the Dot.bombs to the California electricity frauds to sub-prime and credit default swaps the lesson is:
Wall Street can not be trusted. Period.If we let the camel's nose under the tent flap it is too late. The Wall Street banks will game any system the regulators can think up.
Remember, this is an entirely artificial "market" that Wall Street is "helping" to design.
What the hell do you expect?
If supporters of creating a cap-and-trade program to address global warming want to grab the attention of skeptics on Capitol Hill, they might start by convincing the nation's most famous financier, Warren Buffett.
"We have to work it out so that Warren Buffett understands why he's better off under a trading system than he is under a command-and-control system," said Bill Tyndall, Duke Energy Corp.'s senior vice president for policy.
Buffett's longstanding concerns about unrestricted financial derivatives markets have been absorbed by key senators, who continue to harbor doubts about a market-based system for reducing greenhouse gases as they consider federal climate legislation.
David Sokol, chairman of the Midwestern utility MidAmerican Energy Holdings Co., which is owned by Buffett's investment group Berkshire Hathaway Inc., has been an outspoken critic of using a cap-and-trade program to reduce heat-trapping carbon dioxide emissions. Sokol echoes Buffett's concerns about risks associated with financial derivatives, which helped trigger last year's economic collapse. This week, Buffett paid $26 billion for Burlington Northern Santa Fe Corp., lending support not only to the railroad industry but also to the high-carbon coal industry that relies on railroads.
But now, Buffett's critique of financial trading -- and, through Sokol, a future market for carbon derivatives -- is causing cap-and-trade proponents heartache as regulatory reforms that could address some of those concerns have been stalled for months on Capitol Hill.
Sen. Blanche Lincoln (D-Ark.), chairwoman of the Senate Agriculture Committee, has said Congress will probably have to pass financial reforms that regulate the $300 trillion over-the-counter derivatives market before passing carbon cap-and-trade legislation.
Over-the-counter derivatives are unregulated, privately traded financial contracts used for hedging commodity prices and speculating on price changes. The House-passed climate bill and the pending Senate cap-and-trade bill from Sens. John Kerry (D-Mass.) and Barbara Boxer (D-Calif.) envision the trading of carbon allowance and offset contracts as exchange-traded deals and over-the-counter derivatives contracts.
'Deep suspicion' about cap-and-trade regime
"We are now well past a year since the calamities that we saw in our economy, and we still have yet to put in the needed reforms that need to be there," Lincoln said yesterday. "So the financial regulatory reform bill is definitely one where we are working in tandem with Chairman Dodd to really put together our portion of that, so that when he's ready to go, we can merge those two."
Sen. Christopher Dodd (D-Conn.), chairman of the Banking Committee, next week plans to unveil the Democrats' plan for overhauling financial regulations. Increased regulation of over-the-counter derivatives proposed by the Obama administration is expected to be either included in that package or rolled into the proposal after going through Lincoln's Agriculture Committee. Her committee, which she took over in September, has yet to schedule a markup or additional hearings on derivatives regulation.
The House Financial Services Committee has already passed sweeping financial reforms, but the Senate is expected to be more difficult. Republicans have not yet offered their support for Dodd's proposal.
Lincoln is among the chief Democratic swing votes. She also has said she is concerned about viewing cap and trade as the only means to reducing U.S. carbon emissions.
Republican leaders, including Sen. Lisa Murkowski (R-Alaska), ranking member of the Energy and Natural Resources Committee, also said financial reform will probably need to come first to get Republican support.
"You're essentially setting up a brand-new currency here," she said yesterday. "The American public is more than just a little suspicious about what goes on in the trading world. It's not clear and not transparent, and nothing I've seen allows it to be so. There's a deep suspicion about setting up such a regime."
Climateer Investing on Carbon Trading and Traders
Goldman, Morgan Stanley Threatened by CFTC Review (GS; MS)
Richard Sandor, Barack Obama and the Founding of the Chicago Climate Exchange (CLE.L)
California's cap-and-trade won't work
CARBON KING: Economist Strikes Gold In Climate-Change Fight
Carbon Trading: How to (Maybe) Make Money Out of Thin Air: And One of my Favorite Carbon Cowboy Quotes
Japan aims to limit speculation in emissions trade (or we could just tar-and-feather carbon traders)