Stupak’s Carbon Bill; Congressional Shenanigans
Image by stevesheriw via Flickr
By Tom Doggett
WASHINGTON (Reuters) – The U.S. regulator that oversees futures markets, such as the New York Mercantile Exchange, would also have jurisdiction over the trading of new derivative contracts based on carbon emissions, under a new bill introduced in the House of Representatives.
via House bill seeks to regulate climate change trading | Green Business | Reuters.
So there’s lots of movement behind the scenes on the Hill this week. I’m headed to DC tomorrow night to sit in on the cap-and-trade markup in Henry Waxman’s Energy and Commerce Committee, which will give us some insight into what’s going on in the Obama administration and how willing it is or is not to stand up to certain financial interests.
This business about Stupak expanding the regulatory purview of the Commodities Future Trading Commission, the nomination of former Goldman Sachs exec Gary Genlser as head of that commission, a new Obama administration initiative to more tightly regulate the trading of energy commodities, and this new cap-and-trade proposal — all of these things would seem to be connected, all tied to the same basic question of how much sway the government is going to snatch away from the big banks over the commodities trading business. The CFTC was in the middle of the action in two major fronts of the financial crisis, ie the derivatives bubble that blew up companies like AIG and Lehman (involving instruments like credit default swaps) and the commodities/oil bubble of last summer, which had us all paying four bucks a gallon despite an increase in worldwide oil supply and a decrease of world oil demand. Deregulation had stripped the CFTC of its ability to properly regulate both arenas, and what is happening now is that the two sides of this issue are fighting over proposed reforms to the system.
This is a major debate with monstrous implications for the future of the world economy and it should be interesting to see how it plays out. Two different people I spoke to last week (including a former CFTC official) seemed to think that reform-minded Democrats are going to allow the nomination of Gensler (in the Clinton years, a major proponent of deregulation) to go through in exchange for the administration promising to pass reforms with real teeth. Meanwhile, this cap-and-trade business will show what the new administration’s vision is for the creation of a major new commodities market, in this case carbon emissions. They could set it up in a way that is regulated and safe, keeping all trades on a regulated exchange, or they could go the half-assed, close-your-eyes-and-hope-it-doesn’t-explode route the Bush/Clinton administrations chose with respect to the swaps and futures markets, delivering a huge unregulated trading bacchanal to banks like Goldman and Morgan Stanley, who of course made great fortunes trading this crap before it blew up and we all had to pay to repair the damage.
We’ll see how it plays out…
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“They could set it up in a way that is regulated and safe, keeping all trades on a regulated exchange, or they could go the half-assed, close-your-eyes-and-hope-it-doesn’t-explode route the Bush/Clinton adminsitrations chose….”
Odds are 20-1 that they will do the latter.
I’ll give Obama credit for one thing: He has truly proven the racially nervous to be needlessly so. He has shown us that a black man can become President and demonstrate little, if any, difference between himself and his white predecessors. Progressives who voted for him must be terribly disappointed. I’m glad I’m not one of them.
This smells like more “fox guarding the henhouse” action by Obama,Inc. He loses cred each day with his handling of the financial area. Citizens can eventually tell they’re getting screwed and that moment is rapidly approaching for Obama as a result of this kind of activity.
Do you really think *normal* citizens are going to call Obama out? Media has to tell the majority of citizens when to be angry or when to be happy or when to watch American Idol.
All Obama has to do is photo-op with his girls and wink to the nation, and most citizens will get puddle between their legs.
In response to another comment. See in context »A new commodities market with this cap-and-trade crap, huh?
I guess if a thousand makes me a million, I’m in.
The Obama administration is proving to be just another bunch of political hacks. Nothing surprises me anymore.
There is not a doubt in my mind that they will wuss out on this thing. The financial powers that be are too far entrenched in this type of legislation and there is far too much money to be made in this type of trading for these people to let meddling regulatory agencies cut into their profits. However, if they miraculously make this work, people can probably say that the new administration finally showed some semblance of testicular fortitude.
That’s worrying. The trading of pollution permits and carbon allowances is, even in theory, in need of much stronger regulation than even the weirdest of derivatives products.
If I sell you an option, at some near-future date I may have to make good on it. If that happens, you are very likely to notice and ask me for your dough. If I fail to cough up, fireworks ensue. Exchanges help with that, but trading derivatives directly mostly works fine too.
Carbon is different, though. Suppose I want to weatherize my house, which will cut both my bills and my carbon emissions. I can’t afford it, so I sell my carbon reductions to you, to offset your emissions. You get your piece of paper for X tons of CO2, I get my money, and we’re both happy.
But suppose instead I just pocket the money instead of reducing carbon like I promised? You will never know. Instead of screwing you for the whole amount, as happens when a derivative trade fails, I am screwing everybody on the planet just a little bit each. Without careful regulation and vigorous enforcement, CO2 markets will be a giant boondoggle.
We should all be “former Goldman Sachs executives.” Apparently that’s the pole position in the We Run the Universe road race.
Or just go to Princeton.
In response to another comment. See in context »My great fear is that concern over the effects of climate change will provide a smokescreen of righteousness over a scam like “cap and trade” that will add cost to everything, has no guarantee of actually doing anything about climate change, and will enrich the same bastards who destroyed the economy in exactly the same way.
The stimulus program creates an alternative: throw money at energy technology research. Offer a $1 Billion prize to anyone who comes up with new battery technology that would make electric cars practical. Provide capital for solar cell fabrication. Replace existing infrastructure.
The worst that comes of this is you employ a bunch of engineers and others in good jobs developing useful skills.
Shouldn’t we already have a battery that makes battery-powered cars practical? It’s not like the battery is a new idea here. Just like there are auto engineers who know how to produce cars that can go 100 miles per gallon … that technology never quite made it to the masses, either.
In response to another comment. See in context »