The progress of humanity has been greatly enhanced by those who, after thoughtful analysis, expressed views that are contrary to popular thought. Persons like Voltaire, Galileo, Socrates, Nietzsche, and the father of both the American and French revolutions, the great Thomas Paine, whose "Rights of Man" and "Age of Reason" would make him the contrarian of all time in my book.

It is in the spirit of these polemicists that I create this blog. It is my intent to challenge popular suppositions. While it will become evident that I am generally a progressive liberal, hopefully I will have the courage to take opposing viewpoints to those of my own comrades when appropriate.

No comments will be deleted based solely on the political , social, economic or religious views you may have. In fact I encourage thoughtful discourse. I will however promptly remove any postings that contain overtly vulgar comments, racial slurs, hate speech of any kind, or multiple postings of "conspiracy theories". Though not required, please post links for references to the point you are trying to make, or at the least, give us an idea of where you found the information that supports your cause or claim.

Sunday, August 21, 2011

Trading on the Environment: A liberal argues against "cap & trade"

Well, by now it's fairly clear that Wall Street and its overpaid hucksters were the guilty party in the development and subsequent crash of the housing bubble. They, with government implied consent and minimal regulation or oversight, were able to create a myriad of slight of hand financial instruments that few could understand, sell them to banks and fund managers, and pocket huge fees in the process. All went well as long as the market was rising. But as was the case in the dotcom crash, ultimately the lack of value of the underlying asset comes back to haunt.

We allowed Wall Street be entrusted with our housing market and were burnt. Not only did we suffer direct losses to our pension plans and 401k's, we let the financial market shift the risk to taxpayers through government bailouts and loan guarantees. The failed housing market and its lack of recovery is the most likely culprit of our inability to solve the unemployment problem and pull ourselves out of recession. And the correlating drop in GDP growth and increasing evidence of stagflation only worsens our sovereign debt situation.

So now what? Not for us. In that regard the answer is painfully clear. We're in danger of seeing a "lost decade" the likes of which haven't been seen since the 1930's. But what's next for Wall Street?

How about carbon trading? Yes, the sacred cow of the liberal establishment. We have endeared ourselves to the notion proposed by figures like Al Gore that we can cut emissions of greenhouse gasses by essentially granting licenses to pollute, capping emission levels, and trading these new financial instruments called "carbon credits".

The custodians of Wall Street have been uncharacteristically quiet during the ongoing debate over "cap and trade". Carbon trading happens to meet many of the requirements for a highly profitable Wall Street model, and in some ways is even more attractive to traders than the aforementioned housing market. An asset of inherently subjective value, carbon credits would be a market of artificially created short supply, and by its very nature subject to market manipulation and government lobbies. Not unlike the housing and mortgage markets, few individual investors will understand the complexity of carbon markets or of the underlying asset, the definition of which will be contained in a maze of government regulations. Wall Street will waste no time in developing carbon "futures" trading and other exotic financial instrumentation. I'm thinking the speculators over at the NYMEX have probably already developed a sophisticated computer model to take advantage of the potential profits available to them in yet another fictitious market. Will any of us understand a "carbon default swap"?

Let me be clear to my liberal friends and associates. I am not a climate change denier. I concur that if our planet, or even our economy in the shorter term, is to survive there is an urgent requirement to reduce carbon emissions. I'll be the first to champion the idea that the costs to humanity associated with burning fossil fuels have not been accounted for by the free market. I just have trouble believing that "cap and trade" is the answer. Is this concept not playing right into the ideology of conservatives? Do we really want to monetize and marketize our environment, essentially selling it to the highest bidder? And do we turn our most precious commodity over to the same people who so nobly handled our housing market?

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