The Bubble Blowers: Goldman Sachs and Cap and Trade

As Cap and Trade races through Congress, here is a question: Who will benefit? The environment and us or Government Sachs?

Last week the House voted 219-212 to pass HR 2454, the American Clean Energy and Security Act of 2009, whose intent is to "create clean energy jobs, achieve energy independence, reduce global warming pollution and transition to a clean energy economy." I've only had time to browse the 1,092 page bill and sincerely believe it will not achieve a single one of its purposes.

The creation of clean energy jobs is very vague and the parts that are clear center not on industry but on educating people about global warming. This appears to signal the creation of a new class of bureaucrat-teachers, not industrial jobs.

Energy independence? Transition to a clean energy economy? Get real, there is nothing of substance in the document that details such a plan, and this is a pipe dream for government to create this. What will you ask? Only a free market, driven by the consumer and free from government interventions can do so, in my opinion.

"Reduce global warming pollution?" Somehow I missed the scientific debate where the global warmers square off against the global coolers and those who believe that 'the weather just changes, weather you want it to or not' as I suggested here "Anthropogenic Global Warming or an Ice Age, Which Is It? (PART 2/2)". Is carbon dioxide really a pollutant? Don't plants need it to live and don't we all respire it? It would be a lot cheaper and a lot more useful than HR 2454!

My own private analysis of HR 2454 can be summarized up with:

• Inefficient energy sources will instead be propped up and buffered from free market competition by the government.

• The taxed companies will pass down the taxes to We the People, and energy costs will rise for us, the consumers.

• The State will subsidize and hence sponsor, mandated education that "global warming" is in fact, stifling debate.

• Wall Street will have a great time doing all the carbon credits trading using derivatives with "underlying assets" that are literally in many cases, just hot air.

Or, in three words, as "Crap 'N Trade"

On the last point above, let's ask the question, "Cui bono?" Who benefits?

GOVERNMENT SACHS – THE BUBBLE BLOWERS

Goldman Sachs recently announced that RECORD bonuses will be generated in 2009. The $10 billion dollars in bailout money will be returned, although undisclosed amounts lent to GS by the Federal Reserve via the discount window and other off-balance sheet transactions will not be discovered until the FED is audited by Ron Paul's bills HR 1207 and S 604. How can this be?

Goldman Sachs are our country's premier inside traders – former Secretary of Treasury Hank Paulson and his appointed lieutenant Neel Kashgari are only the tip of the iceberg in terms of GS alumni in government. They are aware of, and even exercise control over, the next steps our government will take.

This means in upturns as well as downturns, it is possible to profit. Some say it's even easier to profit during downturns, as Catherine Austin-Fitts discusses in the latter half of this June 26 interview with Max Keiser.

In a recent Rolling Stones piece entitled "The Great American Bubble Machine," Max Tiabbi does us all a great service by, sarcastically but realistically, detailing the history and prior bubbles of this firm. Tiabbi's next prediction for a bubble (mine, for the record, is still the U.S. Treasury and gold markets, where GS plays a vital role as well) is that of carbon credit trading. He details how GS has promoted this legislation and how they will profit from this market – which, bottom line, is a government-created tax market where the carbon credits issued to energy producers increase in scarcity year after year. (Photo courtesy Steve Ford Elliot License)

Who will deliver these 'mandated profits' to Goldman Sachs? That's our job as the energy consumers!

A "First-Class Democracy"??

In a seething conclusion, Tiabbi finishes with:

"It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a first-class democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

"But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from having to do homework until the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in everything you pay. And maybe we can't stop it, but we should at least know where it's all going."

Here is where, in my opinion, Tiabbi grasps part of the truth, but makes a fatal mistake, the same made by many Americans. Let me attempt to correct it briefly.

Tiabbi relates that most Americans think we live in a "first-class democracy," and fervently believe this is beneficial. It's not. Democracy is a Greek word from demos (the majority) and -cracy (rule), or literally "rule by majority." Search the both the Declaration of Independence or the Constitution for the term and you will not find it. Our founders, to a man, recognized the dire dangers of democratic rule. This is why they created for us a nation of laws protecting the natural rights of the individual – a constitutional republic, a union of nation-states, consisting of checks and balances, with both democratic and special-rule elections or appointments, and both democratic and special-rule voting practices. This is why they said:

"A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine."

- Thomas Jefferson, drafter of the Declaration of Independence and 3rd President of the United States

"Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide."

- John Adams, 2nd President of the United States

"A democracy is a volcano which conceals the fiery materials of its own destruction. These will produce an eruption and carry desolation in their way... Liberty has never lasted long in a democracy, nor has it ever ended in anything better than despotism... Democracy pollutes the morals of the people before it swallows up their freedoms."

- Fisher Ames, U.S. Congressman 1789-1797

A choice between a "gangster state" or a nation of laws should be an easy one for most to make. For the Republic!

Disclosure: No position in Goldman Sachs.

Comments

[Steven Hansen:]

good summary Jake.

Max Tiabbi spent a lot of words trying to show how GS has infiltrated the inter sanctum of the government and business. what bothers me most is that the concept of cap and trade is untried and untested - and we are trying to jump in with both feet.

Jun 29 04:17 AM

[A Barrel Full:]

I love the way in which the government (or all governments) try to sell this.

Cap and trade will cost a lot of money. Ultimately, the consumer will pay. That is actually a feature of the system (not a flaw), as it tries to restrict emissions by increasing the cost of making them.

However, governments around the globe have chosen cap & trade, not because it is the best option, but because it is the most opaque. They can pretend that it won't cost a penny, whereas carbon taxing (IMHO a far better idea) is much too transparent.

Also on green jobs. We get rich by becoming more efficient, so less man hours is required to produce a ton of steel or a KWh. Thus resources are available to make other things. The fact that in some cases more people will be employed to produce the same amount of energy, is actually evidence that the technology is worse, not a benefit.

As investors, the key issue is not whether GW is happening, or whether cap and trade is the right approach, but rather who gains and who loses?

Cap & trade will eventually force a number of inefficient companies out of business. Those whose technology offer them a lifeline, or whose clean alternatives help keep the cost of carbon permits down, will win big time.

Jun 29 04:58 AM

[Ferdinand E...:]

Author, please allow me to "get real" about cap-and-trade. The TV audience doesn't understand it, nor do the limousine liberals who believer ferverently in it. Your economics teacher doesn't understand it, nor his teachers nor the head of his department. Many of the persons who write in the 'scientific' publications don't really understand it, but if they do they keep their mouths shut - at least until the cognac goes around the table a couple of times.

Jun 29 10:09 AM

[Fred W:]

Actually "cap and trade" is a well established concept--many years in Europe, NOx and SOx markets in the U.S. just to name the main examples. Over supplying generators at the beginning was the main problem in Europe's experience...NOx and SOx emissions have been successfully controlled in the U.S.


On Jun 29 04:17 AM Steven Hansen wrote:

> good summary Jake.
>
> Max Tiabbi spent a lot of words trying to show how GS has infiltrated
> the inter sanctum of the government and business. what bothers me
> most is that the concept of cap and trade is untried and untested
> - and we are trying to jump in with both feet.
>

Jun 29 10:24 AM

[Fred W:]

You can pay now or PAY later...one way or another we do not live in a zero sum game-- Wall Street is close to being revealed for the Ponsi scheme that it is...we have only seen the beginning of the pain.


On Jun 29 04:58 AM A Barrel Full wrote:

> I love the way in which the government (or all governments) try to
> sell this.
>
> Cap and trade will cost a lot of money. Ultimately, the consumer
> will pay. That is actually a feature of the system (not a flaw),
> as it tries to restrict emissions by increasing the cost of making
> them.
>
> However, governments around the globe have chosen cap & trade,
> not because it is the best option, but because it is the most opaque.
> They can pretend that it won't cost a penny, whereas carbon taxing
> (IMHO a far better idea) is much too transparent.
>
> Also on green jobs. We get rich by becoming more efficient, so less
> man hours is required to produce a ton of steel or a KWh. Thus resources
> are available to make other things. The fact that in some cases more
> people will be employed to produce the same amount of energy, is
> actually evidence that the technology is worse, not a benefit. <br/>
>
> As investors, the key issue is not whether GW is happening, or whether
> cap and trade is the right approach, but rather who gains and who
> loses?
>
> Cap &amp; trade will eventually force a number of inefficient companies
> out of business. Those whose technology offer them a lifeline, or
> whose clean alternatives help keep the cost of carbon permits down,
> will win big time.

Jun 29 10:26 AM

[tweaks:]

Amen to the idea of a republic! We were NEVER intended to be a democracy, and the results of our drift to the nether regions of liberal lunacy are clear. I recommend:

www.tenthamendmentcent.../

Also, a new way to give to this and other causes:

givv.org/

I have no interests in either, BTW...

Jun 29 10:34 AM

[IMWatchingU:]

If we are to move to an alternate energy source purely on the basis of reducing hyrocarbon emissions, then I agree. Still, I am concerned that this equation cannot be balanced or validated with current energy generation techniques.

For simplestic measures, lets use wind and oil (oil being already discovered):
What does it take to manufacture an oil field and operate AND deliver this fuel source to the grid (yes, also include energy plant conversion).
What does it take to manufacture, install, and perform maintenance on an equivalent field of wind generators? Also their grid attachments.

I think you will find, jobs are more prevalent in the original model.

ALSO, what percentage of those wind generator components are made in the USA?

I just don't buy this more jobs equation.

Jun 29 10:36 AM

[Hazel Hende...:]

Thanks for the truth telling , on cap and trade ( forced into the climate debate by US market fundamentalists) , as well as on Goldman !
I have advocated the " green tax shift " used in Europe : reduce taxes on incomes and payrolls and raise the same amount on all forms of pollution ( not just carbon), and on energy waste and unneccesary exreaction of virgin resources when recycled materials are available. this would be revenue neutral and get the price signals going right.( more at EthicalMarkets.com )

Jun 29 10:45 AM

[jerrydd:]

I agree this cap and trade won't help much but that's because of oil, coal lobbyists who have made it that way. Much better is a 'carbon tax to pay oil, coals true cost for a real free market, not corporate welfare as now.

He says we should have a free market and I agree, let's put the real, full cost of oil, coal in them instead of in our income taxes where it is now and give a big tax cut from the savings of the oil wars, Persian Gulf military costs and the $700B we spent on the imported oil we wouldn't need in 5 yrs if we really made oil pay it's real cost. If we don't, oil will go up anyways with Iran, Russia, oil dictators and terrorist making the money to hurt, kill us, others and we end up broke. The beauty of this is as it keeps oil prices low our enemies pay most of it!!
Which is the fiscal, patriotic way to go? Which way would a traitor go? Which are you?

Coal costs in land, water, food, air destruction is huge leaving large parts of Penn, WV, Ky, etc unlivable with as one instance by poisoning fish with mercury I can only eat 1/wk or get mercury poisoning costs me $50-100/month. A reporter ate 2 fish meals and his mercury went 1.5x's max safe levels!! Our health, building, bridge, ect corrosion costs from coal, ect not even including CO2 cost is too high.

Vs RE which most can now be installed under a new coal plants cost and afterward no escalating fuel costs as far as the eye can see and it should be clear to any real fiscal conservative which is the right way to go.

Now add the jobs from refitting buildings, new RE equipment and it's care and new transport and not only will our future energy cost stabilize instead of going up with a bullet , but bring us out of this recession.

But 'conservatives', repubs and some oil/coal dems will do everything they can to keep us dependent on them, sucking us dry, leaving us broke while enriching our enemies. Not something I want, Do You?.

Jun 29 10:56 AM

[FDNY RET:]

China will be forced to add yet another layer of surgical masks to breathe in the cities as they burn ever more coal in producing the goods that our cap and trade have priced out of our productive capacity.

Also wages will rise both there and in India as the shortage of workers strains even over 2 billion in population, while our unemployment shoots above 10%.

But "not to worry" the atmosphere does not recognize Oriental CO2, so the "warming" can be contained through our sole efforts.

Jun 29 12:45 PM

[searcher:]

One ‘practical’ argument against even the semblance of a direct democracy for a nation state or any relatively numerous and expansive political unit was based on logistical considerations. Even if the politic were intelligent and informed on a specific issue, their will could not be assessed and executed in a timely manner. Telecommunications and computers now moot these considerations. This leaves the true reason for proxy representation and republican structures. These concepts in their necessarily imperfect actualization are intended to buffer the well known tendency of even well adjusted and informed congregations to intemperate action (this means even the ‘elite’ such as gather here). They serve as catchments for flood waters of public caprice and protect political structures that could provide reconsideration and recourse for such inevitabilities.

Jun 29 01:38 PM

[xpatriot:]

BINGO!
But Goldman Sachs IS the "republic." The american government is the adjunct.

Jun 29 01:42 PM

[Jake Towne:]

Dear searcher -

"Telecommunications and computers now moot these considerations. "

Exactly!! if you are interested check out the Open Office concept I published here
www.scribd.com/doc/162...

Jun 29 05:46 PM

[joebhed:]

Cap and trade is a carbon tax on derivative steroids.
Ultimately it is a tax that will be paid by consumers for achieving some public policy objective.
I fail to see how there can be any justification for the taxpaying consumers to be paying any more than is necessary to achieve the same objective.
Don't create this carbon future dynasty at Goldman.
You get all the benefits of the cap and trade system with a straightforward carbon tax, cheaper and quicker.
Maybe the Senate will take a look.
Probably not.

Jun 29 09:53 PM

[kmarkt2:]

The US government did have a chance to fix Wall Street but alas, it got Tim Geithner, Hank Paulson, Larry Summers, et el all too Wall Street centric that couldn't take their eyeballs off the threat of "too big to fail" propaganda enuciated by Wall Street. Such propaganda makes Mao's Communist propaganda looks like toys!
Paul Volcker would have been the right person as Fed Chairman - he got the track record of focus and shooting straight where it matters. President Obama, would have been better served with men that has no ties with Wall Street.

Jun 30 09:47 AM

[Max Keiser:]

I agree with the comments here that point out that cap-n-trade can work, but if it's in the hands of the same market jihadis on Wall St. we see now at GS and JPM why do we assume we won't be subjected to more abuse?

Jul 03 09:22 AM