With the passage of the hideous Cap-n-Trade bill, otherwise known as the Waxman-Markey bill, in the House of Representatives last week and Dave Hinz insertion of a great article by Matt Tiabbi called The Great American Bubble Machine into his Morning Coffee post today, I thought I’d continue my series on the coming Carbon Bubble.
First lets explore Goldman-Sachs history with financial bubbles and the way in which they, when not causing them, are always positioned perfectly to profit from them using a technique called Problem-Action-Reaction-Solution!
The Great Depression:
Although Goldman-Sachs was founded in 1869 by a German immigrant named Marcus Goldman and his son-in-law Samuel Sachs it was the Great Depression that many point to as the beginning of Goldman-Sachs creating a pattern of nefarious behavior that would repeat itself again and again, I find that a company “getting creative” in order to survive in that climate to be less troubling than the Mr. Tiabbi obviously does given the tone of the article but nevertheless a troubling pattern does emerge in 1960’s and thus we’ll start with the Tech Bubble.
The referenced article has very articulate descriptions and details of Goldman-Sachs involvement in these bubbles so I’ll quote and quickly summarize in the interest of time and the fact that I’d just be repeating.
The Tech Bubble:
Goldman-Sachs ”not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations”
“The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions.”
Goldman-Sachs changed the game by underwriting standards … “They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational.” Of course no one told these investors the rules of the game had been changed!
The Housing Bubble:
Goldman-Sachs manipulated the housing market in a couple of different ways 1) by creating a vehicle by which you bundle mortgage instruments into packages called Collateralized Debt Obligations or CDO’s. Since the thought was there are far more A paper (good loans) compared to subprime B&C or even horrible papered loans (sometimes referred to as scratch and dent) the package was a safe bet or sound investment. 2) Goldman-Sachs lobbied for and in other cases used relaxed restrictions to their advantage like the revised Community Reinvestment Act and a lesser known act that made it possible for banks to freely trade default swaps with impunity called the Commodity Futures Modernization Act The Act that striped the CFTC of its regulatory authority was air dropped into a spending bill at the last minute and pushed by Robert Rubin who was Clinton’s Treasury Secretary and former Goldman-Sachs employee. 3) “to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman:” You just new AIG would pop-up here somewhere and this is just the beginning of a fruitful relationship between the two.
The Energy Bubble:
Though not lasting as long as some of these other bubbles the energy bubble is one that was directly caused by Goldman-Sachs and other speculators manipulating the physical-commodities market and it was a Goldman-Sachs owned company that made and won an argument for speculators to move on the physical-commodities market.
As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. ... In 1936, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.
By persuading pension funds and other investors to invest in oil futures, buying at a certain price on a fixed date, Goldman-Sachs succeeded in turning a solid market into a speculators paradise.
The Bailout Bubble:
By far the best example of Problem-Action-Reaction-Solution! is the Bailouts both administrations are continuing to carry out with the help of Goldman-Sachs. At this time when there were no more bubbles to ride, the world economy was in the toilet, and the only pool of money to try and go after was taxpayer dollars… Boy, let me tell you, Goldman-Sachs, its players, and former employees were perfectly positioned to take full advantage of our tax dollars.
Throughout the bailout process Goldman-Sachs has been right there organizing a profiting off of this crisis. Instead of solving the problem in a common sense way, like giving every American a million dollars thus solving the housing, credit, and banking crisis’s all in one whack at a fraction of the cost, they acted like wall street bankers and fell back into the routine they knew best. The list of horrible acts is long but to name a couple.
It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention
… The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets:
Besides helping orchestrate TARP, Goldman-Sachs only paid $14 million in taxes in 2008…Unbelievable!
Which leads me to the topic of this post the Coming Carbon Bubble.
The Green Bubble:
With former Goldman-Sachs employees in key positions in the Obama administration (and with campaign cash donations from Goldman-Sachs employees just shy of $1 million) the firm is seated to push for and be the beneficiaries of the next bubble – Carbon Credits.
The coming Carbon Credits futures market is probably the most insidious ponzi scheme ever to be perpetrated on the American people. More dangerous than both ponzi schemes by Madoff and Social Security combined. This myth like cult created by the likes of Al Gore and other environmental alarmists is the catalyst for the next wave of Problem-Action-Reaction-Solution! that is specifically designed to remove you from your hard earned money! This time Goldman-Sachs won’t have to do any price fixing or creative tomfoolery, No! This time, the rise in prices will be government-mandated and will affect most everything we buy or sell and Goldman-Sachs wants in.
Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues.
As I wrote here, Green bubbles aren’t new, with more and more people calling out, backing away from, and outright credibly debunking claims by environmental alarmists and doom pushers the time seems to be right to pop the current "Green Bubble".
Historically, say Ted Nordhaus and Michael Shellenberger of The New Republic, "Green Bubbles" are “inflated during highly polarized periods in American society and politics, often fueled by disastrously violent episodes in foreign policy” They go on to say:
This time, they say, the left’s alienation in the Bush years helped inflate a bubble of unrealistic “green anti-modernism,” epitomized by Al Gore. It illustrates, the writers say, that “while utopianism has a bright side–it is a way of imagining a better world–it also has a dark side characterized by escapism and a disengagement from reality that marks all bubbles, green or financial.”
They also add that this isn't the first time a "Green Bubble" has burst:
This isn't the first time an eco-bubble has inflated and then burst. In fact, the modern environmental movement was born in a bubble. In 1969, an industrial pollution fire on the Cuyahoga River in Cleveland, Ohio, generated national publicity and outrage. The first photographs of Earth in its entirety transmitted from outer space were received as signs of a new ecological consciousness. The first Earth Day was held in 1970, and, over the next three years, Congress passed and (a Republican) President Nixon signed into law sweeping environmental statutes.
In a study conducted by Friends of the Earth, Cap-n-Trade will set the stage for rampant carbon speculation that could turn into the next subprime crisis.
In conclusion I think it’s clear that Goldman-Sachs needs to be monitored closely and while I’m not one to demonize large companies as evil as is the tendency of most of my friends on the left, I do see major conflicts of interest here and the possibility or inevitability of major corporations like Goldman-Sachs, Chicago Climate Exchange, Blue Source LLC, and Al Gore’s Generation Investment Management in line to not only create a Carbon Credits Bubble but poised to profit heavily off of it while preparing themselves to also be around to clean up the mess of the deflated “Green Bubble”