Monday, March 30, 2009

Taxpayer trillions for US carbon trading scam at stake. Who's handling YOUR 'carbon portfolio'?

March 27 (Bloomberg) -- "U.S. Representative Edward Markey says his committee should be in charge. No, says fellow Democrat Collin Peterson, this one should fall under my panel.

Markey and Peterson are jockeying for control of the biggest regulatory plum to hit Washington in years: a proposed system for trading carbon-dioxide permits that would be

Depending on which lawmaker prevails, the market would be monitored by the Federal Energy Regulatory Commission, which is overseen by a subcommittee headed by Markey,

  • or

the Commodity Futures Trading Commission (CFTC) under the supervision of the Peterson-led House Agriculture Committee.

The winning agency would set the rules for a market that could reach $1 trillion in trades annually by 2020, according to New Carbon Finance, a London research firm. The victor also would influence the operations of companies from American Electric Power Co., the biggest U.S. producer of electricity from coal,

  • to Goldman Sachs Group Inc., which would compete with other banks
  • to handle companies’ carbon portfolios.

“All the big financial firms would look to provide services to their clients to help them manage their risks in the carbon market,” said Tim Profeta, director of Duke University’s Nicholas Institute for Environmental Policy Solutions in Durham, North Carolina.

The maneuvering is under way even as President Barack Obama’s climate-change goals await congressional action. The proposal, part of his projected $3.6 trillion budget for 2010, would

  • create a cap-and-trade program to limit greenhouse gas emissions.
  • Polluters would buy and sell
  • government-issued emissions permits
  • on a market.

‘Real Opportunity’

  • “Some believe this will create the

largest new derivatives market in the world,” Senator Debbie Stabenow, a Michigan Democrat, said at a hearing last month. “It’s a real opportunity to design a transparent, efficient carbon market.”

An indication of whether FERC or the CFTC has the upper hand could come as early as next week, when a trade group including American Electric Power, Goldman and trading firm Natsource LLC may issue its recommendation.

“Most of the financial players in the market probably have more experience dealing with the CFTC, while a lot of the energy companies have more experience with the FERC,” said Dirk Forrister, who heads

  • He is also a managing director of
  • Natsource, a New York fund manager and carbon-credit buyer.

Michael DuVally, a Goldman Sachs spokesman in New York, declined to say which agency his company will support.

“We haven’t taken any public position” on which agency should be the regulator, said Pat Hemlepp, a spokesman for Columbus, Ohio-based American Electric.

Markey, Wellinghoff

Massachusetts Representative Markey, who heads the House Energy and Environment Subcommittee, says FERC’s experience makes it the obvious choice.

“The Federal Energy Regulatory Commission has the historical expertise in the energy and electricity marketplace, and it is the proper venue for that regulatory responsibility,” Markey told reporters on March 3.

FERC’s chairman, Jon Wellinghoff is less enthusiastic. “I have a little bit of

  • trepidation about a carbon market,” Wellinghoff said in an interview.

“It really goes beyond the traditional boundaries of what FERC has regulated in the past.

  • There’s a number of other federal agencies that may be in a better position to oversee that.”

If Congress does give his agency the role, “I assure you we will do a very good job,” Wellinghoff said.

  • Peterson, of Minnesota,
  • already has pushed through his committee legislation that would give

the CFTC authority over any national carbon trading system.

‘Already Regulating’

  • “The CFTC is already regulating markets where carbon trading is occurring and,

as such, has the most experience with these markets,” Peterson said in an e-mailed statement. “I would prefer an experienced cop over a rookie any day.”

The lawmakers whose committee wins out would gain clout as well as the

  • potential for campaign contributions from participants in the new market,
  • said Bryan Mignone, director of research for the Brookings Institution’s energy security initiative.

There’s money riding on this; that may in fact explain some of the political posturing,” Mignone said.

Campaign Contributions

Employees of oil and gas companies gave $2 million to the House Energy and Commerce Committee,

  • which oversees their industry, in the 2008 elections, according to the Washington- based Center for Responsive Politics.
  • That compares with $1.1 million to the House Agriculture Committee,
  • which has jurisdiction over oil and gas futures markets through the CFTC.

Electric utility employees gave $2.8 million to the Energy and Commerce panel, which oversees FERC, and $958,202 to the Agriculture Committee.

“Campaign contributions are the furthest thing from my mind,” Peterson said. “I’m more interested in getting the right outcome.”

Eben Burnham-Snyder, a Markey spokesman, didn’t respond to a voice-mail message seeking comment.

according to estimates from consulting firm Point Carbon in Oslo. The Brussels-based European Commission regulates the market, and each of the EU governments has a role.

Progress Energy

Proper regulation of a U.S. carbon market is particularly important “given what’s happened in financial markets over the last year,” said William Johnson, chief executive officer of

  • Progress Energy Inc. of Raleigh, North Carolina, which operates utilities in three Southeastern states
  • and would be a buyer and seller in the carbon market.

He didn’t express a preference in the debate over FERC or the CFTC.

The CFTC was formed in 1974 to police commodity futures and options, most related to agricultural products. The agency’s oversight now extends to futures contracts on products from pork bellies and crude oil to interest rates.

  • Gary Gensler, Obama’s nominee to head the CFTC, said during a Senate confirmation hearing on Feb. 25 that he would welcome having the carbon market under the agency’s purview.

Wholesale Power

FERC, set up in 1977, regulates wholesale power sales and the interstate transmission of electricity, natural gas and oil. It deals mostly with the trading of physical products on spot markets rather than futures contracts.

Senator Jeff Bingaman, a New Mexico Democrat and chairman of the Senate Energy and Natural Resources Committee, told reporters this month that his panel “hasn’t settled” on who should regulate a carbon market. Neither has the Obama White House, according to Carol Browner, Obama’s chief of environmental and energy policy.

Browner said in an interview. “I’m a lawyer, but I wouldn’t want to make an argument about which it is.” " via

Tuesday, March 17, 2009

'The Real AIG Outrage' and Goldman Sachs (contrary to media myth)

"President Obama joined yesterday in the clamor of outrage at AIG for paying some $165 million in contractually obligated employee bonuses. Taxpayers have already put up $173 billion, or more than a thousand times the amount of those bonuses, to fund the government's AIG "rescue."
  • This federal takeover, never approved by AIG shareholders, uses the firm as a conduit
  • to bail out other institutions.
After months of government stonewalling, on Sunday night AIG officially acknowledged where most of the taxpayer funds have been going.

Since September 16, AIG has sent $120 billion in cash, collateral and other payouts to banks, municipal governments and other derivative counterparties

This comes after months of claims by Goldman that all of its AIG bets were adequately hedged and that it needed no "bailout."

  • Why take $13 billion then? This needless cover-up is one reason Americans are getting angrier as they wonder if Washington is lying to them about these bailouts.

Given that the government has never defined "systemic risk," we're also starting to

  • wonder exactly which system American taxpayers are paying to protect.

It's not capitalism, in which risk-takers suffer the consequences of bad decisions.

And in some cases it's not even American.

The politicians also prefer to talk about AIG's latest bonus payments because they

The Beltway crowd has been selling the story that AIG failed because it operated in a shadowy unregulated world and cleverly exploited gaps among Washington overseers. ...

  • government approved, enabled and encouraged AIG's disastrous bet on the U.S. housing market.

Scott Polakoff, acting director of the Office of Thrift Supervision, told the Senate Banking Committee this month that, contrary to media myth, AIG's infamous Financial Products unit

  • did not slip through the regulatory cracks. Mr. Polakoff said that the whole of AIG, including this unit, was regulated by his agency and by a

But what about that supposedly rogue AIG operation in London? Wasn't that outside the reach of federal regulators? Mr. Polakoff called it "a false statement" to say that his agency couldn't regulate the London office.

And his agency wasn't the only federal regulator. AIG's Financial Products unit has been

And AIG didn't just make disastrous bets on housing using those

(WSJ continuing): "AIG made the same stupid bets on housing using money in its securities lending program, which was heavily regulated at the state level. State, foreign and various U.S. federal regulators were all looking over AIG's shoulder and approving the bad housing bets. Americans always pay their mortgages, right? Mr. Polakoff said his agency "should have taken an entirely different approach" in regulating the contracts written by AIG's Financial Products unit.

Almost immediately, Fitch took away the company's triple-A credit rating, which allowed it to borrow at cheaper rates.

AIG subsequently announced an earnings restatement. The restatement addressed alleged accounting sins that

  • Mr. Spitzer trumpeted initially but later dropped from his civil complaint.

Other elements of the restatement were later reversed by AIG itself. But the damage had been done. The restatement triggered more credit ratings downgrades. ... But rather than managing risks even more carefully, they went in the opposite direction.

Current AIG CEO Ed Liddy was picked by the government in 2008 and didn't create the mess, and he shouldn't be blamed for honoring the firm's lawful bonus contracts.

  • However, it is on Mr. Liddy's watch that AIG has lately been conducting a campaign to stoke fears of "systemic risk." To mute Congressional objections to taxpayer cash infusions,

AIG's lobbying materials suggest that taxpayers need to continue subsidizing the insurance giant to avoid economic ruin....

But our politicians and regulators should direct some of their anger back on themselves -- for kicking off AIG's demise by ousting Mr. Greenberg, for failing to supervise its bets, and then for

  • blowing a mountain of taxpayer cash on their AIG nationalization.
  • Whether or not these funds ever come back to the Treasury, regulators should now focus on getting AIG back into private hands as soon as possible.

And if Treasury and the Fed want to continue bailing out foreign banks,

  • let them make that case, honestly and directly, to American taxpayers." WSJ editorial, 3/17/09. via