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Archive for the ‘Climate’ Category

The $10 Trillion Climate Fraud

Al Gore is co-founder of an investment management firm that is now the fifth-largest shareholder in the Chicago Climate Exchange.

Cap-And-Trade: While senators froth over Goldman Sachs and derivatives, a climate trading scheme being run out of the Chicago Climate Exchange would make Bernie Madoff blush. Its trail leads to the White House.

Lost in the recent headlines was Al Gore’s appearance Monday in Denver at the annual meeting of the Council of Foundations, an association of the nation’s philanthropic leaders.

“Time’s running out (on climate change),” Gore told them. “We have to get our act together. You have a unique role in getting our act together.”

Gore was right that foundations will play a key role in keeping the climate scam alive as evidence of outright climate fraud grows, just as they were critical in the beginning when the Joyce Foundation in 2000 and 2001 provided the seed money to start the Chicago Climate Exchange. It started trading in 2003, and what it trades is, essentially, air. More specifically perhaps, hot air.

The Chicago Climate Exchange (CCX) advertises itself as “North America’s only cap-and-trade system for all six greenhouse gases, with global affiliates and projects worldwide.” Barack Obama served on the board of the Joyce Foundation from 1994 to 2002 when the CCX startup grants were issued. As president, pushing cap-and-trade is one of his highest priorities. Now isn’t that special?

Few Americans have heard of either entity. The Joyce Foundation was originally the financial nest egg of a widow whose family had made millions in the now out-of-favor lumber industry.

After her death, the foundation was run by philanthropists who increasingly dedicated their giving to liberal causes, including gun control, environmentalism and school changes.

Currently, CCX members agree to a voluntary but legally binding agreement to regulate greenhouse gases.

The CCX provides the mechanism in trading the very pollution permits and carbon offsets the administration’s cap-and-trade proposals would impose by government mandate.

Thanks to Fox News’ Glenn Beck, we have learned a lot about CCX, not the least of which is that its founder, Richard Sandor, says he knew Obama well back in the day when the Joyce Foundation awarded money to the Kellogg Graduate School of Management at Northwestern University, where Sandor was a research professor.

Sandor estimates that climate trading could be “a $10 trillion dollar market.” It could very well be, if cap-and-trade measures like Waxman-Markey and Kerry-Boxer are signed into law, making energy prices skyrocket, and as companies buy and sell permits to emit those six “greenhouse” gases.

So lucrative does this market appear, it attracted the attention of London-based Generation Investment Management, which purchased a stake in CCX and is now the fifth-largest shareholder.

As we noted last year, Gore is co-founder of Generation Investment Management, which sells carbon offsets of dubious value that let rich polluters continue to pollute with a clear conscience.

Other founders include former Goldman Sachs partner David Blood, as well as Mark Ferguson and Peter Harris, also of Goldman Sachs. In 2006, CCX received a big boost when another investor bought a 10% stake on the prospect of making a great deal of money for itself. That investor was Goldman Sachs, now under the gun for selling financial instruments it knew were doomed to fail.

The actual mechanism for trading on the exchange was purchased and patented by none other than Franklin Raines, who was CEO of Fannie Mae at the time.

Raines profited handsomely to the tune of some $90 million by buying and bundling bad mortgages that led to the collapse of the American economy. His interest in climate trading is curious until one realizes cap-and-trade would make housing costlier as well.

Amazingly, none of these facts came up at Senate hearings on Goldman Sachs’ activities, which may be nothing more than Ross Perot’s famous “gorilla dust,” meant to distract us from the real issues.

The climate trading scheme being stitched together here will do more damage than Goldman Sachs, AIG and Fannie Mae combined. But it will bring power and money to its architects.

Paul Krugman argues that cap and trade worked to reduce sulfur dioxide and stop acid rain, and so it will work to reduce C02.

However, two EPA lawyers with more than 40 years of cumulative
experience – including the guy who has been head of California’s cap
and trade offset programs for more than 20 years – say that sulfur
dioxide was different, and that cap and trade for climate is a scam which only
benefits the financial players.

Specifically, they point out that:

• Cap and trade was tried in Europe, but ended up raising energy
  prices, creating volatility, produced few greenhouse gas reductions,
  but made billions for the financial players

• Even the guy who invented the cap and trade concept doesn’t think it will work in regards to climate change (see this and this)

• Carbon offsets – which are part of the cap and trade plan – increase pollution

• One reason that offsets lead to more pollution is that investors
  fight to keep toxic chemicals legal, so they can make more money off of
  trading the offsets

• Like subprime mortgages and other creative financial instruments
  which brought us the economic crisis, carbon offsets lack integrity and
  don’t work (see this)

Watch the video:

I have written hundreds of articles documenting that unregulated, speculative derivatives (especially credit default swaps) are a primary cause of the economic crisis.

And I have pointed out that (1) the giant banks will make a killing on carbon trading, (2) while the leading scientist
crusading against global warming says it won’t work, and (3) there is a
very high probability of massive fraud and insider trading in the
carbon trading markets.

Now, Bloomberg notes that the carbon trading scheme will be centered around derivatives:

The
banks are preparing to do with carbon what they’ve done before: design
and market derivatives contracts that will help client companies hedge
their price risk over the long term. They’re also ready to sell
carbon-related financial products to outside investors.

 

[Blythe]
Masters says banks must be allowed to lead the way if a mandatory
carbon-trading system is going to help save the planet at the lowest
possible cost. And derivatives related to carbon must be part of the
mix, she says. Derivatives are securities whose value is derived from
the value of an underlying commodity — in this case, CO2 and other
greenhouse gases…

 

 

Who is Blythe Masters?

She is the JP Morgan employee who invented credit
default swaps, and is now heading JPM’s carbon trading efforts. As
Bloomberg notes (this and all remaining quotes are from the
above-linked Bloomberg article):

Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities…

 

As
a young London banker in the early 1990s, Masters was part of
JPMorgan’s team developing ideas for transferring risk to third
parties. She went on to manage credit risk for JPMorgan’s investment
bank.

Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap.

Some in congress are fighting against carbon derivatives:

“People
are going to be cutting up carbon futures, and we’ll be in trouble,”
says Maria Cantwell, a Democratic senator from Washington state. “You
can’t stay ahead of the next tool they’re going to create.”

 

Cantwell,
51, proposed in November that U.S. state governments be given the right
to ban unregulated financial products. “The derivatives market has done
so much damage to our economy and is nothing more than a
very-high-stakes casino — except that casinos have to abide by
regulations,” she wrote in a press release…

However, Congress may cave in to industry pressure to let carbon derivatives trade over-the-counter:

The
House cap-and-trade bill bans OTC derivatives, requiring that all
carbon trading be done on exchanges…The bankers say such a ban would
be a mistake…The banks and companies may get their way on carbon
derivatives in separate legislation now being worked out in Congress…

Financial experts are also opposed to cap and trade:

Even
George Soros, the billionaire hedge fund operator, says money managers
would find ways to manipulate cap-and-trade markets. “The system can be
gamed,” Soros, 79, remarked at a London School of Economics seminar in
July. “That’s why financial types like me like it — because there are
financial opportunities”…

 

Hedge fund manager Michael Masters,
founder of Masters Capital Management LLC, based in St. Croix, U.S.
Virgin Islands [and unrelated to Blythe Masters] says speculators will
end up controlling U.S. carbon prices, and their participation could
trigger the same type of boom-and-bust cycles that have buffeted other
commodities…

 

The hedge fund manager says that banks will
attempt to inflate the carbon market by recruiting investors from hedge
funds and pension funds.

 

“Wall Street is going to
sell it as an investment product to people that have nothing to do with
carbon,” he says. “Then suddenly investment managers are dominating the
asset class, and nothing is related to actual supply and demand. We
have seen this movie before.”

Indeed, as I have previously pointed out, many environmentalists are opposed to cap and trade as well. For example:

Michelle Chan, a senior policy analyst in San Francisco for Friends of the Earth, isn’t convinced.

 

“Should
we really create a new $2 trillion market when we haven’t yet finished
the job of revamping and testing new financial regulation?” she asks.
Chan says that, given their recent history, the banks’ ability to turn
climate change into a new commodities market should be curbed…

 

“What
we have just been woken up to in the credit crisis — to a jarring and
shocking degree — is what happens in the real world,” she says…

 

Friends
of the Earth’s Chan is working hard to prevent the banks from adding
carbon to their repertoire. She titled a March FOE report “Subprime
Carbon?” In testimony on Capitol Hill, she warned, “Wall Street won’t
just be brokering in plain carbon derivatives — they’ll get creative.”

Yes,
they’ll get creative, and we have seen this movie before …an
inadequately-regulated carbon derivatives boom will destabilize the
economy and lead to another crash.