Cap-and-Trade: A Step Towards "Environmental Progress" or Simply a Giant "Bubble Machine" That Will Enrich Wall Street?

There are many (but certainly not everyone) in the environmental and utilities communities who think that the cap-and-trade concept is a reasonable approach to reducing greenhouse gas emissions. But a recent story in The Rolling Stone ("The Great American Bubble Machine," July 9-23, 2009) makes the argument that the cap-and-trade concept being discussed in Washington is effectively "a new commodities bubble" that will enrich a handful of traders.

Of particular interest is the discussion of "Bubble No. 6: Global Warming". Matt Taibbi, the newspaper's politics reporter, contends cap-and-trade "will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the [financial] bailout: It allows the bank to seize taxpayer money before it's even collected. [Mr. Taibbi's italics]"

Mr. Taibbi explains:

"The feature of [the cap-and-trade] plan that has special appeal to speculators [such as the investment banks] is that the 'cap' on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time."

And here is some more troubling information about one of the leading corporate cap-and-trade supporters, investment giant Goldman Sachs:

• President Obama received $981,000 in presidential campaign contributions from Goldman employees.
• In the last election, Goldman employees gave nearly $4.5 million to the Democratic Party and its candidates (do you think this had anything to do with the fact that in the run-up to the November 2008 election it looked like the Democrats would continue their control of the House and would likely take control of the Senate? Surely not...).
• Last year, Goldman spent more than $3 million to lobby on issues related to climate.
• The Chicago Climate Exchange, which presumably will be right in the middle of emissions trading, is owned in part by Goldman.
• The Obama Administration is filled with Goldman alumni, not all that bad perhaps from Goldman's standpoint but what about the larger public?

Of course it would be nice to conclude that Goldman and its employees' actions are purely those of interested citizens and a benevolent company. But, after what all of us have seen in the last year, that's about as hard to swallow as a fresh $8 hot dog (to say nothing of a two-day old one) at Mile High Stadium in Denver. I do not care how many $10 beers one tips to wash it down. You still cannot rid yourself of the awful taste, and the knowledge that you actually ate the vile thing. (I know about this...I tried it several years ago.)

In the article, Mr. Taibbi takes Goldman Sachs to task (a better word is "excoriates") for a whole list of bubbles including the Internet and mortgage bubbles before moving on to cap-and-trade.

In response, Lucas van Praag, a spokesman for Goldman, told FelixSalman.com that, "Taibbi's article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance was there to support the theories? We reject the assertion that we are inflators of bubbles and profiteers of busts, and we are painfully conscious of the importance of being a force for good." (And making astronomical amounts of money, too, it might be observed -- check out Goldman's profits for the last quarter).

What to make of this? I suppose that any time a market is created -- which is effectively what cap-and-trade will do -- there are opportunities for the quick and clever to make money. No one I know disagrees that making money is what makes the world go round (this is the lesson the Chinese seem to be preaching to the Americans and Europeans in particular). But why is Goldman so interested in this particular issue? Are they simply doing it for the good of the planet?

As a long suffering fan of the Kansas City Chiefs pro football firm (cannot really call it a "team" anymore since these outfits are businesses, not sports "teams" as they once were), I want to believe that the Chiefs will win the Super Bowl next January. I want to believe that they have assembled a team that all Chiefs' fans can be proud of. But I also know that just as surely as the sun comes up in the east and goes down in the west, the Chiefs are about as likely to make the Super Bowl as I am of being President Obama's second nominee (when a position opens) for the U.S. Supreme Court.

The point is that we can all dream magical thoughts, but reality often pokes its ugly head into the dream. All of this has set me to wondering about exactly how the cap-and-trade is going to be implemented (if it's passed) and who will be among the big beneficiaries. For some reason, I can't get Goldman out of my mind...