The Following Article was published in the Financial Times on the 9th of March 2008.
Yes, read that again 9th March 2008. In the middle of teh global credit crunch, after anumber of large investment banks have gone bust but have been saved by the US Federal Reserve or by HM Treasury, some one is actually peddling the view that the world can be saved by carbon emissions trading.
The free financial markets, populated & crewed by the investment banks, now looks like like the vehicle that will now increase the cost of every mortagage, whether you have a good credit history or bad, and many other costs associated with everyday life for us poor tax payers. Dosen't look so "free" now does it?
Of course this whole financial crisis has been artificially created by those very same investment banks that our governments, in their very very finite wisdom, are now bailing out. This is what they did....
- In their greed, they wanted to make more money.
- But they couldn't as the risks they had taken on were too large.
- The only way to trade more, these highly intellligent and highly paid professionsal reasoned, was to get the risks "off balance sheet". This enabled them to do more business and make more money because the risks did not directly appear in their accounts.
- The banks packaged these risks into "special purpose vehicles" or mathmatically complex products that they sold to other banks and investors.
- Anything really, as long as it didn't appear on their balance sheets.
- But the risks did not go away. What they all did is the equivalent of an individual with a certain salary, taking on a loan. But twhen this money was not enough, he took on other loans from other providers, but didn't let on about any of the loans to the providers. each provider believed the individual has sufficient salary to service the loan they provided. But his salary has to service all the loans and it just won't stretch.
- So he misses a payment on a loan. He has to explain to the provider that well, he actually has another loan. What do you think the reaction would be if he now asked this provider for a further loan.
- Well, the provider would not give him any money because they fear he has other hidden loans and risks. After all he has hidden at least one.
- So, since all the banks have been at this kind of thing, none of the trust each other and so none will lend to each other. Also they need all their money themselves to cover the risks thay have not come clean about yet.
Of course the most sickening thing about all this is that the financial whizz kids who thought all this madness up have kept their huge bonuses - how else can they continue to distort our economies?
Breakthrough seen in emissions trading
By Raphael Minder in Hong Kong
Published: March 9 2008 22:03 | Last updated: March 9 2008 22:03
Carbon emissions trading could become the world’s leading derivatives product as businesses in Asia and the US move to lower their greenhouse gas emissions and competition intensifies between exchanges, according to a senior US market regulator.
Bart Chilton, a commissioner at the US Commodity Futures Trading Commission, said: “I can certainly see carbon becoming the biggest of any derivatives product in the next four to five years. And that would of course mean overtaking T-bills [Treasury] and any contract that is out there right now.”
Mr Chilton’s forecast is the most optimistic assessment to date by a US regulator of the market potential for carbon emissions trading. Although emissions trading in both the US and Asia remains relatively limited, he said both markets could take off “very rapidly”.
Besides the mounting political and social pressure worldwide on industries to limit their emissions, he also highlighted likely competition, as well as co-operation, between exchanges, which could create regional carbon trading markets on a par with that in the European Union. He said: “Some of my [US] colleagues might not quite share these views right now, but I really believe that most people are going to be very surprised by the rapid growth of this market.”
In January, the Hong Kong stock exchange said it was looking to form a partnership with an overseas exchange to create a trading platform for carbon credits or other emissions-related products. The Multi Commodity Exchange of India and the New Zealand Stock Exchange have both announced similar plans.
US emissions trading has been reined in by the Bush administration’s refusal to ratify the Kyoto Protocol on climate change.
But the New York Mercantile Exchange has said that it would start offering carbon contracts, hoping to benefit from its stronger relationship with energy companies to upstage the Chicago Climate Exchange, which has pioneered US carbon trading.
To support his bullish arguments, Mr Chilton drew on statistics corroborated by CFTC economists that highlight the potential for developing carbon trading. US greenhouse gas emissions contracts grew 131 per cent in 2006, compared with a 31 per cent rise in worldwide futures contracts.
The CFTC is the sister agency to the Securities Exchange Commission and Mr Chilton is one of its five commissioners.
Copyright The Financial Times Limited 2008
