Saturday, September 27, 2008
On Friday, Christopher Cox, chair of the Securities and Exchange Commission (SEC) abruptly shut down a voluntary supervision program for Wall Street’s largest investment banks, acknowledging that the program had contributed to the global financial crisis:
“The last six months have made it abundantly clear that voluntary regulation does not work...[the program] was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the [program's] perceived mandate and weakened its effectiveness.”
SEC chair Cox, Federal Reserve Bank chair Bernanke, and Treasury secretary Paulson
have all admitted to general regulatory failures over the past year, but Cox now has specifically blamed this voluntary compliance program for the financial crisis. Cox's termination of the voluntary supervision program will have no practical significance because the five largest Wall Street investment banks subject to the program have failed. Bear Sterns was forced into a merger with JPMorgan Chase in March 2008. During the last month, in rapid succession, the remaining four investment firms (Lehmann Bros., Merrill Lynch, Morgan Stanley, and Goldman Sachs) have gone into bankruptcy, been acquired by regulated banks, or transformed into bank holding companies that are regulated by the Federal Reserve Bank.
In 1999, Congress adopted the Gramm-Leach-Bliley Act, eliminating Depression-era restrictions on the relationhships between investment banks and commercial banks. In a compromise, the law gave the SEC authority to regulate the securities and brokerage operations of investment banks, but not their holding companies. In 2002, the European Union was prepared to impose its own rules on the foreign subsidiaries of US investment banks, unless the US investment firms were subject to the same kind of oversight as their European counterparts. So in 2004, after intense lobbying by all five large investment banks, including Goldman Sachs headed then by now Treasury Secretary Paulson, the commission adopted a voluntary program. In exchange for relaxing capital requirements, the investment firms submitted to SEC supervision of their holding companies even though technically the agency only held regulatory authority over the firms’ brokerage components.
HT: Huffington Post
There is a larger lesson in this saga for voluntary compliance programs of all stripes, including environmental voluntary compliance programs. So long as maximizing short-term profits and larger salaries, bonuses and stock options remain the goals of US corporations and their executives, they cannot be trusted to regulate themselves.
Friday, September 26, 2008
Try the link to visualizing economics (Link to Visualizing Economics) to see lots of cool charts, including their chart on Average US Income from 1900-2006 (Visualizing Economics Average Income Chart ), which shows average US income over the last century along with depicting recessions and the events associated with them. This is another example of the relationship between energy and recessions during the last 50 years.
Thursday, September 25, 2008
From the RGGI press release:
(New York, NY)—At a bell-ringing ceremony held today at the New York Mercantile Exchange in lower Manhattan, the Regional Greenhouse Gas Initiative (RGGI) marked the opening of the first-in-the-nation auction for carbon dioxide emission allowances. The ceremony, which was attended by Governor David A. Paterson of New York and Governor Jon S. Corzine of New Jersey, Ian A. Bowles, Secretary for Massachusetts Executive Office of Energy and Environmental Affairs, Laurie Burt, Commissioner, Massachusetts Department of Environmental Protection, Robert Calendar, Vice President of the New York State Energy Research and Development Authority, Phil Guidice, Commissioner of Massachusetts Division of Energy Resources, Lisa Jackson, Commissioner, New Jersey Department of Environmental Protection, and Shari Wilson, Secretary, Maryland Department of Environmental Protection, served to mark the most serious effort yet in the United States to address climate change.
RGGI will reduce carbon dioxide (CO2) emissions through a mandatory, market-based cap-and-trade program. Under RGGI, the ten participating states will stabilize power sector carbon emissions at their capped level, and then reduce the cap by 10 percent at a rate of 2.5 percent each year between 2015 and 2018. As promised in the 2005 RGGI Memorandum of Understanding, all participating states plan to have implementing regulations in place by January 1, 2009.
“Today marks the culmination of more than five years of research, design and development of the nation’s first carbon market,” said Jonathan Schrag, Executive Director of the Regional Greenhouse Gas Initiative, Inc. “It is fitting that our event took place on the shores of the river that Henry Hudson explored nearly 400 years ago. As with Hudson’s exploration then, these pioneering states are leading the way forward on the new, clean-energy economy that others will surely follow.”
CO2 allowances under RGGI will be distributed primarily via auctions rather than the free allocation methodology used in other emissions markets. By using an auction, participating states are able to provide benefits to consumers.
Revenues from the carbon allowance auctions will be invested by the participating states in energy efficiency programs, renewable energy stimulus efforts and other programs to benefit consumers. As a result, RGGI will deliver economic and environmental benefits and improve energy security through reduced use of fossil fuels.
The RGGI auction held today offered 12,565,387 allowances, including CO2 allowances issued by Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont. The CO2 allowances purchased at this auction can be used by a regulated facility for compliance in any of the RGGI states, even if that state did not offer allowances in this auction.
Other RGGI participating states will offer allowances for sale in future auctions as they complete their necessary rulemaking proceedings. A second auction is scheduled for December 2008, with all RGGI participating states expected to offer allowances for sale in the first 2009 auction. Future sales of CO2 allowances are planned through a steady offering of allowances in quarterly auctions. States have committed to offer for sale before the end of 2011 all of the allowances they are putting into the auctions for the first three-year compliance period. Regulated power companies must hold enough allowances to match their CO2 emissions for the first compliance period by March 1, 2012.
Auctions are proven market tools, and the RGGI auction design is based on a rigorous design study and stakeholder input. RGGI’s open auctions will establish a transparent cost for allowances and incorporate an accounting of CO2 emissions into the electricity markets in the region. Since electric generators factor the cost of allowances into power prices whether the allowances are distributed free or for a charge, the ratepayer benefits when allowances are auctioned and the revenue invested on their behalf to reduce energy demand. By distributing allowances through auction, RGGI improves upon the established European Union carbon market, which faced problems with the free allocation of carbon allowances.
RGGI has spurred action elsewhere. Seven western U.S. states and several Canadian provinces have embarked on the Western Climate Initiative, a cap-and-trade system to be implemented by 2012. Florida is also studying a cap-and-trade system, as are several Midwest states. The European Union has recently indicated it wants member nations to shift the European carbon cap-and-trade program to an auction-based format.
“Today’s auction is a testament to the hard work of the states,” continued Schrag. “They made a commitment in 2005 to have a program up and running by 2009 and with this first auction and the additional pre-compliance auction in December they have greatly exceeded expectations.”
The RGGI states have retained a professional independent market monitor, Potomac Economics, to oversee auctions and subsequent market activity. The monitor will observe the conduct of the auction qualification process as well as the auction itself, and will report on whether the auction was conducted in accordance with the participating states’ regulations and the noticed auction procedures and whether the auction results represented a competitive outcome.
The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort by participating states to reduce emissions of carbon dioxide (CO2), a greenhouse gas that causes global warming.
RGGI, Inc. is a non-profit corporation created to provide technical and administrative services to the CO2 Budget Trading Programs of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. For more information about RGGI and the individual CO2 Budget Trading Programs, please visit www.rggi.org .
Monday, September 22, 2008
Crude futures leaped as much as $25 per barrel, or 24.3%, shortly before the New York close Monday, to tap a high of $130 per barrel. They're poised to score their biggest daily gain since 1984 -- when crude began trading on the New York Mercantile Exchange.MarketWatch link
OK -- let's breathe a bit. An unprecedented bailout of the US financial sector is being considered -- I hope with regulatory conditions that will create longer-term stability and provide some relief to homeowners, victims of the credit card industry, and taxpayers. $ 150 billion of extra money has been pumped in through central banks. Piecemeal bailouts have cost taxpayers nearly $ 500 billion already. Stocks are down. Oil is way up. Maybe the speculators who can't sell the financial sector short are pouring money into oil. At any rate, the insanity continues.
Crude rallied today above $116/barrel, the highest price in three weeks, based on the prospect that the Bush bailout will prompt economic growth. I'm not sure about growth, but $ 1 trillion + is bound to create a bit of inflation.MarketWatch link
During the 2008 hurricane season, 10 tropical storms and hurricanes have ravaged Haiti, Cuba and the US Gulf coast. Six Atlantic tropical storms and hurricanes hit the US from late July to mid-September, causing billions of dollars in damage. Four devastated Haiti, killing hundreds of people and wiping out any progress during the last few years in building infrastructure, planting trees, and other economic development efforts. Cuba was hit hard by Gustav and Ike. Oil and gas production in the Gulf took a severe hit also.
For obvious reasons, many hurricane researchers blame the increased strenth of tropical storms and hurricanes on global warming. This might be just another story of the impacts of global warming....another of the 100+ stories I covered over the last three years. But this one is personal. My congregation has been investing in improving health conditions in Haiti and we expected to fund several water projects in Haiti during the next year. But....what is left of our previous efforts...and what will happen to our future efforts to help alleviate the extreme poverty and suffering of the Haitian people? Nothing is the answer, so long as the world is allowing global warming to increase.
And the end is not yet in sight. Though the statistical peak of the season has past, severe hurricane conditions are expected to continue through at least October 15th. The extreme weather is no surprise: hurricane forecasters had predicted up to 18 cyclones. Even now, warm sea temperatures, low wind shear, a neutral El Nino, and other factors that contribute to the formation of hurricanes are still in place. In particular, water in the Caribbean and Atlantic is 0.9 to 2.7 degrees Fahrenheit warmer than usual and warm water is the basic feedstock of hurricanes.
Although the 2008 season has been tamer thus far than the record-breaking 2005 season, which brought 28 storms forcing forecasters to use the Greek alphabet to name them, 2008 has set a record of its own: six storms in a row hit the United States. This is the largest number of times the US has been hit by tropical cyclones since 1851.