This Week’s Sign the Lunatics are running the Asylum

Leaving aside the issue of whether cap and trade will accomplish its goals, it’s hard to refute that Wall Street would make a killing on it. At the core of the cap and trade system, you see, are carbon derivatives, and as Bloomberg points out in this article

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.

And who, you are probably wondering, is Blythe Masters? Funny story there. She’s actually one of the JP Morgan bankers who invented credit default swaps. Yes, those credit default swaps…the same ones that played a huge role in the near implosion of the global financial system last year. Now Ms. Masters is heading that firm’s carbon trading program, which, it appears, will be built around even more derivatives. Seriously. You can’t make this stuff up, people.

From that same article, and as also highlighted over on Naked Capitalism:

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 JP Morgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JP Morgan’s investment bank. Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap.

Ah, yes. Of course. We’ve got the bankers all wrong. They want to use their powers for good!

This all sounds vaguely familiar, no?

More smug bankers, more hyperkinetic traders, and more toxic derivatives – only this time, they’re all linked to the fate of the entire planet. Brilliant, mate. We’re only one wobbly asteroid away from the greatest Jerry Bruckheimer movie ever…

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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5 Responses to This Week’s Sign the Lunatics are running the Asylum

  1. Kirk Kinder says:

    I am beginning to think the global warming outcry is nothing more than a power/wealth grab by the powers that be. I understand the theory, and it makes sense. We emit a massive amount of CO2 which gets trapped in the atmosphere and keeps the earth from releasing the suns rays; thus, the environment is warmed.

    But, the guv is itching for a cap and trade bill, which will raise energy costs for all Americans – a tax in plain English. But, the government gets to make us feel good about ourselves cause we are saving the planet. And, they know they can’t just ask for a tax raise.

    Then, the bankers get to bilk manufacturers and business owners by forcing them to buy opaque derivatives that pay the banks a pretty penny but really don’t do anything to save the planet. It really allows Al Gore to have 10 times the carbon footprint as most Americans without guilt because he purchases a few credits.

    • Cale Cale says:

      “Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.” – Mark Twain

  2. David says:

    I think the saddest part is that I actually expected this kind of thing to happen. Why has bad behavior become the norm, and good behavior is nowhere in sight? Perhaps we live in bizarro world…

    • Cale Cale says:

      I think the bad behavior and poor choices have always been there, but the frequency seems to be increasing…and now it’s a lot easier to see. Some of these folks are just tone-deaf, but more of them seem to be completely unaware of how transparent their worlds have become, thanks to the intertubes.

      You hearing me, Tiger?

  3. Mike Gagala says:

    Get out your checkbooks, and once again, be prepared to pay!