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Island Investing

Riffs, rants, and the upside of investing from way off Wall Street


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…