Day: March 9, 2009

Obama’s Cap And Trade

As a candidate, Barack Obama said he’d tackle climate change by imposing caps on emissions of greenhouse gases. Now, as President, he’s doing exactly that. He proposes reducing U.S. emissions 14% below 2005 levels by 2020 and 83% below by 2050. And he’d raise $646 billion from 2012 to 2019 by auctioning the rights to emit such gases—in effect putting a price on carbon emissions. With Congress also serious about the climate, business knows the battle has been joined for real and is trying to shape a compromise bill likely to emerge this year. “We are now playing with live bullets,” says the Environmental Defense Fund’s Mark Brownstein, who works with a group of companies that supports the plan.

In theory, a workable cap-and-trade market for carbon emissions would give business executives more certainty about future energy costs, helping them make better investment decisions. A market price on carbon would boost energy efficiency and renewable energy efforts, already beneficiaries in Obama’s stimulus package. Nuclear power plants, such as Exelon’s, would become more valuable. “I have great hope for the ‘green’ stimulus, but it won’t fulfill its potential unless there is a price on carbon,” says James E. Rogers, chief executive of Duke Energy.  Also, there’s little chance of getting China and India to agree to binding limits, which American companies insist is needed to keep the international playing field level, unless the U.S. takes action at home.

The real fight, therefore, is not whether to impose carbon limits but how to do so and at what cost to business. Obama proposes that companies buy an allowance, or permit, for each ton of carbon emitted, at an estimated cost, to start, of $13 to $20 per ton. (Those permits could also be bought and sold.) Even at the lower range of $13 per ton, energy companies and utilities would likely pass along the added cost to consumers. It’s estimated the price of gasoline would go up by 12 cents a gallon and the average electricity bill by about 7% nationally—and far higher in states more dependent on coal. Unfair, say many executives. “It is a clear transfer of the middle part of the country’s wealth to the two coasts,” says Michael G. Morris, CEO of American Electric Power, a coal-heavy power generator based in Columbus, Ohio, that supplies electricity in 11 states.

The Obama team points out that its cap-and-trade plan returns much of the money raised by permit sales to consumers nationwide in the form of lower taxes, so many people come out ahead. And the Environmental Defense Fund has created a map of 1,200 alternative energy or energy-efficiency companies in key manufacturing states that stand to benefit from the climate plan. While the Midwest will bear a higher cost from reducing carbon emissions, the region will also benefit from the most new jobs, the EDF argues

Does History Repeat Itself?

You betcha ass it does and the banking industry is no different than anything else.  If we do not learn from history we will keep making the same mistakes…and guess what Irene?  We did it again!  Made the same mistake that is!

I realize that there may not be too many people who recall the savings and loan thing from the 80’s and 90’s.  But today’s economic has some similarities to the S&L crisis.

Just a few of the similarities:

Elimination of regulations initially designed to prevent lending excesses and minimize failures. Regulatory relaxation permitted lending, directly and through participations, in distant loan markets on the promise of high returns. Lenders, however, were not familiar with these distant markets. It also permitted associations to participate extensively in speculative construction activities with builders and developers who had little or no financial stake in the projects.

Fraud and insider transaction abuses

Dereliction of duty on the part of the board of directors of some savings associations. This permitted management to make uncontrolled use of some new operating authority, while directors failed to control expenses and prohibit obvious conflict of interest situations.

A virtual end of inflation in the American economy, together with overbuilding in multifamily, condominium type residences and in commercial real estate in many cities. In addition, real estate values collapsed.

Anxious to improve earnings, they departed from their traditional lending practices into credits and markets involving higher risks.

Federal and state examination and supervisory staffs insufficient in number, experience, or ability to deal with the new world of savings and loan operations.

The inability or unwillingness of the Bank Board and its legal and supervisory staff to deal with problem institutions in a timely manner. Many institutions, which ultimately closed with big losses, were known problem cases for a year or more. Often, it appeared, political considerations delayed necessary supervisory action.

If you are paying attention to the drama of the economy then all this sounds a bit familiar…..yes…history will come back to bite you in the butt.

Remember The Word…Transparency?

Apparently it does not apply in all cases.  Obama has promised but it does not look like he can deliver.

The Federal Reserve Board of Governors receives daily reports on loans to banks and securities firms, the institution said in response to a Freedom of Information Act lawsuit filed by Bloomberg News.

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

The bank provides “select members and staff of the Board of Governors with daily and weekly reports” on Primary Dealer Credit Facility borrowing, said Susan E. McLaughlin, a senior vice president in the markets group of the Federal Reserve Bank of New York in a deposition for the Fed. The documents “include the names of the primary dealers that have borrowed from the PDCF, individual loan amounts, composition of securities pledged and rates for specific loans.”

The Board of Governors contends that it’s separate from its member banks, including the Federal Reserve Bank of New York which runs the lending programs. Most documents relevant to the Bloomberg suit are at the Federal Reserve Bank of New York, which the Fed contends isn’t subject to FOIA law. The Board of Governors has 231 pages of documents, which it is denying access to under an exemption under trade secrets.

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.