Cap and Trade blowback

What is the primary reason that Wall Street wants to finance, maintain huge equity interests and underwrite industrial wind development? Cap and Trade is the hidden motive behind this defective alternative energy technology and wind turbine development.

The environment and the economy will suffer incalculable greater harm.

The Adverse Economic Impacts from Cap & Trade Regulations on CO2 by Arthur Laffer and Wayne Winegarden concludes: "As currently conceived, cap-and-trade regulations are an economically harmful and ineffective policy for addressing global warming concerns. Because the regulations would constrain GHG (Greenhouse Gas) emissions, significant price volatility for emissions allowances, such as the volatility that has been evident in the European Union’s emissions market, are a natural consequence. Citing the price volatility issue, the Congressional Budget Office has concluded that cap-and trade regulations are not a sound policy for addressing global warming issues."

Simply put, Rachel Morris in Mother Jones: Could Cap and Trade Cause Another Market Meltdown?, describes the ruse, clearly and to the point.

"Cap and trade would create what Commodity Futures Trading commissioner Bart Chilton anticipates as a $2 trillion market, "the biggest of any [commodities] derivatives product in the next five years." That derivatives market will be based on two main instruments. First, there are the carbon allowance permits that form the nuts and bolts of any cap-and-trade scheme. Under cap and trade, the government would issue permits that allow companies to emit a certain amount of greenhouse gases. Companies that emit too much can buy allowances from companies that produce less than their limit. Then there are carbon offsets, which allow companies to emit greenhouse gases in excess of a federally mandated cap if they invest in a project that cuts emissions somewhere else—usually in developing countries.

In addition to trading the allowances and offsets themselves, participants in carbon markets can also deal in their derivatives—such as futures contracts to deliver a certain number of allowances at an agreed price and time. These instruments will be traded not only by polluters that need to buy credits to comply with environmental regulations, but also by financial services firms. In fact, a study (PDF) by Duke University's Nicholas Institute for Environmental Policy Solutions anticipates that if the United States passes a cap-and-trade law, the derivatives trade will probably exceed the market for the allowances themselves. "We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market," says Robert Shapiro, a former undersecretary of commerce in the Clinton administration and a cofounder of the US Climate Task Force."

The real world consequence of allowing bribes for a continued offset to pollute is obscene.

The Economist has described the theoretical workings of cap-and-trade by stating, "The basic idea is that power plants and manufacturers will be allowed to emit a certain number of tons of carbon. If they exceed that amount, they must buy 'credits' from companies that pollute less than their allowance. One day the price of a ton of carbon may be as widely quoted as that of a barrel of oil."

Those riches would be paper claims on imaginary credits. REC credits (Renewal Energy Certificates) are central to the financiers of industrial wind projects. Trading, hedging, swaps, options and futures are all part of the payday that Wall Street sees for supporting the wind industry. The hoax is real and defies any minimum standard of accountability.

Oreste Vigorito once owned IVPC with Brian Caffyn. When asked about his ongoing involvement with Vigorito, Caffyn who "helped found controversial wind-energy developers Cape Wind and First Wind expressed surprise late last week at news that his one-time partner in a separate wind-energy company in Italy has been arrested and charged with fraud." The London Financial Times report.

"Gone with the wind", mounted by the finance ministry's anti-fraud police, started in 2007 and began by blocking public subsidies worth €9.4m ($14m, £8.4m) granted by the ministry for economic development. Last year, police confiscated seven wind farms with 185 turbines in Sicily linked to IVPC.

Anti-mafia prosecutors in Sicily have launched a parallel investigation. The Financial Times was told in April that a large number of wind farms had been built with public subsidies but had never functioned."

In September 2009, after First Wind affiliates received $115 million in federal stimulus money, $74.6 million of which for the Cohocton NY project, U.S. Rep. Eric J. Massa (D-N.Y.) wrote to President Barack Obama, calling the grants "very alarming" and saying the company "abused the public trust. "No electricity has been produced for sale out of the projects," but the company "has already collected production rewards for non-existent energy," Massa told Obama.

Back in the First Wind SEC IPO application is the acknowledgement that hedging on REC’s was a common practice. One of the projects inclusive in non-existing electric production hedging was the proposed Prattsburgh, NY development. That venture was never built and the developer ultimately made a formal withdrawal from the town and terminated their land leases.

Will the public get an accurate account if those hedges were legal or complied with government regulations? Do not expect federal authorities to keep First Wind honest. The financial ownership of First Wind resides with Madison Dearborn and DE Shaw hedge funds, 42 % for each firm. Madison Dearborn has friends in high places, Rahm Emanuel being one.

After leaving the Clinton administration, Emanuel engaged in investment banking at Wasserstein Perella. Madison Dearborn did business through Emanuel. Madison Dearborn Partners, a Chicago private equity firm is located is in the same building as Wasserstein’s offices.

The New York Times writes,

"Back in 1998 John Simpson, who ran the Chicago office of the investment banking boutique Wasserstein Perella & Company, had flown to Washington to meet with Mr. Emanuel at the behest of Mr. Simpson's boss, Bruce Wasserstein, a major Democratic donor and renowned Wall Street dealmaker who had gotten to know Mr. Emanuel. "I had this idea that this could work and that it had upside," Mr. Wasserstein, now chairman and chief executive of Lazard, the investment bank, told The Times. "It worked out better than I could have hoped."

"And better than Mr. Emanuel could have imagined as well. Over the course of a three-hour-plus dinner, Mr. Simpson and Mr. Emanuel discussed how they might work together."

Upon leaving the private sector, Emanuel received campaign contributions from Madison Dearborn Partners, in the amount of $98,200 from 2002-2010.

Larry Summers did even better. The Wall Street Journal reports, "Mr. Summers joined D.E. Shaw Group in late 2006 as a managing director. He helped develop strategies including new businesses and also helped evaluate investments for the New York firm, which oversees about $30 billion in assets, making it one of the biggest hedge-fund managers in the world."

The New York Times publishes, "Mr. Summers and Shaw executives say his role there was to be a sounding board for Shaw’s traders. But interviews with friends and former colleagues suggest that Mr. Summers’s role at D. E. Shaw was wider and more complex."

The Business Insider goes further. "According to the NYT, Larry Summers worked just one day a week while making $5.2 million in two years at hedge fund D.E. Shaw."

Brian Caffyn’s high-powered friends in the Obama’s Washington translate into "special treatment" for First Wind. Cap and Trade would be a god sent for an industrial wind developer with a history of failed projects (see Cohocton Wind Watch), equity and hedge fund firms, a corrupt - pay to play - presidential administration and every other Wall Street guru who believes that the privileged deserve every ill-gotten penny they can steal.

The Street drives this next generation and refined Enron wind swindle industry, into a financial abyss every bit as deep as the lack of meaningful electric generation, from their inefficient wind turbines. The government pours subsidies, grants, guaranteed loans and tax credit monies down a black hole, in a futile attempt to spend our county into energy independence.

Did you ever wonder why the state refuses to foster a true independent energy economy for the nation, while conducting privileged cronyism for friends of the financial ruling class? Well, look no further than the rewards given to crooked industrial wind developers for building useless projects that do not generate useable electricity, but sell phony REC credits for energy that is never produced. Criminal indictments are long overdue. The next financial bubble assures to have the stench and foul odor of the Cap and Trade system. Allowing State/Capitalism to pervert the financial markets cost us much more than just higher electric bills.

SARTRE – April 25, 2010