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Goldman Sachs, cap & trade and Henry Paulson

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This is a screenshot of Goldman Sachs’ homepage taken today:

Goldman Sachs homepage on 8th Aug

Isn’t it odd that Goldman Sachs, an investment bank on Wall Street would care about climate change? Indeed why should they even care about it? The answer would be more apparent if one considers Goldman Sachs’ involvement in cap and trade.

As noted before, Goldman Sachs made its fortune by first selling mortgage backed securities and then shorting them when the market turned sour.  There’s reason to believe it might attempt to engage in risky trade on derivatives linked to carbon credits:

My own private analysis of HR 2454 can be summarized up with:

  • Inefficient energy sources will instead be propped up and buffered from free market competition by the government.

  • The taxed companies will pass down the taxes to We the People, and energy costs will rise for us, the consumers.

  • The State will subsidize and hence sponsor, mandated education that “global warming” is in fact, stifling debate.

  • Wall Street will have a great time doing all the carbon credits trading using derivatives with “underlying assets” that are literally in many cases, just hot air.

I have to admit up front that I do not have an explicit stated position on cap and trade, so that means I won’t be endorsing or arguing against the author’s views. Elsewhere on the Web, I chanced upon the following blog entry which details the substantial conflicts of interest Goldman has with cap and trade:

Sens. Dianne Feinstein (D-CA) and Olympia Snow (RINO-ME) have introduced a bill to make the Commodity Futures Trading Commission the sole regulator of the carbon market created by cap-and-trade legislation.

So does this mean that freebooting Goldman Sachs could be the de facto regulator of the carbon market?

Consider that:

  • The current chairman of the CFTC is Gary Gensler, formerly of Goldman Sachs.
  • Goldman Sachs is a part owner of the exchanges where carbon allowances would be traded.
  • Goldman Sachs has spent millions of dollars lobbying for cap-and-trade legislation in anticipation of making billions of dollars at the expense taxpayers and consumers.
  • Goldman has a special exemption from the CFTC to exceed the trading limits normally placed on commodity speculators. Not only was this exemption secret for 17 years, the CFTC recently had to ask Goldman for permission to release the letter to Congress!
  • Goldman Sachs employees are heavy contributors to the Democratic Party giving it over $4.4. million in the last election. Barack Obama received more than $997,000, Feinstein received $24,250, and Snowe received $17,000 from Goldman. All-in-all, this could result in a pretty decent return-on-investment for Goldman.

As the global warming bubble inflates and then bursts, will Goldman Sachs self-regulate all the way to the bank… making record profits at the expense and misery of taxpayers and consumers?

See also this entry on Goldman.

Apart from the above, today’s NYT has an interesting story of Paulson’s involvement with Goldman Sachs during the height of the financial crisis last year. Paulson was in frequent contact with Goldman’s CEO Blankfein throughout the crisis, much more so than with the other CEOs of failing investment banks such as Lehman Brothers and Merrill Lynch:

During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.

Indeed, Mr. Paulson helped decide the fates of a variety of financial companies, including two longtime Goldman rivals, Bear Stearns and Lehman Brothers, before his ethics waivers were granted. Ad hoc actions taken by Mr. Paulson and officials at the Federal Reserve, like letting Lehman fail and compensating A.I.G.’s trading partners, continue to confound some market participants and members of Congress.

According to the schedules, Mr. Paulson’s contacts with Mr. Blankfein began even before the height of the crisis last fall. During August 2007, for example, when the market for asset-backed commercial paper was seizing up, Mr. Paulson spoke with Mr. Blankfein 13 times. Mr. Paulson placed 12 of those calls.

By contrast, Mr. Paulson spoke six times that August with Richard S. Fuld Jr. of Lehman, four times with Jamie Dimon of JPMorgan Chase and only twice with John Thain of Merrill Lynch.

The article does note that Paulson had no vested financial interests in Goldman:

Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.

Of course the fact that Henry Paulson was in constant contact with Goldman’s CEO proves nothing. But one has to wonder why he didn’t correspond more with banks like Merrill Lynch and Lehman Brothers, both of which were either bankrupted or bought over by others.

Matt Taibbi questions why Goldman Sachs was invited to the AIG bailout deliberations without having an official role there.

Written by defennder

August 9, 2009 at 3:01 PM

Posted in Economics and business, US

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