Saturday, October 31, 2009

How Google killed GPS providers

A demonstration of Google Maps Navigation (Beta), an internet-connected GPS navigation system that provides turn-by-turn voice guidance as a free feature of Google Maps on Android 2.0 phones.

Thursday, October 22, 2009

Paul Krugman: The Chinese Disconnect

Senior monetary officials usually talk in code. So when Ben Bernanke ... spoke recently about Asia, international imbalances and the financial crisis, he didn’t specifically criticize China’s outrageous currency policy.
But he didn’t have to: everyone got the subtext. China’s bad behavior is posing a growing threat to the rest of the world economy. The only question now is what the world — and, in particular, the United States — will do about it.
Some background: The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market — a policy made possible by restrictions on the ability of private investors to move their money either into or out of the country.
There’s nothing necessarily wrong with such a policy, especially in a still poor country whose financial system might all too easily be destabilized by volatile flows of hot money. ... The crucial question, however, is whether the target value of the yuan is reasonable. ...
Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now.
Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere.
But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead.
And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere. The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth.
So what are we going to do?
U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?
The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.
In fact, some countries, most notably Switzerland, have been trying to support their economies by selling their own currencies on the foreign exchange market. The United States, mainly for diplomatic reasons, can’t do this; but if the Chinese decide to do it on our behalf, we should send them a thank-you note.
The point is that with the world economy still in a precarious state, beggar-thy-neighbor policies by major players can’t be tolerated. Something must be done about China’s currency.

(from NY Times, October 22, 2009)

Saturday, October 17, 2009

If only all democrats were like Alan Grayson

Economics and politics go hand in hand. On October 16 night, Alan Grayson was Bill Maher's guest. I was amazed at how Alan's sense of humor eclipsed Bill's for a few minutes. When Bill asked Alan about his unusual for politician directness, Alan said that he's been in Washington only for 9 months and he's new at that. I thought, I'll follow Alan in the press. Here' are pieces from (Oct 2-16, the most recent first):

Democrat Alan Grayson turns on his own party

Rep. Alan Grayson spent the past few weeks attacking Republicans over health care and now he's going after Senate Majority Leader Harry Reid. Grayson, through his re-election campaign, has started an online petition "demanding he pass real health care reform now!"

The petition accuses Reid, D-Nevada, of trying to placate Republican Sen. Olympia Snow, the lone Republican to vote for the Finance Committee bill. "Olympia Snowe was not elected President last year. Olympia Snowe has no veto power in the Senate. Olympia Snowe represents a state with one half of one percent of America's population."

On Wednesday, Grayson delivered about 90,000 petitions to Reid's office, a bold move but one that delighted advocates of a public option and liberal bloggers. Best headline was on Daily Kos: Alan Grayson Sticks a Pitchfork In Harry Reid's A--.

Alan Grayson, newest Dem rock star

About 3,000 Democratic activists are at Disney World for the Florida Democrats' annual convention. Quick observations: Bill Nelson can't go anwhere without heckler shouting "Public Option!" or "Health Care Now!"

And maybe even more than Alex Sink, U.S. Rep. Alan Grayson is the party's newest superstar. He was greeted this morning with roars and declared there is a simple difference between Democrats and Republicans: "We have a conscience. Every one in this room with a conscience, get on your feet!" And they did. (more on Grayson here)

Grayson: Who cares about Olympia Snowe?

Rep. Alan Grayson just wrapped up a floor speech where he said Democrats are too worried about trying to gain support of moderate counterparts like Sen. Olympia Snowe of Maine.

Snow0620 "I want to remind us all Olympia Snowe was not elected president last year," the Orlando Democrat said. "Olympia Snowe has no veto power in the Senate. Olympia Snowe represents a state with one half of one percent of America's population. What America wants is health care reform. America doesn't care if it gets 51 votes in the Senate or 60 votes in the Senate or 83 votes."

Grayson has already said he will not apologize for bashing Republicans last week but for good measure, and looking directly into the C-SPAN camera, he said it again. "I will not apologize for a simple reason: America doesn't care about your feelings. ... But America does care about health care. If you're against it, then get out of the way. Just get out of the way. ...

"America understands that there's one party in the country that's in favor of health care reform and one party that's against it. And they know why. They understand that if Barack Obama were somehow able to cure hunger in the world, the Republicans would blame him for overpopulation. They understand that if Barack Obama could somehow bring about world peace, they would blame him for destroying the defense industry. In fact, they understand that if Barack Obama has a BLT sandwich tomorrow for lunch, they will try to ban bacon."

Grayson 'regrets' using Holocaust image in health care speech

Graysonletter U.S. Rep. Alan Grayson, the man of the hour, says he regrets comparing deaths of uninsured Americans to a holocaust. In a letter today to the Florida Anti-Defamation League, he writes:

"I am Jewish and have relatives who died in the Holocaust. In no way did I mean to minimize the Holocaust. I regret the choice of words, and I will not repeat it. I am a staunch supporter of Israel and on numerous occasions, I have said that Iran must be restrained to avoid another Holocaust. I personally support the Anti-Defamation League and its work."

Tuesday, October 13, 2009

Meredith Whitney Goldman downgrade

This is how analyst Meredith Whitney treats the media — the industry that helped turn her into the renowned bankslayer she is today:

Meredith Whitney GS downgrade

While clients get the full Goldman note, journalists are left to psychically read Whitney’s thoughts. Huff.

Other media outlets, we should note, are just as clueless as we are. Here’s Bloomberg for instance:

Oct. 13 (Bloomberg) — Goldman Sachs Group Inc., the biggest U.S. securities firm before converting to a bank last year, was cut to “neutral” by Meredith Whitney, as the analyst dropped her only “buy” recommendation.

Whitney, who correctly predicted in 2007 that Citigroup Inc. would cut its dividend, didn’t update her price estimate on the shares in a summary note distributed to investors today. Further details on the downgrade weren’t immediately available.

While we have no idea about Whitney’s reasoning, we can note that her last action on Goldman was an upgrade (also expurgated for the media) from `neutral’ to `buy’ right before the bank released its record second-quarter results. That upgrade, incidentally, sent GS shares — and the whole of the US equity market — rallying.

Goldman Sachs is scheduled to report third-quarter earnings on Thursday.

(from, October 13, 2009)

Showdown At The VC Corral

A recent amendment to pending legislation that would regulate private firms has the buyout and venture arms of the private equity industry at odds with each other.

That was clear at a hearing by the House Committee on Financial Services Tuesday, as representatives of the buyout, venture, and hedge fund industries passed judgment on a recently issued revised version of the legislation, released by Congressman Paul Kanjorski (D-Pa.).

The bill originally would have regulated all sorts of private funds by requiring them to register with the Securities and Exchange Commission, but the revision exempts venture firms. Doug Lowenstein, president of the Private Equity Council and James Chanos, chairman of the Coalition of Private Investment Companies, both said the exemption could be a mistake as written. The Private Equity Council, which represents only the largest buyout firms, has previously supported the registration requirement.

“I think it will prove very difficult to define a venture capital approach,” said Lowenstein, who instead proposed that Congress simply raise the threshold of assets under management required for SEC registration from the $30 million minimum currently set by the bill.

Lowenstein added that small private equity firms would suffer just as much under the proposed legislation as venture firms would. “That’s why the touchstone…[shouldn’t be] what you say you are. It’s the size of what you do and whether you create systemic risk,” he said.

Chanos, who is also founder of New York-based hedge fund Kynikos Associates, also questioned the merits of exempting a specific class of firms solely on the basis of a “self proclaimed investment thesis.”

“It’s an invitation to the growth of bubbles and fraud,” Chanos said.

Terry McGuire, chairman of the National Venture Capital Association, which lobbied vigorously for a venture exemption, defended the revision. He said that coming up with a definition for a venture firm would be relatively easy by using the U.S. Treasury’s suggestions for defining systemic risk by assessing use of leverage, trading risk and counterparty risk.

McGuire also appeared to take aim at the Private Equity Council’s broad support of SEC registration. “We have never taken a position that registration would work for our industry,” he said.

View the prepared testimony of all the participants at the hearing here.

(from, October 6, 2009)

Nobel Looks Outside Markets Economics Prize Goes to Americans Who Studied Shared Resources, Corporate Decisions

American economists Elinor Ostrom and Oliver Williamson, who study the way economic decisions are made outside markets, were awarded the Nobel Prize in economics Monday.

Ms. Ostrom, who teaches at Indiana University in Bloomington, Ind., is the first woman to win the economics prize, which had been awarded to 62 men since its launch in 1969. The judges cited her analysis of what happens when natural resources are shared commonly.

Mr. Williamson, who teaches at the University of California, Berkeley, was cited for explaining why some decisions are made more efficiently inside corporations rather than at arm's length in markets.

Within the economics profession, neither was seen as a likely choice for the award, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Ms. Ostrom's doctorate is in political science, though she considers herself a political economist. Ms. Ostrom, 76 years old, said that when the phone rang at 6:30 a.m. Monday, she thought it might be a telemarketer. Mr. Williamson's work, meanwhile, has been highly influential on fields outside of economics. The 77-year-old has been described as the economist most cited by noneconomists.

Both have highlighted areas where standard approaches of economics are inadequate at explaining what actually occurs. "They both pay incredible attention to what happens in the real world," said Wharton School economist Witold Henisz, a former student of Mr. Williamson's.

Ms. Ostrom's work challenged the view that when people share a finite resource, they will end up destroying it -- what is known as the tragedy of the commons. That view argues that resources that are important for the common good need to be highly regulated or privatized.

As a graduate student in the early 1960s at the University of California, Los Angeles, Ms. Ostrom researched the way water was being managed in Southern California. Groundwater levels were falling, and saltwater was seeping into the system. But rather than collapsing into a tragedy of the commons, communities and water producers hashed out a solution. That led her to explore situations throughout the world where resources were commonly held, and she found that people often developed institutions, networks and other ways of interacting that solved problems.

Economists had largely ignored the importance of such networks, said Yale University environmental economist Matthew Kotchen, in part, because they couldn't come up with elegant models to describe them.

When it comes to large-scale problems such as climate change, where there are few existing relationships on which to build, solutions are less likely to come from the ground up, Ms. Ostrom said. "But that doesn't mean we should just wait until the international agreement comes through," she said. Instead, governments should encourage and aid people where they are trying to solve the problem, such as finding ways to make it easier for them to use solar energy or to bicycle to work.

Mr. Williamson's work stems from time he spent in the late 1960s working in the Department of Justice's Antitrust Division, and noticing that experts there paid scant attention to the internal economic workings of companies. "The way economists used to think of the firm was as a black box that transfers inputs into outputs, and they didn't look inside," Mr. Williamson explained in an interview.

[Leading Institutions chart]

He found that many economic decisions that standard theory said would be more efficiently left to the marketplace were actually better left within a firm. "Competitive markets work relatively well because buyers and sellers can turn to other trading partners in case of dissent," the Nobel judges said. "But when market competition is limited, firms are better suited for conflict resolution than markets."

Economist Steve Tadelis at the University of California, Berkeley's Haas School of Business, who has worked with Mr. Williamson, cited the 787 Dreamliner being developed by Boeing Co. as an example of how firms can be more efficient than the marketplace. Boeing, which previously designed and built planes in-house, outsourced much of the Dreamliner's manufacturing. But because it had less control over its supply line, Boeing couldn't adapt as quickly and flexibly to the changes and problems that invariably arose within a project as complex as the Dreamliner. Boeing has since taken much of the Dreamliner's production back in-house.

Mr. Williamson's work is driven by two key ideas. The first is that a contractual agreement can never be complete; there are always contingencies that haven't been accounted for. The other is that people act opportunistically within the gray area of contracts to make sure they benefit the most, and that can lead to problems.

One problem that has arisen during the financial crisis, the Wharton School's Mr. Henisz said, is that many credit-market contracts were written without regard for the possibility that so many loans could fail, and then market participants further snarled markets by haggling over contract terms with one another.

The economics prize, founded by the Swedish central bank, is the only one of six Nobel prizes not created by the 1896 will of industrialist Alfred Nobel. The two will share a prize of 10 million kronor ($1.4 million).

(from, October 13, 2009)

George Soros to Invest $1 Billion in Green Energy

The upcoming climate talks in Copenhagen are less than two months away, and everyone is looking to throw in his/her two cents. On Oct. 10, it was billionaire George Soros’ turn to get in on the act. Giving a speech in Denmark, the man who famously ‘broke the Bank of England’ in the early 1990s now plans to invest $1 billion in clean energy technology. Another $100 million — doled out in $10 million increments annually over ten years — will fund the newly-created Climate Policy Initiative, a foundation targeted at environmental policy.

That’s a sizeable amount of cash, though Soros didn’t specify where the $1 billion would be spent other than saying ‘stringent conditions’ will be used to evaluate potential investments. And in an ironic twist, Soros, who made a sizeable chunk of his fortune through currency speculation, put his support behind carbon taxes, not cap-and-trade systems. His reason? Financial investors can too easily manipulate carbon markets.

Soros is wise to keep his cards close to his chest. With so much money on the table, potential deals could be given a ‘Soros premium’ if the billionaire focuses on a too-narrow clean energy brief. But some of his likes/dislikes are already known. Soros, for instance, has invested in clean coal technology, including Portsmouth (NH)-based Powerspan Corp that specializes in carbon capture technology.

Yet before we start speculating too much on where Soros will spend his cash, a word of caution is merited.

Other high-profile figures, such as T. Boone Pickens, have made similar promises of multi-million dollar investments. Often, though, their plans have come to nothing. That obviously doesn't mean Soros won't go ahead with his $1 billion scheme. But until concrete plans are announced, I'll reserve judgment. As Rod Tidwell (from Jerry Maguire fame) once said: 'show me the money.'

Indeed, the more important figure -- for me -- is $25.9 billion. That's the amount of money invested in green energy projects in the third quarter of 2009, according to New Energy Finance. After a shaky start to the year, investors are now more willing to fork out for clean energy projects. The gradual thawing of the credit markets certainly has helped. So have government-sponsored funds -- like renewable feed-in tariffs or other subsidies for green technologies -- that were included in global stimulus packages.

So with investment returning to the sector, maybe Soros has picked a good time to buy in. Other investors will keep a close eye where he puts his money.

(from, October 12, 2009)

Saturday, October 10, 2009

Renaissance Hedge Fund Founder James Simons Retires

James Simons, who ran the region's most lucrative hedge fund for the past 30 years and donated millions to charities and universities, has retired, a person at his firm said Friday.

Simons, 71, who lives in the Stony Brook area, is to remain at Renaissance Technologies Inc. as nonexecutive chairman, said the person at the firm. Simons started Renaissance in the early 1970s. Renaissance, based in East Setauket, is now the world's sixth-largest hedge fund, according to Institutional Investor's magazine, Alpha.

Forbes this month named Simons to its annual ranking of the nation's 400 wealthiest individuals, placing him at No. 41, with $7.4 billion. He was the only Long Islander to make the list.

"I have led the organization for 31 years . . . and it is definitely time" to retire, Simons said in a letter to Renaissance employees, a copy of which was obtained by Bloomberg News.

Renaissance officials on Friday made no public comment.

According to Bloomberg, Simons is to remain Renaissance's main shareholder and has no plans to reduce his investment.

He is an intensely private man, rarely making public appearances.

"I don't think he'll ever truly be retired," said Jeff Bass, president of the Long Island Capital Alliance, which links investors with business opportunities.

"He's obviously a brilliant man, and very charitable, too," Bass said. "He revolutionized the financial community by virtue of how he grew his fund, how he made investments and how he managed them."

If anything, Simons' investment strategies were driven by mathematics. He was once chairman of the math department at Stony Brook University. He earned a bachelor of science in math from the Massachusetts Institute of Technology and a doctorate in math from the University of California, Berkeley.

Simons, the son of a shoe factory owner in Massachusetts, began trading commodities in the '60s with Harvard math wiz Charles Freifeld. They tripled their investment, and the experience led Simons to rely on market returns based on mathematical analysis. His donations to charities and education are enormous. Last year, he gave $60 million to Stony Brook University. In 2006, he raised $13 million to keep a major nuclear physics experiment running at Brookhaven National Laboratory.

(from, October 9, 2009)

Bill Ackman's Latest Short Position (Hedge Fund Pershing Square)

Pershing Square hedge fund manager Bill Ackman presented his latest short idea at the Great Investors Best Ideas conference in Dallas, TX where he spoke with other prominent hedge fund players such as David Einhorn of Greenlight Capital. At the conference, Ackman laid out a short thesis for Realty Income (NYSE: O).

The rationale behind his play is as such: He thinks Realty Income (O) will suffer because they have tenants with poor credit quality, many with junk ratings. Additionally, he cites the fact that many of their tenants are in the dreaded consumer discretionary segment. This sector has been notably hit due to the recession and many stores have closed down over the past 12+ months. He also mentioned that Realty Income also trades at a 7.5% cap rate or so, whereas the private market value is a 10-11% cap rate, a 40% premium.

Ackman's presentation also touched on the $26 share price level, as the stock can never seem to go all that much higher recently given the fact that they keep issuing shares around that level. They are essentially 'serial equity raisers' and their stock vesting program is a bit odd in that the older you are, the quicker your stock vests. We've certainly seen a massive wave of REIT equity dilutions over the past year, and Realty Income seems to be no different. If anything, they're even more aggressive in this regard.

Ackman also noted that the REIT is very levered to occupancy as they essentially doubled their asset base at the peak of the market during the years of 2005, 2006, and 2007. So, they certainly have their share of fundamental problems, as many other REITs in the space do. In the end, Ackman basically said that this company is appealing to your everyday retail investor due to the monthly dividend stream that they tout. He thinks this dividend will have to be cut and this would play out similarly to what we saw earlier in the year with many other major REIT players cutting dividends or paying dividends in the form of stock. And, he feels that once the dividend starts fading, so will all the retail investors. This is all the more interesting to note given that Realty Income just raised their monthly dividend to $0.1426875 per share, up from $0.142375 per share (hey Realty Income, can you guys squeeze anymore decimal places into that amount? Geez). They've now boosted their quarterly dividend each year for the past 15 years as the name currently yields 6.2%.

Pershing Square was already short in the REIT space to some degree in an effort to hedge their long position in General Growth Properties (GGWPQ). Their largest short position is a valuation hedge on this investment and they had also previously mentioned in their letter to investors that they were short a REIT that has weak assets, trades at a higher valuation, and has poor business prospects. So the question now becomes, was Realty Income the company he was talking about in his letter? It definitely appears as though it was. Once word of his presentation got out, shares were down over 7% at one point on Wednesday. We found this interesting given that Ackman typically doesn't short equities on the short side of his portfolio, preferring instead to use derivatives as a means to maximize the reward of their play, as we noted in our profile & biography on Ackman.

In the WSJ the other day, Analyst Andrew DiZio from firm Janney Montgomery Scott cited both the long and short cases for Realty Income, noting that shorts are centering in on a potential bankruptcy by some of their tenants. He says, "shorts believe large-scale vacancy from bankruptcies will reduce cash flow, necessitating a dividend cut and resulting in the exodus of [Realty Income's] large retail shareholder base." On the long side, he notes that "In the event of a Chapter 11 filing, a tenant will likely affirm the leases of profitable stores, closing those that are cash flow negative. Realty Income's due diligence process results in the REIT purchasing only those units that are cash flow positive, increasing the likelihood of lease affirmation in the event of a bankruptcy." He currently has a 'neutral' rating on the company, but has interestingly enough said that dips provide an opportunity.

Ackman has been pretty actively involved in real estate plays with his portfolio, most notably with his position in General Growth Properties debt and equity (GGWPQ). So far that position has done extremely well for him as he's up more than 12-fold on the equity since their buy at $0.34 per share and the unsecured debt they own has tripled in value over the same timeframe as noted in their latest investor letter. Additionally, he also has a large stake in Target (TGT), whom he proposed a REIT spin-off for earlier on that never panned out. Not to mention, his experience stems back to his former hedge fund Gotham Partners who closed two of their funds back in 2003 after a merger was blocked between one of his top holdings and a real estate player. Ackman certainly has ties to the sector though, as his father Lawrence D. Ackman is chairman of the Ackman-Ziff real estate advisory firm.

Overall, an interesting set of thoughts from Ackman and we'll be sure to cover more developments regarding his thoughts as we obtain them. Don't forget that you can hear more investment ideas from both Ackman and David Einhorn at the upcoming Value Investing Congress on October 19th and 20th and we highly recommend attending. We also wanted to mention that at the same Dallas conference, Einhorn mentioned that he was buying interest-rate options that he will make money on if yields head higher. This is likely a very similar to Julian Robertson's curve caps play, as we now see yet another prominent hedge fund player enter this trade. These plays are definitely inflationary in nature and Einhorn has set his sights on this outcome, as he also holds a lot of physical gold. We'll also watch developments in this regard and will post up further information as we obtain it.

You can view our coverage of Bill Ackman's Pershing Square portfolio here and David Einhorn's Greenlight Capital portfolio here. Lastly, make sure you check out our profile/biography on Ackman & Pershing Square.

Taken from Google Finance, "Realty Income Corporation, The Monthly Dividend Company, is organized to operate as an equity real estate investment trust (REIT). The primary business objective of the REIT is to generate dependable monthly cash distributions from a consistent and predictable level of funds from operations (FFO) per share. The Company’s monthly distributions are supported by the cash flow from the portfolio of retail properties leased to regional and national retail chains."

(from, October 9, 2009)

Who Will Profit from Cap-and-Trade?

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's cohead of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carboncredit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigmshifting legislation, (2) make sure that they're the profitmaking slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for capandtrade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climatechange problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that capandtrade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utahbased firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in greentech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energyfutures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but capandtrade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedgefund director who spoke out against oilfutures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

from, October 8, 2009